Private equity investors aim to enhance financial performance
Satya
CEO - Starcare Hospital Calicut
Kerala is becoming a compelling healthcare investment destination, driven by a strong demand for high-quality healthcare. The following factors highlight why Kerala stands out:
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Kerala ranks among the top five states in India by per capita income, with ₹2.3 lakhs in FY 2022. Comparatively, Telangana and Karnataka are at ₹2.7 lakhs each, while Tamil Nadu and Gujarat have ₹2.4 lakhs each.
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Kerala’s urbanization rate is significantly high at 84%, compared to Maharashtra, Gujarat, and Karnataka, all below 45%. Only Tamil Nadu exceeds Kerala, with a 49% urbanization rate.
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Kerala has the highest literacy rate in India at 94%, far above Maharashtra (82%), Tamil Nadu (80%), Gujarat (78%), and West Bengal (72%).
When a private equity firm assumes control, it prioritises actions such as bolstering the board of directors and the senior executive team (commonly referred to as the c-suite), as well as enforcing fiscal discipline. Private equity investors aim to enhance financial performance by curbing expenses, enhancing service quality, boosting sales, and embracing technological advancements, all of which collectively contribute to improving the company's profit and loss (P&L) statement and strengthening its balance sheet. Over the last couple of years, healthcare firms have garnered private equity (PE) investments amounting to ₹27,000 crore.
Investors continue trying to unlock liquidity and raise capital for healthcare deals in a challenging fund-raising environment. As investors look to diversify their Asia-Pacific buyout activity, India is viewed as a place to deploy healthcare capital at scale. Private equity investors continue to pursue healthcare IT deals, with rising competition from tech specialists and corporate investors. It would be a paradigm shift indeed.
PE ownership was most consistently associated with increases in costs to patients or payers. Additionally, PE ownership was associated with mixed to harmful impacts on quality.
While the cash flows of healthcare delivery remain an attractive target for PE investors, the healthcare system is forced to grapple between the access to capital offered by private investment and the obligation to generate the financial returns required to sustain this investment model. The experience to date of several strategies to solve this equation seems to suggest that we have not yet reached an attractive solution that benefits patients in their search for affordable, high-quality healthcare services.
Whether the adoption of “value” as a strategy for the latest round of investments results in a sustainable solution to this challenge remains an open question at this point. We need to wait and watch whether these investments really bring added advantages to the employees of the organisation.