1. business and industrial

Solving financial challenges
in medical devices & healthcare organizations
An action agenda for growth in Medical Devices companies
Solving financial challenges in medical devices & healthcare organizations
Contents
Executive Summary 3
The growth drivers for the Indian medical
devices and healthcare industry. 4
Solving financial challenges for growing
medium sized medical devices companies. 5
Unleash the business valuation & multiply the
valuation to 100 times over. 6
Conclusion9
2
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
Executive Summary
India presents an enormous opportunity to the medical devices and healthcare
industry. The recent study by the Boston Consulting Group ( BCG) suggests that
Indian medical technology sector has the potential to touch US $ 50 Billion by 2025.
Globally the medical technology market is expected to be over US $ 600 Billion by 2025.
The medical devices industry has witnessed double digit growth in the recent
years. and this growth trajectory is expected to continue due to rising incidence
of chronic diseases, increased urbanization and growing elderly population.
One of the key challenge that Indian Medical devices industry specially Small and
medium enterprises ( SMEs ) face is the lack of adequate finances and high capital
cost. The purpose of this report is to present some of the innovative ways to solve
financial challenges in medical devices and healthcare businesses like new sources
of raising equity capital, public listing on SME stock exchange, attracting private
equity investors from domestic and international markets and wealth creation.
For growing medium size medical devices and manufacturing companies seeking to
raise capital, an SME listing can be a superior route to growth. SME stock exchange
platforms provide a great opportunity to the medium sized medical devices and
healthcare companies to raise equity capital for the growth and expansion. SME public
listing and issuing an IPO on a SME stock exchange will help unleash the valuation
of SME companies and in the process create wealth for all the stakeholders, besides
enormous income tax benefits. All medical devices SME companies have the potential
to grow into big multinational companies, provided they get adequate capital support.
The SMEs now have the great opportunity to grow into big public listed multinational
companies by getting themselves listed on a SME stock exchange. We hope that this
concise report will help SME medical devices and healthcare enterprises to be well
prepared to transform their medium sized company into a successful and wealthy
public listed company that continually delivers maximum value to its shareholders.
3
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
The growth drivers for the Indian
medical devices and healthcare industry.
The Indian medical device market
presents an exciting business
landscape & opportunities for both
multinational and domestic players.
As per the market estimates the
Indian medical devices market is
going to grow at a CAGR of 14.9%
(2013-2018) making India one of the
fastest growing markets in the world.
India, a country of over 1.25 billion
people, holds great promise for the
medical devices industry. With over
1.25 billion people, out of which 65%
people under 35 years of age , India
has marked its presence as one
of the fastest growing economies
across the world. India is one of
4
the largest contributor to the global
work force and is expected to rank
among the world’s top three growing
economies and amongst the top
three manufacturing destinations
in the world by 2020.India has
got a large talent pool of qualified
medical professionals which gives
a competitive edge over some
of the other developed nations.
Medical tourism and health tourism
is often described as a rapidly
growing segment in the country.
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
Solving financial challenges for growing
medium sized medical devices companies.
Small and Medium Enterprises Sector
The next big revolution across the globe.
World over, dedicated SME trading platforms or exchanges are
prevalent. Some of the known stock markets for SMEs are AIM
(Alternate Investment Market) in UK, TSX Ventures in Canada, GEM
(Growth Enterprise Market) in Hong Kong, MOTHERS (Market of the
high-growth and emerging stocks) in Japan, Catalist in Singapore and
the latest initiative in China – Chinext and in India as BSE SME and NSE
Emerge. As a matter of fact, NASDAQ also started as an SME exchange.
5
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
Unleash the business valuation &
multiply the valuation to 100 times over.
The Top 10 advantages of SME public
listing for medical devices enterprises
seeking to raise capital are stated below:
1. Easier access to equity capital and better
funding opportunities: Going public
and coming out with an IPO on an SME
exchange provides medical devices SMEs
with the equity financing opportunities
to grow their business from operations
to expansion to inorganic acquisitions.
Access to equity financing lowers the debt
burden leading to lower financing costs
and healthier and wealthier balance sheets.
2. Enhanced Value creation and unleashing
the business valuation many times over.
Valuation of a company is determined by many
factors, one of which is class of companywhether public listed or private limited. Going
for a public issue of capital will enhance the
company’s visibility. Greater public awareness
gained through media coverage, publicly
filed documents and coverage of stock by
sector investment analysts will provide the
medical devices SMEs with greater profile and
credibility. This can result in more diversified
groups of investors, which may increase
the demand for that company’s shares
leading to an increase in the company’s
6
value
and
enhanced
value
creation.
3. Balanced Risk Management for promoters:
SME public listing will help medical devices
SME promoters and owners to distribute
the risk of business efficiently. Listing the
company would facilitate expansion of
the investor’s base, which in turn help
company get secondary market for equity
financing, including private placement.
4. Easier and efficient entry and exit
platforms for private equity and other
strategic investors leading to increased
participation from private equity investors:
The presence of a market-driven transparent
trading platform provides with a ready and
easy entry and exit for strategic investors.
Listing not only offers the investors flexibility
for entry and exit, but also the confidence
required for any such transactions. The listing
would result in an increased participation by
venture capital players as they would have a
ready, transparent and tax-efficient exit route.
5. No long term capital gain tax: Normally,
transfer of unlisted shares attracts long
term capital gains tax of 20% and short term
capital gains of up to 30%. Whereas in case
of listed shares, tax on long term capital
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
gains is nil and short term capital gains is
15%, provided the transaction has been
subjected to securities transaction tax (STT).
This preferential tax treatment on transfer of
listed shares is also available to shares listed
on SME Exchange. Listing on SME Exchange
is a valid tax-planning tool and could, thus,
lead to enormous tax saving for medical
devices SME entrepreneurs & investors.
6. No tax on fresh equity infusion in the
company: Recently the Finance Act, 2012
imposed a tax liability on fresh issuance of
equity shares by an unlisted company to
investors other than “Registered Venture
Fund”, if the issuance is made at a value
more than the fair value. This could make
SMEs subject to heavy tax outgo, since they
often go for fund raising through equity
issuance to investors. Such a tax liability,
however, does not attract if the shares
of the company are listed on recognize
stock exchanges, including SME Exchange.
7. Transform medical devices SME into Global
MNCs, corporate image creation, better
visibility and strong brand building: Going
for a public issue is most likely to enhance the
company’s visibility. Greater public awareness
gained through media coverage, and research
coverage by sector investment analysts
provide the SMEs with greater visibility
and help brand building which otherwise
may remain a dream especially for SMEs.
8. SME listing on stock exchange can facilitate
growth through strategic investments
and SME mergers and acquisitions and
private equity from both domestic &
international investors: The medical
devices SME companies in their effort to have
forward or backward integration for growth
and expansion may take a strategic stake
in other medical devices SMEs. Domestic
& International investors repose faith in
listed SMEs. Listed SMEs are likely to get
strategic investments from both, domestic
and international investors as well as from
private equity and strategic investors. Instead
of a direct cash offering, using shares for an
7
acquisition can be a tax- efficient and costeffective vehicle to finance such a transaction.
9. Incentive mechanism for employees : ESOPs
and any other share-based compensation
plan of listed company have an immediate
and tangible value to employees. This, in turn,
serves as a talent retention tool. This can serve
to ensure stronger employee commitment
to the company’s performance and success.
10.Strong Corporate governance & financial
controls: Though the requirements for a
company listed on SME Exchange are not
as stringent as that for Main Board listed
companies, nevertheless SME listing ensures
that the company has drawn up the internal
control systems and set up minimum required
framework of corporate governance. This,
in turn, lends sustainability to the business.
Business Blueprint to transform
the medium sized medical devices
companies
to
Global
MNCs.
Start
preparing
as
soon
as
possible:
• Begin the preparation of listing process
early enough so that your pre listed
company acts and operate like a public
company at least a year before the IPO.
• Commit substantial resources to the
IPO process and build the quality
management
team,
robust
financial
and business infrastructure, corporate
governance & investor’s relation strategy
that will attract the right investors.
• Don’t underestimate the amount of time
the IPO journey will take or the level of
accountability and corporate governance
required by a public limited company.
SMEs should start preparing to outperform
competitors
on
key
benchmarks:
• Investors base an average of 70% of their
IPO investment decisions on the financial
performance of the company especially
debt to equity ratio, EPS growth, sales
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
qualified
team
members,
improved
growth, ROE, profitability and EBITDA growth.
internal
controls
and
systems
and
• Investors base an average of 30% of their IPO
investment decisions on the non-financial
forming a qualified audit committee.
factors especially quality of management, • Fine tune your internal business operationsespecially working capital management,
corporate strategy and execution, brand
regulatory risk and rationalizing the
strength
and
corporate
governance.
• SME should be able to articulate an effective
business
and
financial
structure.
equity story backed up by a strong track record • Ensure timely and accurate financial
of growth which sets you apart from your
information is available. Appropriate systems
and controls are in place with all the financial
competitors while maximizing value for owners.
and management information readily
available on monthly and quarterly basis.
Evaluate various Capital raising options:
• Consider a multi-track approach and the
expanding number of capital raising strategies
including a strategic sale to a trade or financial
buyer, joint venture, private placement and
compare all the options to arrive at the best
decisions to maximize the value and wealth.
Address
investors
current
concerns:
• Recognize
the
need
for
enhanced
corporate governance especially recruiting
8
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
Conclusion
The SME listing window of opportunity is available to medium sized
medical devices companies seeking to raise capital for growth and
expansion. Advance preparation & planning are critical. Lack of
preparation and proper planning can jeopardize an SME IPO. SME Listing
and bringing IPO is a long process and involves enormous amount of
work and planning like building an equity story, strong financial results,
timely and accurate financial and accounting information, strong
internal controls, qualified management team, corporate governance
and investor’s relations. If you want your SME to transform to a public
listed company, start getting ready by getting in touch with us.
With impetus from various government schemes like formation of
Rs. 100 billion SME venture capital fund, India is finally coming to be
recognized as a manufacturing destination for sophisticated medical
technology. International medical technology companies are also using
India as a manufacturing base by either setting up facilities of their own
or by acquiring domestic manufacturers. The government is also making
efforts to encourage innovation and development projects in medical
devices and technologies. The government of India is also looking at
relaxing the FDI policy for the cash starved medical devices sector to
attract more investments and boost manufacturing thereby presenting
an opportunity to Indian medical devices industry to create an
environment for promotion of innovation and boosting manufacturing
to achieve a sustainable growth in the country.
9
www.globalcfo.in
Solving financial challenges in medical devices & healthcare organizations
Brief Profile of Author :
About Us
Mr. Rajan Bhatia is an experienced Chartered Accountant and alumnus
of prestigious Shri Ram College of Commerce, Delhi University. He is the
Founder and Managing Partner of Rajan Bhatia and Company, Chartered
Accountants, ( www.globalcfo.in) a leading certified accounting, financial
and management consulting firm. With over 20+ years of experience
across several industry sectors and companies. He possess 20+ years
of wealth of experience & expertise in business advisory functions such
as funds raising, SME public listing, IPO, cost of reducing finance, import
strategies, technology, business planning, financial management, cost
controls, establishing financial controls, systems and processes and helped
and advised several SMEs grow to the next level. He is a business author,
corporate trainer, business advisor, consultant and mentor to several global
SMEs and is regularly invited to speak and train at various industry bodies
and associations like CII, ASSOCHAM, NASSCOM, AIMA, FICCI, TIE, United
Kingdom India Business Council, Indo French chamber of commerce, Indo
US Chamber of Commerce, Institute of Chartered Accountants of India.
About Rajan Bhatia & Company, Chartered Accountants:
Rajan Bhatia & Company is a certified Chartered Accountants and one of
the India’s leading most trusted financial services firm registered with most
trusted and respected The Institute of Chartered Accountants of India. Our
mission is to transform SMEs to large public listed MNCs by providing the
most trusted, specialized, innovative and highest levels of services to our
esteemed clients. We are the trusted service network member of United
Kingdom India Business Council, UKIBC to provide India entry services
to UK SMEs. We are the esteemed member of several respected industry
bodies like NASSCOM, CII and provided services to several SME and
MNC organizations. Global CFO is the management consultancy services
division of Rajan Bhatia & Co., Chartered Accountants. A leading certified
accounting, auditing, financial & management consulting services firm.
10
www.globalcfo.in
RAJAN BHATIA
& COMPANY
CHARTERED ACCOUNTANTS
Email :
rajan@globalcfo.in
info@globalcfo.in
bhatiarajan4@gmail.com
Skype:
rajan.bhatia12
Call Us:
T : +91 98110 05666
T : +91 95820 26836.
Website:
www.globalcfo.in
www.rajanbhatia.com
India | UK | USA | Canada | Dubai
Esteemed Members of UKIBC,
NASSCOM, CII, ICAI, IFCCI, TIE.
Disclaimer
The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor
to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be
accurate in future. No one should act on such information without appropriate professional advice .