Healthcare is one of the biggest revenue and employment generating sectors in India and was expected to touch US$ 160 Bn by 2017. Like all other sectors, healthcare is abuzz with technology-driven startups. At present, India is home to as many as 240 healthtech startups, leading innovation and redefining healthcare.
Inc42’s recent analysis of the Indian startup ecosystem across sectors threw up some interesting findings. According to our Indian Tech Startup Funding Report H1 2018, deals and funding in the sector dipped in the first half of 2018.
In H1 2017, healthtech witnessed 55 deals and a total funding of $195 Mn, while in H1 2018, only 40 deals were signed and $180 Mn funding was raised. Inc42 DataLabs also revealed that in FY 2017, Indian healthtech startups had raised about $346 Mn across 111 deals.
So, what changed in the last six months to effect this decline?
In 2016 and early 2017, a major portion of healthcare investments went into startups that were working on telemedicine, enabling doctor appointments, and other health apps, but since H2 2017, that pie has been shared by wearable tech gadgets, genetic research, and the smart diagnostics space, which have seen rapid growth. Naturally, the funding slices have become smaller.
But deal and funding numbers alone don’t tell the entire story. Healthtech is still going strong. So, in this edition of What The Financials, we crunched the numbers of four leading players in the space of e-pharmacy and online diagnostics — 1mg, Healthkart, Pharmeasy, and NetMeds — to analyse their financial health as well as that of the healthtech industry. Here’s what we found:
1mg And Healthkart: Are Breakups Good For Business?
Founded in March 2011, Healthkart sells consumables such as protein supplements and vitamins and has more than 200 brands and authorised vendors on its platform. It also has private label products in the nutrition and supplements category.
Backed by investors such as Sequoia, Intel Capital, Kae Capital, and Omidyar Network, the company has raised $50.6 Mn till date, with the last round being in 2016. In FY17, Healthkart posted a total revenue of INR 124.48 Cr against total expenses of INR 166.29 Cr.
In April 2015, Healthkart separated its generic drug search business, HealthkartPlus, and rebranded it as 1mg, to be operated under 1mg Technologies Pvt Ltd. 1mg operates an online marketplace for medicines apart from facilitating doctors’ appointments and diagnostic test booking.
1mg has raised $47 Mn till date and posted a total revenue of INR 12.34 Cr in FY17, while its expenses were INR 70.29 Cr.
Backed by investors such as Sequoia Capital, Intel Capital, Omidyar Network, and Deep Kalra, co-founder of travel portal MakeMyTrip, the company spent INR 22.44 Cr in FY17 on advertising and promotional expenses. This was a 158% spike from its INR 8.66 Cr expenditure on advertising in FY16.
Healthkart is just a step behind 1mg. The company spent INR 21.97 Cr in FY17 on advertising and promotions against INR 8.69 Cr in FY16.
The companies also extensively increased their expenses on employees benefits. In FY17, Healthkart spent INR 29.17 Cr in this area, a 78% increase from its INR 18.42 Cr spend in FY16.
1mg, meanwhile, invested INR 29.45 Cr in employees’ benefits in FY17, up from INR 16.46 Cr in FY16.
On a positive note, 1mg, with a growth rate of 263% on the basis of its total income in FY17, earned INR 9.15 Cr from sales of services. Of this, 69.4% or INR 6.35 Cr came from its e-pharmacy business while the remaining INR 2.8 Cr came from its diagnostics business. In FY16, 74.9% of 1mg’s business of INR 1.93 Cr came from its e-pharmacy while 25% was from diagnostics.
For Healthkart, which had a growth rate of 58% in FY17 on the basis of its total income, the total sales of services in FY17 was INR 9.53 Cr. On the other hand, it earned a large part of revenue through the sale of health products, amounting to INR 110 cr in FY17, an increase of 45% from FY16.
In FY16, there was a dip in Healthkart’s revenue by 27%, coincidentally at the same time when 1mg separated from the company.
The separation was aimed at individually capturing the healthcare products and services marketplaces in India and the strategy seems to have worked well.
We can fairly conclude that Healthkart has been able to consolidate itself as a health products marketplace and 1mg as a health services marketplace.
PharmEasy Vs NetMeds: Same Business Model, But Who’s Better?
To put the e-pharmacy and online diagnostics market into perspective, it must to be noted that India’s pharmaceutical industry was valued at $33 Bn in 2017. It is expected to expand at a CAGR of 22.4% over 2015–20 to reach $55 Bn. At the same time, the market for diagnostic services has been growing in India over the past couple of years at a rate of 15%-20% and stood at nearly INR 40,000 Cr as of 2016.
Founded in 2010, NetMeds is a licensed pharmacy marketplace that offers authenticated prescription and over-the-counter (OTC) medicines along with other health products.
With a total income of INR 139.75 Cr in FY17, the company earned INR 7.93 Cr from sales of its services in that year. But even with an operational income INR 139.05 Cr, it had expenses of INR 195.81 Cr in FY17.
PharmEasy was founded in 2015 and particularly caters to the chronic-care segment. It offers a range of services including teleconsultation, medicine delivery, sample collection for diagnostic tests as well as a subscription-based service, which is currently live in a few cities.
The company had expenses of INR 82.6 Cr, and it has a total revenue of INR 34.44 Cr in FY17, with operational revenues being INR 33.57 Cr.
While PharmEasy spent INR 14.7 Cr on employee benefits in FY17, NetMeds spent INR 21.81 Cr in the same period.
Another interesting thing to note is that NetMeds spent INR 20 cr on advertising and promotions in FY17, while PharmEasy spent just INR 9.34 Cr on these heads in the same period.
To The Good Health Of The Healthtech Sector
Of the four healthtech companies we analysed above, NetMeds is the only player that has its own warehouse. In FY17, the company spent INR 3.27 Cr on freight and INR 2.2 Cr on warehousing, which further helped NetMeds in capping its logistics expenses to INR 5.5 Cr.
On the other hand, PharmEasy, which has a revenue of almost one-fifth that of NetMeds, spent INR 8.7 Cr in logistics in the same period.
Further, in FY17, Healthkart reduced its losses to INR 45.7 Cr while PharmEasy’s losses rose to INR 56.75 Cr. In the same period, NetMeds posted losses of INR 56.7 Cr and 1mg doubled its loss figure INR 60.9 Cr.
Thus, it would be fair to conclude that Netmeds is the winner of our healthtech financial analysis with the highest revenue and better expense management. At the same time, 1mg and Healthkart are aiming for niches and are targeting to grow in their individual markets; however, 1mg’s growth is coming at a bit of a high cost. PharmEasy is walking in the steps of its peer, Netmeds, but has a lot of catching up to do in terms of growth.
Overall, the global healthtech market is anticipated to reach $104.5 Bn by 2020, according to a new report by Grand View Research. Meanwhile, the Indian healthcare market is further expected to reach $280 Bn by 2020, from the current $100 Bn, according to an IBEF report. There’s certainly an open opportunity for healthtech startups in India, but only the ones that take the right steps will succeed.
[This is a part of the What The Financials (WTF) series launched by Inc42 Datalabs. We would be exploring the financial health of Startups and discuss its key metrics of growth, to read more articles click here.]