Digital Health

where are we

TCHF Industry Spotlight Series: Digital Health

 TCHF Industry Spotlight Series
Digital Health – Where We Are
The digital health / healthtech market in India is ~3% of overall healthcare market (~USD 5Bn as of
H12022 market size; over 30% projected CAGR) and has a huge headroom for growth. The COVID-19
pandemic has sparked a wave of digital transformation across the healthcare ecosystem which has
resulted in increased healthcare access, improved efficiency of providers and brought in price transparency
for consumers. Moreover, increased patient awareness and over 50% internet adoption in the country
(over 700mn internet users) have enabled a wider adoption of digital health platforms. India presently
houses over 5000 healthtech start-ups and has received over USD 6.5Bn private capital funding in
healthtech the last five years. We believe digital adoption trends will stick in the long term and have the
power to transform the way healthcare is traditionally delivered in the country. In this paper we have
evaluated the six main digital health business models that have had a major impact on the industry thus far.

India Digital Health Landscape

* Numbers indicate market size

E-pharmacy Asset light Pharma

& E-Diagnostics Hospital Services Analytics & IT

US$ 3Bn* US$ 60Mn* US$ 250Mn*

Telemed - Online Fitness, Diet, B2B Hospital /

Doctor Consult Disease Mgmt Pharma Supplies

US$ 200Mn* US$ 350Mn* US$ 1.2Bn*

Source: TCHF analysis

TCHF Industry Spotlight Series: Digital Health 01

Executive Summary
The ~USD5 Bn Digital Health sector in India has attracted over US$6.5 Bn
Current Estimated funding since 2017 and the sector is at the cusp of take-off in terms of
Market Size consumer adoption. According to TCHF internal estimates the digital health
sector is estimated to reach ~US$ 16.5Bn (CAGR 31%) by 2027.
~US$ 5Bn
(CAGR 30%) From a business model perspective most companies in this segment are
yet to establish a profitable commercial model. The recent liquidity crunch
has resulted in the sector attracting 45% lower funding (US$ 773)
YTD2022. The funding delays has also sparked consolidation among
companies in last 12 months. e.g M-fine in the Telemedicine segment. The
most stable segments are the e-pharmacy players which has attracted a
lion’s share of the funding have become part of large corporate houses and
are also leading the wave of consolidation to become a one-stop shop for
all healthcare services. For example, Tata 1MG opening offline pharmacy
dry-up stores, Pharmeasy’s acquisitions of companies like Retailio, Aknamed,
Estimated Funding Medlife, Thyrocare over the past two years. The Telemedicine companies
Since 2017 as well as the asset light hospital companies continue to be cash guzzlers
in their quest for network and customer acquisition. On the other hand the
~US$ 6.5Bn pharma analytics companies and health/fitness management companies
(vs.USD464Mn 2010-2016 ) have demonstrated reasonable scale and profitability thus far.
In our view, a long-term sustainable business in healthtech will require a
mix of physical and digital models coming together. Added to that there is a
need for a clear differentiation regarding the acute pain point or unmet need
the particular digital model aims to solve with specific path to scale and
profitability. We also believe that traditional industry leaders in each sub-
segment who are flush with cash are waiting for the winners and the right
opportunity to emerge in the sector before they join the consolidation wave.

2,740*
High
717* Pharma
Asset Analytics
Light and IT
Hospitals 518*
Profit margins
Steady state

Fitness, Diet
and Disease Funding raised
Management (USD Mn): 2017-22
388*
Tele- 1,925*
medicine
E-pharmacy
200* &
E-diagnostics
B2B
Supplies

Low
Low High
Funding Raised
Source: TCHF analysis, Venture Intelligence
This thematic has been conceptualized and written by the investment team at Tata Capital Healthcare Fund (TCHF), a growth oriented
private equity fund primarily focused on the healthcare and life Sciences sector in India. The investment team of TCHF can be
contacted at [email protected].

TCHF Industry Spotlight Series: Digital Health 02

 E-health (E-pharmacy & E-diagnostics) ~USD 3Bn growing at 35% annually
Business Model: The eHealth market presently rides on over 5Mn households with the covid period becoming
the inflection point for over 3x increase in adoption. The main growth drivers are positive consumer sentiment in
non-metros, demand for convenient, affordable, integrated services; buy-in from doctors, hospitals and regulators.
The Government recently declared ePharmacy as essential service & allowed doorstep delivery of medicines.
Metrics/Economics: The cash burn for most companies is high (-50% to -100% EBITDA margin) due to deep
discounts offered for customer acquisition (15%-20% of MRP). Most companies have gross margin inm range of
20%-30%. The main differentiation between the companies in this segment rests in having a balanced portfolio
(across OTC, diagnostics, pharma), repeat customer base, GMV from non-metros and move towards profitability.
Outlook: The E-Health market is projected to reach ~$10 Bn GMV by FY27 through ~40-70 Mn household
penetration with eConsultation growing fastest and ePrescription driving 60%+ market. The segment is expected
to reach 3.5% of pharma market by 2027 (from 1.5% at present). eHealth market is quite busy in terms of
investment and M&A activities aimed at geo expansion & integrated play. US$ 2Bn private capital invested in the
sector so far and large corporate houses like Tata (1MG) and Reliance (Netmeds) have entered the space
through acquisitions.

Key Players
FY 21 (USD Mn)

Revenue 650 (TCHF FY22 Estimate) 42 3 72

EBITDA (72) (39) 0.4 NA

Funding 1653 118 67 NA

TPG, Tiger Global,

Investors Tata Digital Reliance Industries Flipkart
Temasek

India market ~ US$ 250 Mn growing at 20% annually,

Pharma Analytics & IT
Indian players catering to global market of ~US$ 130Bn
Business Model: India has been a global hub of outsourced IT services; we have seen this trend in
healthcare as well with successful businesses built around revenue cycle management and other IT related
services for primarily the US/Europe customers. The business model is either software services revenue or
SaaS and is typically recurring in nature.
Key Metrics/Economics: The sector has attracted US$2.7 Bn capital primarily from PE funds given the high
EBITDA margins (>25%) and cashflows. However, over the last 5 years we have seen several product first
technology companies raising capital from venture capital funds in healthcare who target both the local Indian
customer as well as the global customer for aspects like digitizing operations, data management and activation.
Outlook: While the RCM market is matured, there is high investor interest in the Healthcare SaaS market
given the need for digital transformation in the healthcare sector. It is interesting to note that most companies
operating in this space are building for the globe as the scale for India is limited. We can expect Indian
companies to succeed in the global healthcare software market.

Key Players
FY 21 (USD Mn)

Revenue 52 214 50 (TCHF FY22 1 2

Estimate)

EBITDA 10 59 3 (2) (2)

Funding 495 991 375 3 11.5

Westbridge, Kalaari, Blume, Sealink,

Investors Barings Asia Barings Asia
Lightspeed Lightspeed Healthquad

TCHF Industry Spotlight Series: Digital Health 03

 Asset Light Hospital Services ~ USD 60 Mn growing at 35% annually
Business Model: This segment of digital health companies have de-linked fixed asset costs of the hospital
from the patient value chain by creating a virtual hospital ecosystem of patients and doctors. They digitally
acquire patients and either fulfill the surgery at a partner hospital through their own team of surgeons or pass
on the lead to the hospitals for fulfillment.
Key Metrics/Economics: The sector has attracted ~ US$ 200 Mn (~75% invested in Pristyn Care). Due to the
asset light nature of the business, the companies are reducing the fixed costs by ~30% and spend ~15% on
digital customer acquisition thereby gaining an additional margin ~15% over traditional hospitals.
Outlook: Pristyn Care has taken a significant lead in the market, however profitability still eludes despite large
profit pools and a well- established track record of strong revenue generation and growth. We believe this
model has proven effective to deliver day care surgeries, but moving into other segments which require
hospitalization and care beyond a day will need to be seen.

Key Players
FY 21 (USD Mn)

Revenue 50 (TCHF FY22 8 (TCHF FY22 Estimate) 10 (TCHF FY22 0.1

Estimate) Estimate)

EBITDA (8) (0.1) (3) (1)

Funding 150 7.5 25 3.5

Investors Tiger. Sequoia Ananta, Agility Vertex, Stellaris Blume, HealthX

B2B – Hospital/Pharma Supplies ~ USD 1.2 Bn growing at 35% annually

Business Model: These are the newer tech led hospital and pharma supplies procurement businesses. The
pharma/med devices and hospital supplies procurement industry is extremely fragmented and complex involving
over 500K SKUs across 5,000+ manufacturers catering to over 10L hospitals, 100k pharma distributors and 800k
retail pharmacies. The B2B supplies companies offer pharma retailers/hospitals Just-in-time inventory, credit and
convenience unlike the traditional distributors thereby enabling productivity and gross margin gains.
Key Metrics/Economics: Most companies in this segment continue to burn cash for customer acquisition, supplier
and fulfillment network growth and digital assets to improve service quality (TAT), packaging etc. All companies in
this segment are working to become the first-choice procurement partner for healthcare providers by aggregating
demand and delivering savings. Gross margins of most players in this business are in low to mid teens.
Outlook: The sector has attracted over USD 200 Mn private capital since 2015. The traditional players in the
space like Keimed, Ascent, etc are dominant in the space 90%+ market share of organized market. We are
seeing an increasing shift of the unorganized distribution to organized led by the digital first players. The
organized share of the market is expected to reach >10% by 2025 and like other developed markets we
believe consolidation will take place and the traditional players who have the financial muscle will drive
consolidation and acquire the digital capabilities. For e.g. Entero has acquired 10+ unorganized distributers in
last 2 years; Pharmeasy has acquired Retailio and Aknamed.

Key Players
FY 21 (USD Mn)

Revenue 350 (TCHF FY22 Estimate) 350 (TCHF FY22 Estimate) 20

EBITDA 3.2 0.6 (0.7)

Funding 22 151 16

Investors Orbimed Healthquad, Kois, Creaegis Lightrock

TCHF Industry Spotlight Series: Digital Health 04

 Telemedicine ~US$ 250M; growing at 20% per annum
Business Model: Telemedicine involves using technology to provide healthcare services remotely viz. tele
consult, tele-nursing, tele-radiology, tele-surgery. With over 75% of the country’s health infrastructure
concentrated in urban areas while more than 75% of the population lives in rural areas, this tool is particularly
effective in connecting the patient to the doctor. consultations. e-consultation has seen a rapid rise during the
COVID period and regulatory guidelines too have recently encouraged the use of econsultation to prescribe
medicines and there is a clear classification of permissible medicines that can be prescribed in this manner.
Key Metrics/Economics: The number of teleconsults in India in FY21 reached ~4Bn, which is almost 3
teleconsults per person each year. The private players either aggregate doctors or enrol doctors full-time and
deliver the service. The gross margins range between 25% - 50% based on the business model. The biggest
challenge for Teleconsult only players has been high customer acquisition costs and low customer loyalty
which led to high discounting and spend on CAC making it an unprofitable operation.
Outlook: While Telemedicine as a service has seen multi-fold increase in adoption, the technology has become
commonplace and is being offered by every B2C digital health player including e-pharmacy companies, this
has led to challenges for Telemedicine only players who are being acquired at distress valuations.

Key Players
FY 21 (USD Mn)

Revenue 18 2 3 1

EBITDA (0.5) (15) (10) (0.6)

Funding 212 105 173 6.1

Sequoia, Matrix, Stellaris, Beenext, Invascent,

Investors WEH Ventures
Tencent Prime Venture Bessemer, Quadria

Fitness, Diet & Chronic Disease Management ~ US$ 350 Mn growing at 35% annually

Business Model: Fitness and Weight management Opportunity in India is large. The new age companies in this
segment are bringing standardised protocols into a digital centric fitness business. Customers are offered digital and
offline experiences across fitness, nutrition, and chronic disease management. Some of the factors for this business
model to succeed are a high paying and sticky customer base, ability to source and retain supply of trainers, have
adequate equipment and capital for initial set up and low cost of customer acquisition.
Key Metrics/Economics: The digital only players can generate operating profit margins of 15%-20% at a steady
state level where spend on CAC is ~10%; whereas the phygital players have higher realizations and higher fixed
costs. The main success driver for this segment remain differentiated content generation for repeat customers and
large subscriber base, negative working capital and reaching steady state margins at a certain scale.
Outlook: The sector has attracted US$ 750M and the unit economics for the space are well-established in the fitness
and diet category, however chronic disease management space is still nascent with business models evolving and
can expect increased investor interest in this category given the chronic disease profile of the Indian population.

Key Players
FY 21 (USD Mn)

Revenue 75 (TCHF FY22 15 (TCHF FY22 25 (TCHF FY22 0.3

Estimate) Estimate) Estimate)

EBITDA 4 0.6 (2.5) (3)

Funding 539 13 108 25

Accel, Kalaari, Dream Capital, Sistema, Leapfrog,

Investors Nexus, Steadview
Temasek Elysian Park Blume

TCHF Industry Spotlight Series: Digital Health 05