Private equity (PE) firm Everstone Capital is in discussions with Mumbai-based pharmacy delivery services firm Dial Health and is looking to invest Rs.400 crore ($59.94 million) in the company, according to two people aware of the development.
Dial Health provides drug delivery services to consumers, manages pharmacies in hospitals and also runs pharmacy stores in Mumbai.
“The firm, which started in 2012 as a consumer drug delivery services business, has backward integrated to manage distribution of drugs for pharma companies and is one of the fastest growing distributors in Mumbai, serving over 150 pharma firms and catering to more than 35,000 stock-keeping units,” said one of the persons cited above, requesting anonymity as he is not authorized to speak to the media.
The major factor attracting a PE fund like Everstone is the pharmacy distribution business, he added. “The pharmacy/drug distribution business is a huge and highly unorganized market. While the overall market size is between Rs.80,000 crore and Rs.1 lakh crore, the organized space is only around 5% of the market. The distribution space is highly fragmented with most major cities having almost 8-10 small distributors. There is a significant opportunity for organized distribution companies to grow.”
Everstone is looking to acquire a controlling stake in the company and is in advanced discussions with the firm, said the second person cited above, also requesting anonymity.
“Investors looking at the distribution space are looking to use these investments as platforms to acquire several of the smaller distributors to create scale. Most of the funds will go towards small acquisitions in the range of Rs.20-30 crore,” said the second person.
Everstone declined to comment on the story. Dial Health co-founder and director Hardik Dedhia also declined to comment on the fund-raising plans.
Everstone’s interest in Dial Health follows similar investments in the pharmacy distribution and retail space.
In August, Japanese conglomerate Mitsui and Co. bought a 20% stake in Hyderabad-based Keimed, India’s biggest drug and medical supplies wholesaler. Mitsui invested almost $25 million in the company run by the founding family of Apollo Hospitals group, the country’s largest hospital chain.
Private equity funds have also shown interest in MedPlus Health Services Pvt. Ltd, the second-largest pharmacy retail chain in the country. PE investors General Atlantic and Bain Capital are in discussions to acquire the business, Mint reported on 16 October.
“It is a highly unorganized and fragmented market with regulatory limitations. Also upper-end margins are capped but even after all these constraints, people are betting on volumes, as the pharmacy delivery business market is huge and it makes up for the thin margins,” said Shiraz Bugwadia, managing director at financial services firm o3 Capital Global Advisory Pvt. Ltd.
Last year, Everstone Capital raised its third fund of $730 million. The PE and real estate investment firm had assets under management of $3.3 billion as of September 2015. The firm’s first investment from its new fund involved was the buying out of the bread and bakery business of Modern Foods from Hindustan Unilever Ltd in September.
The PE fund has invested in Ritu Kumar’s fashion house, health and wellness firm VLCC Healthcare Ltd, Internet services provider Tikona Digital Networks, beauty salon chain YLG India, restaurant operator Pan India Food Solutions Pvt. Ltd (Blue Foods), food products maker Capital Foods Ltd, wind-turbine maker Regen Powertech Pvt. Ltd, non-banking financial company IndoStar Capital Finance Pvt. Ltd and wine maker Sula Vineyards.