India’s digital healthcare companies have less than 9 months of cash left: report

India’s digital healthcare sector led by online pharmacies and digital fitness apps have less than nine months of cash left, Tata Capital said in a recent report.

These companies face a severe cash crunch due to a lack of private capital funding and a high rate of cash burn, according to the report based on an analysis of 120 companies in the digital healthcare sector, currently valued at about $6.5 billion. The Tata Capital report did not specify the amount of cash that these companies had left or their monthly cash burn.

While some companies are working to achieve profitability, the extent to which the funding crunch will impact growth in the coming months remains uncertain, Tata Capital said. Even with corporate backing, high customer acquisition costs and low stickiness continue to pose challenges. The report said companies in the segment are grappling with slowing growth concerns and an elusive path to profitability.

In the past five years, the e-pharmacy segment received about $2 billion in funding. However, even a flagship player such as Pharmeasy faces a 90 percent valuation correction after a failed initial public offering.

Omnichannel approach

In contrast, corporate-backed pharmacy platforms Tata 1MG and Netmeds are pursuing growth, albeit with sustained losses. 1MG’s revenue grew about 160 percent in FY23 and Netmeds’ revenue increased about 75 percent in 2023, according to the report.

The sector is now pivoting towards an omnichannel approach, with Netmeds planning to open 2,000 offline pharmacy stores within the next 12 months.

The pharma analytics segment, which accumulated over $2.8 billion in funding recently, showcases a different narrative. The segment includes companies such as Citius, Zifo, THB, Innovaccer and Healthplix, which provide services by using large databases and help in decision making regarding consumer demand, drug efficacy, and digital health records. Healthcare IT companies posted stable EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins (18-25 percent), attracting buyout funds such as Bain and Carlyle. This segment, with a growth potential of over 15 percent, is marked by financial stability and a focus on international customers.

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The B2B hospital supplies sector has secured over $200 million in private capital since 2015. Emerging tech-led players are approaching profitability, boasting enough cash to fund operations for more than 12 months. The sector is expected to grow at more than 20 percent as it transitions from unorganised to organised operations. IPO plans, such as Entero’s launch in the next 12 months, signal further maturation, the report said.

Telemedicine, with $250 million in funding over the past three years, faces challenges. Operating on a high cash-burn model, entities including Practo and Medibuddy, which offer services including telemedicine, are struggling to establish profitability. Companies are diversifying into subscriptions, offline healthcare delivery, and diagnostic tests.

The fitness and diet sector is also struggling with profitability challenges, leading to limited cash availability. Digital-only companies Healthify Me and Fittr are currently in the red, while Cure.fit, backed by the Tata Group, adopts a ‘phygital’ approach for higher realisations and scaling-up potential.

Chronic disease management service companies face scalability hurdles, prompting a need to improve their business models, according to the report.

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