The company is likely to issue new shares to CVC through a preferential allotment. According to some people in the know, the founder promoters, BS Ajai Kumar and family who hold a 23% stake along with investors Temasek Holdings and Indgrowth Capital, are likely to sell a part of their stake.
Ajai Kumar, an oncologist-turned-healthcare entrepreneur, has been its CEO since 2005.
Singapore’s Temasek holds a 9.4% stake in the widely held company, while Indgrowth Capital owns 1.2%. Public shareholding is 76.1%, as per latest regulatory disclosures.
“Promoters do not intend to sell any stake,” said an HCG spokesperson without further comments. Spokespersons with Temasek and Indgrowth Capital declined to comment, while a mail sent to CVC did not elicit any responses till press time Wednesday.
CVC’s investment is expected to trigger an open offer for an additional 26% of the company.
Last week, HCG had informed the BSE that a board meeting would be held on Thursday (May 7) to consider and approve a proposal for raising capital by issuing equity shares or warrants.
Sources said the new investor was expected to offer a 15-20% premium to the company’s current price, though it could not be independently verified.
The shares closed 6% higher at Rs 94.05 on the BSE Wednesday. At this price, a 26-51% stake would cost Rs 217-425 crore.
In the last 6 months, HCG’s share price has fallen 40%, as against 21.7% fall in the BSE Sensex. The deferment of elective surgeries, delay in conversion from outdoor patients to in-patients and the hiatus in medical tourism amid the Covid-19 crisis have led to a derating of most Indian hospital stocks. However, analysts expect a faster bounce back for oncology specialists like HCG.
“The situation remains uncertain and the sector is likely to remain under pressure over short to medium term. HCG has a lower component of elective surgeries and only 5% exposure to medical tourism, making it the least likely to be impacted,” analysts Ankit Hatalkar and Aashita Jain of Edelweiss said.
Oncology (82% of HCG revenue) is less impacted especially in radiation/chemo, which are continuing for existing patients. In these segments, the decline is only 20-30%.
CVC, which manages $83 billion of assets across the world, had made its debut deal in India in 2018 by acquiring enterprise legal services firm UnitedLex BPO.
An aggressive buyout specialist, CVC Capital Partners is a spin-off from Wall Street banking giant Citigroup’s venture capital business. It recently raised $4.5 billion for its fifth Asia Pacific fund, CVC Capital Partners Asia Pacific V LP.
HCG, which set up its cancer centre network in 1989, had 22 comprehensive cancer centres, three multispecialty hospitals and as many diagnostic centres as of December 2019. In 2013, it entered into the fertility treatment business through acquisition of BACC Healthcare and has eight fertility centres operated under the Milann brand. It also runs bioinformatics, molecular testing and precision diagnostics business under the Strand brand.
“Surgeries, though, are down 40%. Surgeries contribute less than 30% of HCG revenues. New patients are seeing a decline and this will likely impact revenues in 1Q. However, the company expects to see a sharp rebound post lockdown and has capacity to fill incremental demand,” said Piyush Nahar of Jefferies.
HCG network has 2,063 beds and 300 plus oncologists. In fiscal 2019, the company posted revenue of Rs.978 crore with a loss of Rs 25 crore. In Q3 FY2020, it posted a loss of Rs 29 crore, compared with loss of Rs 6.2 crore a year earlier, on revenue of Rs 278 crore. It had debt of Rs 702 crore as on December 31, 2019.
“Our management is looking at various options of debt reduction … Looking at assets, looking at fundraising, all of the options are on the table,” Ajai Kumar had said during an investor call in February. HCG has been planning to sell Milan by carving it out as a separate entity.
HCG raised Rs 650 crore through an initial public offering of shares in March 2016. In 2013, it had raised about Rs 140 crore from Temasek.