Mumbai: Medical devices are emerging as the next big investment opportunity in India’s healthcare sector, with private equity (PE) funds increasingly eyeing a market that remains fragmented and heavily reliant on imports. A fresh round of deals signals growing investor appetite for consolidation, scale and the potential to build domestic manufacturing capabilities in a sector with significant room to grow.
The devices sector has been witness to a wave of fresh investments.
In September, medical devices manufacturer, Romsons announced a “strategic private equity transaction with Temasek, the Singapore-headquartered investor which also backs Manipal Hospitals. Not long after this, reports followed that Romsons, and KKR-owned Healthium are in a race to buy nearly 70 per cent to 80 per cent stake in BL Lifesciences.
Industry experts expect the interest to keep growing, with more consolidation likely to follow.
Rajiv Nath, Forum Coordinator, The Association of Indian Medical Device Industry (AiMeD) said the new wave of money follows a simple logic. Medical devices is a large, under-penetrated sector and policy support for local manufacturing is on the rise.
“PE interest follows a simple logic. India imports roughly 70 per cent of its medical devices, healthcare demand is growing fast, and since announcement of National Medical Device Policy 2023 ministry specific policy support for local manufacturing is now increasingly clear. Investors see a large, under-penetrated market.”
Ashwin Goel, Partner, Private Capital, Oliver Wyman, said interest in hospitals remains high despite elevated valuations, but years of deal activity have reduced the pool of acquirable assets, and investors now have to go a little deeper and a little smaller to find something to buy.
The medical devices sector, by comparison, still has room for every player who wants a share.
He said, “Private equity funds like this space for a few reasons. One, there is continued growth in demand because of the overall growth in adoption of healthcare services. Two, there is scope for consolidation. You can acquire a bunch of fragmented businesses and create scale, building an industrialised process towards a larger national or regional platform. Three, and perhaps a little more unique to medical devices, is the scope for substituting imports with India-manufactured products. That becomes an additional lever of revenue growth, beyond the market growth.”
As investor interest grows, investment bankers believe the medical devices sector is on course to follow the path first traced by Indian pharmaceuticals and then hospitals, that is, build a chain or platform out of smaller players.
Goel explains, “A lot of private equity funds are seeding medical devices platforms where they want to create multi-vertical medical devices businesses. Meril, which is backed by Warburg Pincus, is doing that organically. Everstone has built Integris. KKR is building Healthium. The idea is to put these assets together, so you’re also creating a platform, and those platforms demand higher value than the individual assets they are built off.”
“We have seen that happen in pharma across a number of companies. We have seen that happen in hospitals as well, and my take is that in course of time we will start seeing billion-dollar medical devices businesses out of India as well.”
But the question for the sector is whether all the capital will build manufacturing capacity or simply change hands.
Rajiv Nath cautions that the early signs are encouraging in consumables, diagnostics and orthopaedics, but capacity in high-end equipment is still thin.
He said, “Capital only becomes capacity when it funds plants, tooling, testing and skilled workers, not just acquisitions or distribution. The test is whether money goes into new manufacturing lines or only changes ownership.”
Will consolidation hurt smaller players? Nath says it need not, provided the rules are even.
He said, “PE money is initially going mostly to scaled, institutionally ready companies, because they are easier to diligence and exit. Genuine mid-sized and smaller manufacturers often struggle to access it. Consolidation is not harmful in itself, since scale brings quality and R&D. The risk comes if smaller firms are squeezed by uneven import rules, predatory pricing or tender conditions that favour a few. We need a level playing field: strict, equal enforcement of quality standards on imports and domestic products alike, and procurement that gives MSMEs room to compete”
