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Healthcare players ride the IPO wave

From diagnostic services to wellness and hospital chains, and bulk drugmakers, all are riding the IPO (initial public offer) wave.

Within 10 months, nine healthcare and pharmaceutical companies have raised over ₹12,000 crore through the primary offer, and more are waiting to hit the capital markets, making it a year of fundraising not seen in a decade.

Sample this: Chennai’s agro and pharma chemicals maker Chemplast Sanmar’s ₹3,850-crore IPO, in August, has yielded 41 per cent for investors in two months. Chandigarh’s Nureca Limited, a digital medical devices and wellness products maker, raised a modest ₹100 crore but delivered over 370 per cent since its listing in February.

Euphoric wave?

Healthcare accounts for a robust 22 per cent of the 41 IPOs that collectively raised about ₹65,000 crore so far this year. Many more are in the pipeline (see table). Entrepreneurs are tapping into the heightened investor euphoria, among other things, to raise funds for expansion, debt repayment, and other “corporate” purposes.

The Covid-19 pandemic has seen people opt for healthier and fitter lifestyles, driving up the consumption of wellness products and services.

Jayant Khosla, Managing Director, VLCC Healthcare Limited, believes that consumers have realised the importance of building immunity for a sustainable health. “The wellness industry has become more relevant now. Consumers have realised the need to spend on preventive healthcare, fitness and wellness. Earlier such a spend was considered discretionary, now it is a prescription for a sustainable healthy living. Covid has brought about this fundamental change in thinking,” Khosla said. VLCC is preparing for an IPO to raise funds for expansion.

Another side-effect of the pandemic is the need to reduce dependence on China, leading to the “China-plus” strategy, say insiders. This has bulk drug manufacturers excited, as renewed domestic and overseas orders flow from finished-drug makers.

Genuine need or making hay?

A close look at the nine IPOs mentioned shows four raising funds for expansion or equipment purchase, while six seek to repay financial obligations. Everyone, though, has kept a small portion of funds for ‘general corporate purpose’.

Five of the nine companies have indicated they may not use the IPO proceeds for asset creation or expansion. Industry insiders say these companies may not have required immediate funding, but may have hopped on the “health-bandwagon” before it got too late.

However, a senior official at a recently listed company clarified that a listing on stock exchanges would bring credibility and investor attention, besides opening avenues for further fundraising. “Institutional investors, banks and even foreign investors look at an unlisted or privately held company with suspicion. For listed companies, despite the complex statutory due-diligence, it gets easier to access a large pool of funds,” the official said, requesting anonymity.

Tech-driven healthcare

Some attribute the recent euphoria to the emergence of a new-economy and technology-driven healthcare ecosystem in the country and globally.

Ajay Tandon, Managing Director at Veeda Clinical Research Limited, said, “The rapid global response to the Covid-19 pandemic crisis has catalysed a broader ethos and confidence among healthcare entrepreneurs to pursue new technologies and approaches for achieving universal health and wellbeing.” Veeda is also preparing for its IPO.

The Indian healthcare sector is evolving to accommodate investment for innovations. And healthcare players are using this moment in the sun to unlock their growth plans. But all of this will make a meaningful dent only if it brings in accessible products and services for patients.

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