New Frontiers: Vikram Vuppala, Founder & CEO, NephroPlus, speaks about the international expansion plans of the group

NephroPlus, the largest and fastest growing dialysis service provider, has recently received a fresh infusion of about $45 million (₹323 crore) from Investcorp, the Bahrain-based global alternative asset management company. This is the biggest investment in the Hyderabad-based company that was founded a decade ago. NephroPlus had earlier raised Rs 200 crore from investors including International Finance Corporation, SeaLink Capital Partners and Bessemer Venture Partners.

Vikram Vuppala, Nephroplus, Investcorp, Series C investor, SeaLink Capital Partners, Bessemer Venture Partners, Middle East dialysis market, O&M model, Interview Vikram Vuppala, Dialysis service provider

Please share more details about your recent fund raise from Investcorp.

We received an investment of $45 million (Rs 323 crore) from Investcorp, a Bahrain-based global alternative asset management company in November. A part of the funding is secondary capital to give a good exit to our Series C investor, SeaLink Capital Partners, who came in around three years ago with Rs 90 crore investment. It is rare to get such a good exit. However, a major part of the fund is to fuel our international expansion plans.

Why do you say it is rare to get such a good exit?

It was indeed rare for SeaLink Capital Partners to get such a lucrative return on investment within three years. In last eight years of our operations, our Series A and B investors – International Finance Corporation and Bessemer Venture Partners, did not exit and that speaks volumes of our profitability and operational excellence. Most investors exit within a span of three to five years. International Finance Corporation and Bessemer Venture Partners refused to sell a single share during Series D. We had six term sheets and four binding offers this time. Also, our lead angel investor, Prabha Sinha, co-founder of ZS Associates, who invested Rs 2 crore nine years back sold his stake at 10x value, keeping some residual stake.

What made you choose Investcorp?

Firstly, it is a $ 25 bn company with a global footprint – they have offices in New York, London, Bahrain, Abu Dhabi, Riyadh, Doha, Mumbai and Singapore. Secondly, they have an extremely good understanding of the Middle East market, especially the GCC countries, and have committed to help set up our footprint there. They will provide us with strategic guidance and connect us with appropriate partnerships for these markets.

What could be the possible reasons for Investcorp to invest in NephroPlus?

While Investcorp will be best placed to answer this, perhaps our pan-India presence, market leadership position, and excellent clinical quality at an affordable price point are the reasons behind their investment. We are India’s largest dialysis centre network with 197 dialysis centres in 116 cities and presence in 20 states. We are widely distributed with no city accounting for more than 5% of our revenues.

 Which international markets you are looking at to invest?

While we continue to expand our Indian operations by adding about 40 centres a year, primarily using the internal accruals and some debt, we also want to focus on the emerging economies for overseas expansion. For phase one, which is within the next three years, we are looking at Southeast Asia especially Indonesia, Philippines and Vietnam, as well as at Middle Eastern countries like Bahrain and Saudi Arabi and Central Asian countries like Uzbekistan. This will entail a total capex of Rs 150 crore-Rs 175 crore. We are hoping to set up 75 centres in these markets. A contract with Vietnam is currently underway and will be effective within the next two- three months.

In phase two, we plan to look at eastern European countries and Africa and in phase three, we will explore developed countries.

What kind of business models you are planning for in these markets?

It would be Acquisitions, JVs and O&Ms partnerships which will be funded with a mix of debt and equity. In acquisitions, we plan to take majority stake upfront and buy out the residual stake over the next 3-4 years.

What kind of partnership are you exploring in these regions?

In Philippines, we plan to acquire a chain of dialysis centres. In Vietnam, we might go for an O&M model. In Uzbekistan, dialysis centres are standalone centres within the premises of a Government hospital. So, we plan to enter into a PPP with the Government. The proposal for the same has already been submitted to the Government.

We don’t just plan to put up a few centres in different countries to fortify our presence. For optimal use of resources, we need to have around 15 to 20 centres, which we can set up within two years. A number below that leads to sub-optimal utilization of resources.

Throw some light on the Middle East dialysis market.

In India, around 85% patients have no access to dialysis as many of them must trudge long distances to reach the centres. In the Middle East, dialysis is accessible but at an extremely high price point at the private centres. The requirement for dialysis is high due to obesity, high BP and other clinical conditions.

Western companies have set up dialysis centres in the Middle East, but they may not be sustainable in the long run. There is a need to run these centres more cost effectively and provide dialysis at an affordable pricing.  I feel more Asian healthcare players would foray into the dialysis market to offer high-quality dialysis at an affordable cost.

Which kind of dialysis in more popular in these new geographies?

Majority of these markets are dominated by hemodialysis (HD) with 90-95% share while peritoneal dialysis (PD) accounts for the balance share.

What are the possible challenges for entering these new geographies?

We understand the dynamics of running dialysis centres extremely well, but we need to have to a deeper understanding of the local regulatory nuances and local market dynamics. To address these factors, we plan to partner with local players or acquire small dialysis chains.

How do hospitals benefit from partnering with NephroPlus?

Not a single hospital, the world over, makes any profit from dialysis sessions per se. The margins come from adjacent services like transplant, investigations, pharmacy, ICU admission and other procedures. One needs to understand that dialysis is not a focus area for hospitals, as less than 1% of their revenue comes from dialysis. Most multispecialty hospitals focus on departments that drive majority of the profits such as cardiology, oncology, orthopedics, and pediatrics.

By partnering with us, hospitals get world class dialysis centres (investments made by NephroPlus), excellent clinical outcomes as well as superior service levels. Each dialysis machine in our centre comes with a TV and has Wi-Fi connection. We refer to patients as ‘guests’ and treat them as one. Because of these characteristics, we grow the centre by 60-70% within 12-15 months which significantly drives margins for hospitals via adjacencies.

We do 2 million dialysis sessions per year, while a large hospital does 5,000-10,000 dialysis sessions per year.  We leverage our volume with better bargaining power for consumables and focus on efficient use of human resources. We have 12 training academies across the country and have a team strength of 3500. These factors make our dialysis services more profitable for the hospital at the same price point. With superior clinical outcomes and great service levels we grow the centre which leads to superior profits and ROI to the hospitals.

You had a turnover of Rs 200 crore during 2018-19. How much you expect it to be in the next few years?

In FY20, we will be approx. Rs 275 Cr which we want to grow to Rs 400-500 Cr in the next 2-3 years.

Interviewed by Rita Dutta

At a glance

Company founded in: Year 2010

Company founded by: Vikram Vuppala, ex-McKinsey consultant, and Kamal Shah, who has been on dialysis for last 23 years.

Dialysis patients in the network: 16,000+

Dialysis done per year: 2 million

No of centres: 197

States present: 20

Partner hospitals: 190

Size of the dialysis market in India: $500 million and growing at a rate of 25-30% per year.