Indian ‘eHealth’ sector is at a tipping point, and is projected

to grow by ~13x, to become a $16 Bn opportunity by FY 25!

We recently launched our narrative on the promising eHealth sector in India, entitled “Indian
‘eHealth’ at a tipping point. The report details how the current $1.2 Bn eHealth sector will
grow at a ~68% CAGR to become a $16 Bn opportunity by FY 25. Through this blog, we
would like to build upon the key themes and insights covered in the report.

Indian Healthcare Sector – A promising $353 Bn opportunity by FY 25!

The $135 Bn Indian healthcare industry is on an exciting growth trajectory, with Indian Govt.
prioritizing healthcare as one of the key focus areas for the next few years. The Govt. plans
to increase its healthcare spending from the current 1.6% to 2.5% of the GDP until FY 25.
There is significant opportunity for improving the healthcare services across the country,
especially in Bharat, where penetration of quality and affordable outpatient & inpatient care
services is limited.

Moreover, increased awareness levels amongst consumers is further going to drive higher
healthcare consumption levels. Driven by the same, the Indian healthcare market will grow
at a healthy 17% CAGR and reach $353 Bn by FY 25. This will lead to an overall (Govt. and
Private) increase from 4.6% to 7.1% spending on healthcare (as % of GDP) in a span of 6
years. The private spending will witness a ~2.6x increase during this period to reach $228
Billion. This along with $125 Billion government spending, will lead to $255 healthcare
expenditure per capita in FY 25, significantly up from the current $99.

Note(s): (A) 1 USD = INR 70

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‘eHealth’ – The exciting digital use case for the Indian consumer outpatient care!

Healthcare has a complex supply chain, involving multiple stakeholders, primarily suppliers,
healthcare providers, consumers and medical insurers. Suppliers include pharmaceutical
companies (i.e. drug manufacturers) and equipment manufacturing companies. Providers
are broadly segmented into: 1. Outpatient care providers, which include pharmacies, doctors
(for consultation) and diagnostic centers. 2. Inpatient care providers, which are basically
hospitals that provide all the services in-house. Consumers are the end-users of healthcare,
who mostly avail services as a household. Lastly, medical insurers provide financial
coverage to consumers and help them avail healthcare services.

eHealth sector in India is focused on digitizing the interaction between consumers &
outpatient care providers, which include pharmacies, doctors and diagnostics centers. These
platforms provide consumers with a convenient healthcare experience by offering pharmacy,
consultation and diagnostics services online. While e-Tailing horizontals also provide online
ordering of OTC & personal care products, eHealth focused vertical players largely drive the
play in this sector. Medlife, 1mg, Pharmeasy, NetMeds, Practo, DocsApp, Medplus and
Healthians are some of the leading eHealth players in India. While some of them provide
only a single category of eHealth service (out of ePharmacy, eConsultation and
eDiagnostics), some of the others provide all the three eHealth services, making them a
'One Stop Shop' eHealth integrated solution provider.
Consumers face multiple challenges driven by inefficient processes, higher costs and poor
quality of services, as part of their traditional outpatient care journey across pharmacies,
doctors (for consultation) and diagnostics centers. However, with eHealth coming into play, it
has significantly taken care of the problems associated with traditional outpatient care
journey by providing convenient, efficient, cheaper and good quality services through
modern-day technology to healthcare consumers.

Pain points
 eHealth solutions
Pain points

Note(s): (A) Includes both online appointment booking and e-consultation (i.e. video / chat based)

eHealth Ready addressable households represent online shopping households that are
willing to try eHealth services. Out of the 580 Mn people who have internet access, India has
~135 Mn online shoppers, who translate into 90 Mn online shopping households. As per our
detailed consumer surveys, ~65% of such households are willing to try eHealth services,
thus providing the 60 Mn base (65% X 90 Mn) of eHealth ready addressable households.
Out of these, ~4.3 Mn households currently use eHealth i.e. ~7% of the eHealth ready
addressable base of 60 Mn households.

Note(s): (A) All the online shoppers belong to NCCS A/B/C categories
We at RedSeer, believe that eHealth sector will have 3 potential growth scenarios in terms of
number of tapped households over the next 5 years.

1. Base Scenario: eHealth will tap 41 Mn households by FY 25, growing at eHealth’s

historic 2 Yr. CAGR of 57%.

2. Moderate Scenario: eHealth will tap 57 Mn households by FY 25, growing at eGrocery’s

historic 2 Yr. CAGR of 68%.

3. Aggressive Scenario: eHealth will tap 68 Mn households by FY 25, growing at

Foodtech’s historic 3 Yr. CAGR of 74%.

60 Mn eHealth ready households are expected to reach 140 Mn by FY 25. This growth is
going to be driven on the back of growing online shopper base and increase in willingness to
try eHealth. As per the 3 growth scenarios as discussed above, this translates to a
penetration of ~30 to 50% of eHealth ready household base, by FY 25. eHealth Ready
Addressable Market is derived through multiplying average order value (AOV) of outpatient
medical purchase and yearly medical purchase frequency with eHealth ready addressable
households. After applying the calculations, it is found that eHealth currently has $11 Bn
ready addressable market, out of which only ~11% has been tapped at $1.2 Bn eHealth
GMV.

eHealth Ready Addressable Market is derived through multiplying average order value
(AOV) of outpatient medical purchase and yearly medical purchase frequency with eHealth
ready addressable households. After applying the calculations, it is found that eHealth
currently has $11 Bn ready addressable market, out of which only ~11% has been tapped at
$1.2 Bn eHealth GMV.

However, by FY 25, the eHealth ready addressable market is expected to grow to $35 Bn,
out of which, 38-55% is likely to be tapped by eHealth players at $11 – 19 Bn annual GMV,
driven by the three growth scenarios as detailed earlier. This is despite assuming the same
AOV & frequency for eHealth users as the current year (lower AOV / frequency for new
users will normalize against higher AOV / frequency for old users).
Note(s): (A) Includes only the online shopper households willing to try eHealth

At ~68% CAGR (moderate growth scenario), eHealth will be able to tap 19% of the total 300
Mn households (57 Mn eHealth households) in India i.e. in the same range as the expected
Indian households to be tapped by eGrocery. However, at this extraordinary CAGR, eHealth
will clearly outpace other consumer internet sectors in terms of growth.

Note(s): (A) Includes only the online shopper households willing to try eHealth

Note(s): (A) Total households in India (FY 25) considered to be 300 Mn

‘Sustainability’ of eHealth business models – ‘Who will potentially win’!

Driven by the significant potential as elaborated earlier, last few years witnessed launch of
variety of business models in the eHealth market. Most of these models brought in vertical
specialization, driven by the specialized and regulated nature of the healthcare market.
Thereby, while most of the players operate as verticals, horizontals such as Amazon have
been confined to OTC category which does not require much specialization or regulatory
approvals. Within eHealth vertical players, there are players who focus on standalone
categories such as ePharmacy or eDiagnostics or eConsultation, while many players have
realized the benefits of acting as a ‘One Stop Shop’ and being an integrated outpatient
healthcare services provider.
Note(s): (A) Standalone vs Integrated play defined basis GMV category share i.e. higher the GMV of non-pharma eHealth categories, higher the integrated play

Therefore, we at RedSeer classify the business models into 3 categories:

1. eHealth Integrated players: These include vertical focussed eHealth players who
provide all 3 eHealth outpatient care services on their platform e.g. Medlife, 1mg etc.

2. eHealth Standalone players: These vertical focussed eHealth players provide one
eHealth outpatient care service e.g. Apollo Pharmacy, PharmEasy etc.

3. OTC first players: These are horizontals such as Amazon, who predominantly only
provide OTC products on their e-Tailing platforms.

While all these players are evolving and trying to grow, the big question that most of us are
trying to seek answer to is, which of these models will sustain in the long run? We at
RedSeer believe that there are 5 key drivers of sustainability in this market (further
categorized into business model and operating model levers), as elaborated in detail in the
graphic below:
1A. Vertical Models to dominate!

Healthcare by virtue has been a highly regulated sector, strictly driven by end consumer
safety concerns. Be it availability of qualified personnel, adherence to regulatory norms,
specialized supply chain capabilities for medicines (or other supplies), or requirement of
appropriate infrastructure, it becomes mandatory for any provider to gain expertise and
comply to norms. Complications increase slightly further when we speak about eHealth, due
to virtual connect between an end consumer and a provider, specifically for categories such
as Prescription medicines, Consultation or Diagnostics. >80% of the eHealth market today is
dominated by Verticals, and we believe that verticals will dominate in this market.
Horizontals will be confined to OTC play only.

1B. Integrated play – ‘One Stop Shop’ is the key to win!

We firmly believe that eHealth integrated models will sustain in the long run driven by:

• Their ability to command higher end consumer satisfaction and stickiness.

• Higher potential to monetize through proactive cross selling at reduced CAC.
• Ability to command higher AOV & LTV due to wider portfolio of services, and
increased touch points with the end consumers.
• Low risk as Revenues / GMV / Margins are hedged against multiple product /
services categories.

1C. ‘Innovate’ & ‘Monetize’ – The Mantra to success!

This mantra is true for any organization, or sector. In eHealth too, it is imperative that all
models continue to consistently look at for additional monetization opportunities, as the core
services will see a ceiling some point in time. We’ve some of the most attractive
monetization opportunities in the eHealth sector:
 • Private Labels: Through the data analyzed on contribution margins for a few players
viz. a viz. their percentage revenues which come from private labels, and realized
that there is a direct correlation
• Value Added Services (AI/ML based data insights, in-app marketing visibility, target
based incentives etc.) for healthcare providers & suppliers:
• Targeted performance-based marketing / advertising

2A. ‘Omni-Channel’ – The distribution strategy for eHealth!

We believe that being a specialized category, eHealth will benefit tremendously through
‘Omnichannel’ presence. It will certainly bring in enhanced brand presence and reach, along
with numerous other benefits. In fact, few eHealth players have already realized the merits,
and have initiated O2O play. There are numerous success stories from other sectors (e.g.
FristCry in babycare, Lenskart in eyewear), where O2O play has boosted the brand
awareness as well as growth.

2B. ‘Hyperlocal vs Scheduled’ AND / OR ‘Captive logistics vs. 3PL’ – Optimum

operating model basis geo demand mapping is going to be the key for eHealth
players!

We believe that in high demand micro-markets in Metros, and subsequently in Tier 1 cities,
eHealth providers will need to create hyper-local capabilities to provide the highly profitable
end consumers a differentiated experience and drive further stickiness as a result. The same
can only be serviced through an optimum mix of Captive and 3PL Logistic operational
capabilities. In high demand geographies such as Metros, Captive logistics will enable
delivering the required end consumer experience, while 3PL capabilities will be savvied and
cost effective to service low to mid demand regions.

For more queries, please reach out to query@redseer.com