What lies ahead for the industry beyond Covid-19

With 5G services launched in select cities on October 1, and plans for pan India soon, Indian healthcare is poised for a disruption in patient care continuum, transforming diagnosis, therapy, and prognosis. The dedicated network slices with guaranteed throughput, ultra-high speeds, and almost zero latency, promise to enable live, real-time health monitoring, telemedicine, and remote surgeries, among other revolutionary services. The global 5G healthcare market, valued at USD 215 million in 2021, projected to reach USD 3667 million by 2026, gives an indication of the doors to new opportunities that 5G will open, making healthcare patient centric.

The Covid-19 pandemic, which has tested even the world’s most advanced healthcare systems has inevitably rattled India’s healthcare system as well. Although the MedTech industry’s revenue growth accelerated, much of the improvement has come from small- and midcap companies. In 2016, McKinsey research demonstrated that growth estimate for these companies was 11 percent CAGR; by 2022, it had topped 17 percent. For large diversified MedTechs, growth expectations barely budged – from 4.6 percent in 2016 to 4.7 percent in 2022. In 2021, the value of MedTechs’ M&A deals was only half the total for 2016, when the industry was almost 20-percent smaller. By contrast, pharma M&A grew by almost 40 percent over the period. The divestiture story is even starker. Pharma companies divested more than USD 10 billion of total enterprise value in four out of the five years from 2016 to 2021; MedTechs topped USD 1 billion only in one year.

Shifting gears, hospitals are structurally well placed with momentum expected to continue from a robust Q1FY23. They are expected to report sequential revenue growth in the vicinity of 5–7 percent in Q2FY23, and with continued cost-rationalization drives, a 15–20 percent increase in EBITDA. However, diagnostic companies, with a fall in Covid-19 tests are expected to see up to a 7-percent dent in their toplines in FY23. The fall in revenues in FY23 will come after a handsome 30-percent growth in FY22 on higher testing. This trend may not be so easy to shrug off, with online pharmacy players offering tests mainly in the wellness segment of regular tests. While operating profitability is estimated to have been impacted by 3–4 percent, good cash generation, a moderate increase in realization from regular tests, various cost-optimization measures, prudent capital spends in diagnostic equipment, and low debt levels will ensure operating margin still remains healthy at 24–25 percent for FY23.

Of course, any further intense waves of the pandemic would bear watching!