Temasek’s entry valuation reflects long-term potential of Indian healthcare: Dr Ranjan Pai of Manipal Group

Dr Ranjan Pai, Chairman of Manipal Group

It's the largest deal ever by a private equity fund in the bustling Indian healthcare sector. Singapore's Temasek has taken a giant stride in the segment by upping its stake and becoming the controlling shareholder in Manipal Hospitals by shelling out around Rs 16,000 crore in a mega transaction valuing the top pan-India hospital chain at Rs 40,000 crore to Rs 42,000 crore.

Why did the promoter group, the Pai family, cede control to an existing shareholder like Temasek ? Will Temask and Manipal Group consolidate their domestic portfolio of hospital assets? When is the eagerly awaited mega IPO likely to be floated? What is the status of other hospital assets on the M&A radar of Manipal Hospitals?

The man of the moment, Dr Ranjan Pai, Chairman of Manipal Group, answers all these questions and much more in an exclusive conversation with Moneycontrol's Ashwin Mohan, in his first interview with the media post the announcement of the landmark deal. Excerpts from the interview:

Manipal Hospitals as an entity came into existence in 1991 with the launch of a 650-bed flagship hospital at Old Airport Road, Bangalore. And today it has more than 8,000 beds across 29 hospitals. Some 32 years on, you have ceded control to Temasek. How does it feel now after having been in the driver's seat all these years? What was the trigger behind the selloff?

My father, Dr Ramdas Pai, Chairman Emeritus of Manipal Hospitals (MHE), established the first Hospital in Bangalore in 1991, with the vision to provide world class healthcare in India. Over the last 32 years, Manipal has grown from strength to strength, and spread all across India. As far as ceding control, we have always run all our companies separating management from ownership. Manipal Hospitals has always been a board run company with a high quality management and going forward it will continue in the same way.

A position of majority has not influenced the governance of MHE so far and it will not in the future either.

Why did you choose to go ahead with an existing investor like Temasek, instead of  as compared to an external investor and what are the synergies between both of you?

Temasek has been an investor in Manipal Hospitals for over 6 years and they have been a good partner in our growth. They have in the past spoken about building a larger platform and for some reason or the other it couldn’t happen. Then last year again they spoke to me about deepening the relationship and told me about their vision to stay invested in healthcare in India over a long period of time. Given the nature of our business which needs long term patient capital and the fact that they already were existing investors, we decided to go ahead with them.

While there were several other investors interested, I felt that the familiarity that Temasek has with MHE over the last 6 years and the aligned values demonstrated over this period are very relevant considerations too.

Your listed peers Apollo Hospitals and Max Healthcare have a m-cap of around Rs 60, 500 crores and Rs 43, 000 crores respectively. As an unlisted entity, we understand from our sources that you have managed to strike a deal  at a valuation of Rs 40,000 crs to Rs 42,000 crs. What are the multiples here and are you satisfied with the premium offered? 

Transaction valuation has not been disclosed but Temasek’s entry valuation is reflective of the long term potential of the healthcare services segment in India.

Going ahead, based on terms and conditions, does Temasek have the option of further increasing its stake in Manipal Hospitals of around 60 percent post this deal?

Well Manipal Group would not want to sell more than this as we believe in the long term potential of this platform. Also, their idea is to have diversified, like minded investors that can help the platform grow. All of us (Temasek, TPG and Manipal) are excited about the future prospects of the company and would want to continue to invest in building the platform.

How does the board composition of Manipal Hospitals change post this transaction and how many board seats does Temasek get? Will there be a new chairman in place of Dr Sudarshan Ballal?

The board composition changes with Temasek having majority. But like in the past, we haven’t had any diverging views and we have always carried all stakeholders along. I am sure this will continue going forward too. And Dr Sudarshan Ballal will continue as the Chairman of the Board. Apart from Dr. Ballal being the Chairman, we will have Dilip continuing as the CEO and driving operations along with the current management team. At a net level, there is no change at the management level and even at shareholder level the 3 shareholders are equally committed to building it out over the long term, despite Temasek having stepped up in shareholding.

In the past few years, Manipal Hospitals has been on a consolidation drive by acquiring Columbia Asia Hospitals and Vikram Hospitals. What is the status of your talks with Emami Group to acquire AMRI hospitals?

Yes, those acquisitions have gone well and we will continue to look for good assets. AMRI hospitals agreements are signed and we are waiting for some CP’s to be completed.

You are a strong player in the south and KIMS Kerala's India hospital business which is backed by private equity firm True North is up for grabs? Would this opportunity tempt you?

No comments

Can you give us a timeline for the much-anticipated public market debut of Manipal Hospitals? Is it likely to happen in FY 24 or FY 25 or will the IPO happen beyond that?

It will happen at the right time, no exact timelines set.

Keeping in mind that Temasek owned Sheares is a common investor with a majority stake in both hospital chains, is there a possibility of a merger in the near future between Manipal Hospitals and Kolkata based Medica Synergie?

No discussions regarding this have happened at this point in time.

How are occupancy levels currently in Manipal Hospitals and do you think Indian hospitals are now adequately equipped to deal with the challenges of a potential fourth wave of Covid-19 considering a recent rise in cases?

Occupancy levels are good, mid 60’s for us. Yes Indian hospitals are very well equipped to rise to the challenge. A word of caution that no healthcare system in the world can handle the pressures of a pandemic that we saw in 2020 and 2021. The public must take precautions.

What are some of the M&A trends that you expect in the coming months in the Indian hospitals , diagnostics and med-tech space? Are private equity funds going to take the lead as in the past and sign large cheques?

I think consolidation will continue in the healthcare space. A lot more private equity funds will continue to invest large checks in the space and new infra will also be created. Med tech is still in its infancy but going ahead that maybe another area of opportunity.

We see consolidation as net positive for all the stakeholders in the sector. Larger hospital players are able to acquire regional assets and add lot of value in form of expanding clinical programs, standardisation of clinical protocols and upgrading medical infrastructure, thereby providing quality healthcare services over the longer period. Apart from acquisitions, we will continue to pursue greenfield expansion for our growth and are we looking to add few greenfield assets over the next 2-3 years.