Kolkata-based diagnostic chain Suraksha Diagnostics Pvt. Ltd has begun talks with private equity (PE) funds to raise at least Rs.200 crore for growth capital, said two people aware of the fund-raising plans. The company recently hired a Mumbai-based boutique investment bank for the fund-raising plan.

This will be the second round of fund-raising for the diagnostic chain that has raised Rs.50 crore from PE fund Lighthouse Advisor India Pvt. Ltd in February 2013.

“They (Suraksha) have just launched the process to raise at least Rs.200 crore. It will go further depending upon if Lighthouse will come in and reinvest in the firm. Those negotiations are on the table and it will be clear by next month,” said the first person mentioned above on condition of anonymity. Lighthouse recently raised its $125-million India 2020 fund and is in the process of deploying the capital.

The money is being raised to increase the number of test centres and invest in equipment, the second person added. A spokesperson for Suraksha declined comment on the story.

Suraksha is one of the largest diagnostic chains in eastern India and has test centres across West Bengal, Bihar and Delhi- National Capital Region. It runs over 25 centres across these locations.

The diagnostic chain is promoted by Kolkata-based Panorama Group.

The chain specializes in pathology and radiology services. Suraksha also runs polyclinics and super specialty clinics, which will serve as centres for medical consultation. Radiology is a capital intensive business as it requires investment in technology and newer products such as tele-radiology solutions.

According to an August report by PricewaterhouseCoopers (PwC), the laboratory diagnostic segment is seeing increased interest. The segment is the fastest growing in the healthcare space.

One of the largest firm in the pathology diagnostic space, Dr Lal Pathlabs Ltd, has filed its draft papers with the markets regulator to provide an exit to existing investors.

PE investors Wagner Ltd, Westbridge Crossover Fund Llc and Sanjeevini Investment Holdings will sell around 7.49 million shares out of the total 11.6 million shares during the initial public offer.

PE funds prefer diagnostic firms as there is a fewer number of such firms seeking capital, and the returns in this segment are much higher compared with other healthcare segments, said Abhishek P. Singh, director-healthcare at PricewaterhouseCoopers Pvt. Ltd.

Diagnostic chains command margins in the range of 25-30%, which allows them to raise funds at high valuations, Singh added. According to data from VCCEdge, the financial research platform of VCCircle, PE and venture capital funds have invested $35.14 million since January across nine deals in the diagnostics sector.

In July, Sequoia Capital invested $20 million in Bengaluru-based MedGenome, a genomics-based diagnostics and research services firm.

Investment in the sector peaked in 2012, when fund managers deployed $133.82 million in 14 deals.

(As published in livemint Tue, Oct 20 2015)