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Wellness firms eye PE route to fund buyouts

Wellness firms eye PE route to fund buyoutsIndia’s wellness industry has been a lucrative investment destination for private equity (PE) funds during the last few years and leading companies in this segment are likely to continue tapping these funds for domestic and foreign acquisitions. Beauty and wellness major Vandana Luthra Curls and Curves (VLCC) and homeopathy chain Dr Batra’s Positive Health Clinic are among those looking to access PE funds for inorganic expansion.

The wellness market in India is estimated at Rs 49,000 crore and services account for 40 per cent of this market. Experts say the sector is recording healthy growth of 20-25 per cent yearly and is expected to maintain a similar growth trajectory over the next three to five years.

VLLC, which is eyeing acquisitions abroad as well as in the domestic market, uses internal accruals as working capital. The company is keen to grab acquisition opportunities through the PE route. Managing Director Sandeep Ahuja says, “Currently, we have a healthy cash flow and the company is relatively under-leveraged. However, we may explore fundraising routes, including private equity, to fund our proposed acquisitions.”

After putting its plans for an initial public offering on hold, the company is now considering alternative ways to meet its Rs 200-crore foreign expansion plans. According to sources, VLCC has appointed JM Financial as an advisor for PE fundraising. The company, present across West Asia, Sri Lanka, Nepal and Bangladesh, is expanding into Singapore, Egypt and the UK markets. In 2007, Indivision (Everstone Capital) had invested about Rs 50-crore in VLCC.

Pinaki Ranjan Mishra, national leader (retail and consumer products), Ernst & Young, says, “Investors are now considering how to scale up businesses and still maintain profitability levels in the long term.”

Dr Batra’s Positive Health Clinic is also eyeing the PE route to fund its acquisition plans. The homeopathy chain plans to add 20-25 clinics every year across the country. Founded in 1982 by Mukesh Batra, Dr Batra’s has 92 clinics across 36 cities in India, Dubai and the UK.

Managing Director Akshay Batra says, “To fund inorganic expansion, we need about Rs 100 crore, and we will consider the PE route.” He, however, adds there is no immediate need for PE funding, since the homeopathy sector is growing about 25 per cent annually in India, while the allopathy sector is recording growth of only about five per cent a year.

“Rising interest rates and perceived risks in the services model among the lending community lead to a high cost of debt. Service players are actively looking at private equity investment to fund their aggressive growth plans,” stated a PricewaterhouseCoopers report.

The wellness industry has seen deals such as Brand Equity Treaties’ investment in Jawed Habib Hair & Beauty (JHHBL). JHHBL had filed a draft red herring prospectus with the Securities and Exchange Board of India to raise Rs 60-crore from the primary market. In 2009, Helion Venture Partners invested Rs 20-crore in You Look Good, a chain of salons and spas owned by Bangalore-based R&R Salon. In May, R&R recorded a second round of funding from Everstone Capital and Helion ventures.