Why Tata Capital Healthcare Fund is wary of healthtech bets

Tata Capital Healthcare Fund has raised two funds of a cumulative $200 million so far, and is planning a third investment vehicle. (Bloomberg)
Tata Capital Healthcare Fund has raised two funds of a cumulative $200 million so far, and is planning a third investment vehicle. (Bloomberg)


The healthcare fund wants to curtail its exposure to healthtech to less than 15% of its portfolio. But it has its eyes open for single-specialty healthcare companies operating in areas such as oncology and dialysis

In an indictment of sorts of India’s healthtech sector, Tata Capital Healthcare Fund, the healthcare-focused private equity arm of Tata Capital, is limiting its exposure to digital health, choosing to avoid risky bets in segments such as e-pharmacies, telemedicine, and e-diagnostics.

“Some of these models involve high cash burn and have 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. TCHF has raised two funds of a cumulative $200 million so far.

Chandramouli’s wariness stems from how digital health has grown in the last few years.

Healthtech—which primarily comprises new-age healthcare businesses built with an online-first approach—garnered significant investor interest in 2021 driven by the pandemic. Healthtech investments soared to $7 billion in 2022-23 from $3 billion in FY20, according to Bain’s Healthcare Innovation in India report.

However, the business performance of several healthtech companies went in the opposite direction.

Chasing market share

Online medicine delivery and diagnostics player Pharmeasy, backed by some of the world’s biggest investors such as Temasek and Prosus, saw its valuation drop by 90% while it dealt 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.

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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 bottomline. “Pricing is hardly a moat," Chandramouli said. “At a certain stage, investors will want to look at scale and stability."

A third fund in the works

Chandramouli 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 Healthcare Fund made its first healthtech investment in 2022, putting in $10 million in Deeptek Inc., an artificial intelligence-backed imaging business. At the time, Chandramouli said, Deeptek’s imaging solutions had a successful track record of commercial adoption. 

Across the wider healthcare space, TCHF has backed companies including Sparsh Nephrocare, Lokmanya Hospitals Pvt. Ltd, Mumbai Oncocare Center, Anderson Diagnostic Services Pvt. Ltd, and Apex Kidney Care.

For its portfolio, the healthcare fund may look at “specialised services" in digital health solving for unmet needs, but is unlikely to make another healthtech investment through its second investment vehicle, Chandramouli said.

The remaining corpus is expected to be deployed in some new opportunities and in select companies from within its portfolio over the next 18 months, she added.

Oncology, dialysis care for the win

Through its Fund I and Fund II, Tata Capital Healthcare Fund has chiefly made bets in healthcare and lifesciences firms.

The firm has completed the deployment of nearly 80% of its Fund II across pharmaceuticals, diagnostics, and research-focused contract development and manufacturing organisations. Last year, TCHF invested $10 million in Apex Kidney Care after completing the final close of its 955-crore ($126 million) second fund.

The firm is now looking closely at single-specialty, therapy-focused care, especially oncology, given the mismatch in demand and supply. “Medical oncology, which includes chemotherapy and daycare clinics, is now getting formalised into chains," Chandramouli said.

The segment includes looking after patients’ needs such as daycare services, pharmacy, and diagnostics in a single place while having collaborations in place with a network of hospitals for surgery or radiation.

TCHF also has its sights on dialysis care, which, according to Chandramouli, is an unmet need. 

The increasing focus by the government through public-private partnerships such as the Pradhan Mantri National Dialysis Program underscore the ability of a provider to scale and improve cost-efficiency, she added.

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