Specialisation is a key theme when it comes to investing in pharma and healthcare in India, according to Amit Varma, managing partner at Quadria Capital.
Varma prefers single-specialty hospitals and API companies when it comes to healthcare facilities and manufacturers of active pharmaceutical ingredients, respectively.
CDMO Outlook
The past couple of years have been challenging for contract development and manufacturing organisations since the sector is not able to pass on the entire cost of manufacturing to customers, Varma told NDTV Profit on the sidelines of the Indian Drug Manufacturers' Association's Vriddhi 2024 conference in Pune.
But the overall scale and size of the industry are growing due to the benefits of economies of scale. The CDMOs are entering sub-sectors and getting more specialised, according to Varma.
While the sector will not be as attractive as the other segments of healthcare, it will see a turnaround, he said.
Outlook On Hospitals
Varma prefers hospitals catering to a single specialty over multi-specialties.
Apart from the usual parameters of revenue, Ebitda, profit, average revenue per occupied bed and average length of stay, he also looks at the surgical-to-medical mix before investing.
"For a good surgical-to-medical mix, usually 60:40 is preferred," Varma said. Hospitals with more- high-end surgeries, like knee replacements, will be his preferred pick.
While price rationalisation will eventually come through, the clinical quality offered by hospitals will be a differentiator, he said.
API Outlook
For APIs too, specialisation is the theme to go after in India, according to Varma.
Since it would be difficult to beat China on the cost and scale front, Indian API players "should tap into a skill set and scale it up to make it cost prohibitive," he said.
Varma expects more companies to engage in forward and backward integration in the coming years.
Overall, healthcare companies in India are expected to see 15% growth. Smarter private capital-backed companies may also have the potential to grow 20–25% year-on-year, Varma said. "Right macros are creating strong tailwinds for the pharma and healthcare sectors."
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