Why Tata Capital Healthcare Fund is wary of e-pharma
In an indictment of sorts of India’s healthtech industry, Tata Capital Healthcare Fund, the healthcare-focused private equity (PE) arm of Tata Capital, is limiting its exposure to digital health, choosing to avoid investments in segments such as e-pharmacies, telemedicine, and e-diagnostics.
“Some models involve high cash burn and expect a tough road to profitability. We have seen some major players raise a lot of money but simply struggle to generate the quantum of revenues,” Visalakshi Chandramouli, managing partner at Tata Capital Healthcare Fund, said in an interview with Mint.
To this end, Tata Capital Healthcare Fund wants to curtail its exposure to digital health businesses to less than 15% of its portfolio, according to Chandramouli.
The healthcare fund has so far raised two funds for a cumulative $200 million.
Chandramouli’s concerns stems from how digital health has grown in the last few years.
Healthtech— which primarily comprises newage healthcare businesses built with an online-first approach— garnered significant investor interest in 2021 in the wake of the covid-19 pandemic. Healthtech investments soared to $7 billion in 2022-23 from $3 billion in FY20, according to the Bain Healthcare Innovation in India report. However, the business performance of several healthtech firms have witnessed a fall since then.
Online medicine delivery and diagnostics platform Pharmeasy, backed by some of the world’s biggest investors such as Temasek and Prosus, saw its valuation drop by 90% while it struggled with loan defaults and a severe liquidity crisis.
Other online services providers including Tata 1mg and Practo, too, continue to bleed heavily with widening losses and stagnant revenues.
“In healthtech, it’s a matter of market share, which can be captured by burning money. Most of the online health firms have realised over time that it is not sustainable to keep spending money to outdo rivals,” Chandramouli said. That realisation prompted several healthtech companies to move to omnichannel, according to Chandramouli, adding that the biggest value addition to consumers from healthtech has been competitive pricing.
Most online healthcare providers offer deep discounts to acquire and retain customers, making it doubly hard to maintain a positive bottom line. “Pricing is hardly a moat,” Chandramouli said. “At a certain stage, investors will want to look at scale and stability.” He confirmed Tata Capital Healthcare is planning a third fund, but declined to share details, only saying that “the third fund will be a natural progression, but the focus is currently to complete the deployment from the current fund.”
Tata Capital’s PE arm wants to curtail exposure to digital health businesses to below 15% of its portfolio