The private equity firm wants Ujala Cygnus to double in size, accumulating 50 hospitals and 4,000 beds, and fill the healthcare infrastructure gap currently beyond the reach of government spending

Ayushman Bharat is a key tenet of India’s commitment to accessible healthcare. The national public health insurance scheme received INR 72bn (USD 863m) in funding for the 12 months ended March, but its budget is expected to be twice that in the next financial year. The broad goal is to ensure 120m families have nearly USD 6,000 apiece to cover secondary and tertiary care.

However, government spending on services is not matched by spending on infrastructure. Private capital can fill the vacuum, according to Varun Talukdar, a principal and head of India healthcare at General Atlantic, which recently backed Ujala Cygnus, a hospital operator that provides affordable healthcare to residents of tier-two and tier-three cities in North India.

The private equity firm acquired a 70% interest, which will eventually rise to 80%. “We are very growth-focused,” said Probal Ghosal, a director and chairman of Ujala Cygnus, without disclosing the size of the investment. A source familiar with the situation added that General Atlantic expects to inject additional funds on top of its initial investment as required.

General Atlantic said in 2023 that it would like to deploy up to USD 1bn annually in India, having invested USD 500m to USD 1.2bn across India and Southeast Asia in recent years. The firm’s previous India-based healthcare investments include multi-specialty hospital operator Krishna Institute of Medical Sciences (KIMS). It committed USD 130m in 2018 and exited in December 2022.

The latest investment in Ujala Cygnus facilitated full exits for several existing investors Eight Roads Ventures, Somerset Indus Capital, and Evolvence Capital. According to AVCJ Research, Eight Roads and Somerset India participated in several rounds for Cygnus Medicare before the company’s merger with Ujala Healthcare – a unit of media group Amar Ujala – in 2019.

Ujala Cygnus currently has 2,500 beds across 22 hospitals in the states of Haryana, Uttar Pradesh, Himachal Pradesh, and Jammu and Kashmir. There are more than 4,000 staff plus 250 specialist doctors. Revenue and EBITDA have grown sixfold since 2019, Talukdar said. Revenue hit INR 6bn last year and the company is aiming for INR 10bn in the current financial year.

Ghosal noted that the introduction to General Atlantic came through an investment bank. Ujala Cygnus was looking for a partner because it wanted to clean up its cap table – and enable exits for existing investors, some of which had backed the company since 2013 – ahead of a likely IPO.

He added that the government is supportive of private investment in the sector as a means of addressing unmet demand. Recent sizeable transactions include The Blackstone Group’s purchase of Care Hospitals from TPG’s Rise Fund and Temasek Holdings increasing its stake in Manipal Health Enterprises from 18% to 41%. TPG sold its position in Manipal and re-invested via a newer fund.

Ujala Cygnus is distinct because it pursues an asset-light business model. Rather than buy land and build hospitals, it rents them, typically under a revenue share arrangement with the owners. Goshal said there is a focus on operationally mismanaged and distressed hospitals.

General Atlantic also recognised a clear expansion angle. It spent a lot of time analysing potential target markets and what would be required – in terms of strategy and personnel – to execute on opportunities. The goal is 4,000 beds across 50 hospitals. “We are committed to providing capital and operational support to make that happen,” Talukdar said.

He identified talent management and leadership as the biggest bottleneck to growth, but also an opportunity if done well. The plan is to build out an internal pool of doctors and nurses – in part by recruiting junior doctors in large hospitals – and introduce training programmes for graduates.

Ujala Cygnus is contemplating expansion through M&A, in North India and other states. This represents a departure from the asset-light model, but Goshal is open to the prospect because the company has greater capital reserves.

At the same time, stricter hospital compliance requirements have made smaller facilities harder to manage, resulting in a rich pipeline of available assets. Multi-specialty chains comprising four to five hospitals with 125 to 150 beds are viable targets, he added.

Talukdar is also enthused by the growth dynamic – provided it doesn’t come at the expense of Ujala Cygnus’ service quality or its discipline around cost structure and spending. “We are committed to making this the largest North India-focused hospital chain in tier two, three, and four cities,” he said.