Somerset Indus Capital Partners, an offshore private equity firm focused on making healthcare investments in India, has raised $25 million as first close from institutional and HNI investors, two sources close to the development told VCCircle.

Somerset Indus Healthcare Fund I has roped in eight investors including two US-based institutional investors who have a long history of investing into the healthcare space.

The first close was completed last month. The PE firm is now targeting a corpus of $40 million and it expects to raise the amount by the end of this year, sources add.

However, the spokesperson of Somerset Indus Capital Partners said the firm would not like to comment on the reported developments.

The PE firm has already made its debut investment by acquiring 32 per cent stake in privately held Sandor Medicaids Pvt Ltd, a Hyderabad-based marketer, seller and distributor of specialty pharmaceutical, diagnostic and medical technology products.

At a time when private equity firms are seen chasing large deals and the average deal size is steadily rising, Somerset is targeting small-sized deals in the region of $5 million in the highly fragmented healthcare sector in India. Although it is targeting smaller ticket size, Somerset likes to position itself as a private equity fund and not as an early-stage investor or venture capital fund. It will typically invest in companies with annual revenues exceeding Rs 60 crore.

The fund will be managed by Avinash Kenkare and Mayur Sirdesai. Kenkare has over 12 years of PE investment experience in the international healthcare space and has been involved in 15 transactions, including Warner Chilcott, Nycomed Pharma, Kinetic Concepts, Inc., Accellent Technologies, Focus Diagnostics and Thiemann, among other. Sirdesai has over 17 years of experience in healthcare/pharma and FMCG space, and held senior management positions in large, professional companies, as well as in family-run organisations.

There are many funds targeting healthcare as their area of specialisation. For instance, in 2010, Dabur Group chairman Anand Burman and former Dabur Pharma CEO Ajay Kumar Vij launched Asian Healthcare Fund Ltd with a corpus of $200 million, to invest only in the healthcare sector. In 2009, Milestone Religare, a 50:50 joint venture between Milestone Capital and Religare, launched a Rs 400 crore fund with the focus on healthcare and education.

Private equity funds have also launched special purpose vehicles (SPVs) focused on healthcare investments. ICICI Ventures, the country’s second largest PE fund in terms of assets under management, launched IVEN Medicare while Spring Healthcare Ltd is a $50 million healthcare SPV by Sabre Capital. Deviating from investing in typical pharmaceutical companies, PE firms are also exploring new areas in the healthcare industry, such as diagnostics, pathology, etc.

According to a report by ratings agency Crisil Ltd, the healthcare industry is expected to grow at a compounded annual rate of 12 per cent by 2015 to over Rs 3.5 lakh crore. The study estimated the Indian healthcare delivery industry (including diagnostics and excluding pharmacies) at Rs 1.82 lakh crore in 2009-10.

This is expected to be driven by favourable demographics, an ageing population, growing lifestyle diseases such as hypertension and diabetes, increasing ability to afford quality healthcare, growing medical insurance penetration and the absence of too many regulatory hurdles (FDI up to 100 per cent equity allowed under the automatic route in hospitals in India).

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