Nureca Ltd Management Discussions

Economic Review

Global Economy

Major emerging economies enjoyed a growth premium in 2022, while advanced countries failed to step up not nearly as much as they expected. The year started with the continuing onslaught of the pandemic and the onset of the Russia-Ukraine war, the double jeopardy that hit the global community in 2022. The resultant food and energy crises, rising inflation and debt tightening shocked the world economy thereafter. Against this backdrop, world growth output decelerated from 5.9% in 2021 to 3.4% in 2022.

Most weaknesses are concentrated in advanced economies like the EU and US. Major emerging Asian economies, on the other hand, drove global growth despite high inflation, aggressive monetary tightening and ampli_ed uncertainties.

Infiation remained persistent even in the face of repeated interest rate hikes by major central banks. However, the picture was not as gloomy as it sounds. Despite such headwinds, exceptional resilience was witnessed from the years third quarter.

Led by the rebound in private consumption, increasing business investment and strong labor markets, global economic growth reached a satisfactory level by the end of the year. European economy adapted better than expected to the energy crisis created by the war.

Global trade hit a record US$32 trillion in 2022, where both trade in goods and services witnessed substantial growth. Infiation showed signs of improvement in many countries, but core inflation remained sticky till the end of the year.

IMF downgraded the world growth projection for 2023 to 2.9%. It indicates a growth slowdown on a global scale. However, the slowdown is expected to be more pronounced in advanced economies. Global headline Infiation could recede from 8.7% in 2022 to 7% in 2023 due to lower commodity prices.

Also, the weakening US dollar is set to provide some relief to emerging and developing economies. Furthermore, this year, diversification of suppliers, reshoring, near-shoring, and friend-shoring will mark the global trade pattern. In the meantime, efforts of the global communities to build a greener world will boost the demand for environmentally sustainable products.

Indian Economy

India emerged stronger from the haze of uncertainties created by the ongoing geopolitical conflicts, supply-chain disruptions and worldwide inflation. Despite significant challenges continuing to impact the global economic system, India retained its coveted position as one of the fastest-growing economies in the world. Data released by NSO (National Statistical Office), Ministry of Statistical Programme and Implementation (MoSPI) suggests Indias GDP grew by 7.2% in FY23 in the face of several global headwinds. Economic growth was fuelled by healthy investment activity bolstered by Governments push to capex and robust household consumption.

Elevated inflation persisted throughout the year. CPI (Consumer Price Index), which measures retail inflation, reached its peak in April 2022 at a whopping 7.79% owing to exceptionally high prices of fuel, food and other essential items. However, at the end of the fiscal, continuous monetary tightening by RBI and easing global commodity prices caused a decline in CPI to 5.66%, slightly below the RBIs tolerance limit Underlying demand gained momentum towards the end of the financial year, surging factory output. Indias manufacturing sector expanded quickly in three months up to March 2023. The S&P Global India Manufacturing Purchasing Managers Index (PMI) rose from 55.3 in February to 56.4 in March at a three-month high. It stayed above 50 for 21 months, separating contraction from expansion.

The gross GST collection in FY23 is C18.10 lakh crore, 22% higher than the last financial year. The monthly GST collection in March 2023 was C1.6 lakh crore, which is 13% higher compared to the same period of FY22. Gross Direct Tax collection for FY23 was at C19.68 lakh crore registering a growth of 20.33% over last year. The rise in direct tax and GST collection indicates the robust spirit of the Indian economy.

Infiation is likely to fall at a comfortable level in FY24 but expected to remain elevated, nonetheless. General consumers in India are expected to be somewhat weighed down by their financial situation, impacting discretionary spending. However, most Indian customers are expected to reduce their expenses in segments such as luxury goods.

RBI has projected Indias GDP to grow at 6.5% in FY24. Rising borrowing costs and slower income growth will affect private consumption growth this financial year. But Indias growth story will continue to remain resilient. Here the key growth driver would be the surge in private investment led by a massive capex push by the Government which has a multiplier effect in terms of growth, income and employment.

Industry Overview

Global Home Healthcare Market

Home healthcare is supportive healthcare that is provided at home. It allows a person to remain in the comfort of their home, monitor their health regularly and receive service and support for recovering from illness, injury or disability.

In todays time and age, home healthcare has become extremely necessary both for ordinary individuals and professional caregivers. For two important reasons

1) Lifestyles have become so utterly stressed, leading to a much larger subset of people ailing from lifestyle-related disorders.

2) Formal healthcare is increasingly stressed. A large number of patients are being released from hospitals who continue to need post-hospital care. Consequently, both professional caregivers and common people are using home healthcare solutions.

These devices monitor health parameters, administer simple first aid, and deliver advanced medical treatment. These medical devices are typically designed for professional medical professionals and the simple public. Some of the most prominent and widely used devices are heart rate monitors, BP monitors, oxygen saturation in blood monitors, blood glucose monitors, etc. Among these devices, diagnostics equipment holds a significant market share.

The global home healthcare market is expected to reach US$ 634.9 billion by 2030 at a CAGR of 7.9% from 2022. This growth can be attributed to improved patient outcomes, cost efficiency and convenience home healthcare companies offer. Additionally, a sedentary lifestyle, a rising geriatric population, a growing prevalence of chronic diseases and ever-growing treatment costs will drive market growth.

Indian Home Healthcare Market

Indian home healthcare market continues to grow strongly but remains nascent compared to advanced nations.

The rise of nuclear families in India, personalised care and a_ordability fuels sectoral growth. Also, both formal and informal support structures are unable to satisfactorily fulfill the demand for care of post-operative patients, chronic patients and the elderly. Hence, home healthcare involves various elements, namely diagnostics, therapeutic & monitoring devices, mobility devices, medical supplies and telemedicine.

Key growth drivers

A growing geriatric population: India has one of the largest elderly populations in the world who need continuous personal care, which is not available in formal hospital settings. According to the 2011 Census, there were ~104 million old (aged 60 years or above) in India.

A report by the UN Population Fund and HelpAge India reveals that this number of elderly persons is expected to grow to 173 million by 2026. Because older adults are more susceptible to diseases and disabilities, the growth of this population will increase the demand for home healthcare.

Further, chronic diseases which affect senior citizens disproportionately contribute to disabilities, reduce the quality of existence and increase long-term maintenance expenses, thus unlocking an array of opportunities for home healthcare companies.

High-stress lives: In its drive to become an advanced economy and a global hub (for manufacturing and services), most Indians live highly stressed lives with practically no work-life balance and inadequate physical exercises. This change has resulted in an alarming growth of lifestyle-related ailments. The prevalence of such diseases drives the need for home healthcare services, as these patients require regular monitoring and care.

Poor access to health facilities: With an estimated 1/6th of the world population, India accounts for a high burden of 21% of world diseases. India also has a meager percentage of hospital beds compared to other developed nations and only 8.6 doctors per 10,000 people compared to the US, with one doctor for every 300 people. Hence, a large section of the Indian populous does not have access to hospitals.

High hospitalisation cost: In India, a large number of patients who are admitted to hospitals su_er from chronic diseases. Typically, these people must pay hefty amounts for treatment in a formal hospital setting. But a similar setup at home will cost only about 1/5th of that. The massive cost saving through the home medication route is now being increasingly adopted. Some studies suggest that the home healthcare market in India has the potential to replace 65% of unnecessary hospital visits and overall operational costs by 20.2%.

Technological advancements in the home healthcare segment: Cutting-edge technologies like telehealth, remote health monitoring and AI drive growth in the home healthcare market. These technologies monitor patients health, bridge the gap between patients and medical professionals, analyze the gravity of patients medical conditions and provide probable solutions to healthcare providers. The power of technology is revolutionising the home healthcare industry in terms of delivering quality healthcare services cost-effectively. As a result, innovations in the home healthcare industry are expected to open new horizons and drive growth in the future.

Advanced countries already have a well-established and well-regulated framework for home care for those in need. Though not really there, India has begun the journey towards delivering quality home healthcare. In the future, technology-driven teleconsultation, remote healthcare monitoring and management of lifestyle can help build a preventive care ecosystem.

Indian Home Healthcare Market Size and Growth Forecast

The Indian home healthcare market was valued at US$ 8.8 billion in 2022 and is expected to increase at a CAGR of 19.29% from 2023 to 2030.

Increasing focus on telemedicine/telehealth: Telemedicine became popular during the pandemic, but its enormous advantage remains in vogue even after the health scare. It has reduced the physical gap between patient and doctor/caregiver and facilitated the timely and accurate delivery of medical services. It allows healthcare professionals to monitor patients remotely. Realising the immense benefit of telehealth, experts opine that its adoption will continue to grow in the years to come. Healthcare companies also see a lucrative opportunity to grow their products that facilitate telehealth services.

Convenience from home diagnostic devices: The pandemic and consequent lockdowns created the realisation that individuals can monitor their key health parameters from the convenience of their homes. Freedom from the hassle of visiting labs for tests and subsequent reports for essential health checkpoints is growing the demand for health equipment such as BP monitors, pulse oximeters, pedometers, blood glucose monitors and others.

Wearables are the future: Wearable devices are used as health sensors that track heart rate, sleep pattern, calorie intake and much more. It helps medical professionals get a clear and comprehensive picture of patients health and treat them accordingly. These wearables are also connected with caregivers and doctors, facilitating patient monitoring and increasing convenience. For example, blood pressure cu_s send blood pressure and pulse readings to a relevant medical practitioner. Such devices have further fueled the growth of the home healthcare market.

Indian Home Healthcare Devices Market

The Indian home healthcare medical devices market is growing at a 10-15% CAGR. The primary user group of these diagnostic and monitoring devices is people with disability, chronic diseases or other lifestyle diseases. Traditionally, a large percentage of these people are 60 years old or above. But of late, there has been a paradigm shift in the age group of consumers.

Health awareness among young people: The health-conscious younger generation in urban areas are now investing in devices that help them track their vital signs like blood pressure, heart rate, oxygen levels and much more. Moreover, the sudden rise in fatalities among Indian youth owing to undetected ailments has further forced the youth to seek preventive care solutions. As a result, the age group of people purchasing these devices has shifted from senior citizens to a much younger demographic. About 58% of home health device buyers feature in the 25-45 year age bracket.

Government policy: Indian Governments National Health Policy, 2017 dictates to move away from ‘Sick-care to ‘Wellness with a thrust on prevention and health promotion. The primary objective of this policy is to reduce premature mortality from cardiovascular diseases, diabetes or chronic respiratory ailments. With the launch of Ayushman Bharat Digital Mission 2020, India is expected to be connected through digital health solutions. It will help hospitals, insurance companies, citizens and other stakeholders access relevant electronic health data.

Indian Chronic Care Market

Indias chronic care market is unique and different from the rest of the world. It is a very price-sensitive market. Hence, despite being essential products, chronic care device adoption is very low in India. Hypertension, diabetes and cardiovascular diseases are Indias most prevalent chronic conditions. These three are followed by arthritis, asthma and COPD. The increase in chronic diseases includes genetics, lifestyle, rapid urbanisation and stress.

About 242 million people are suffering from hypertension, 75 million from diabetes and 67 million from some cardiovascular disease. Among other things, all these patients journey includes regular lab tests, making dietary changes, purchasing medicines and regular vital monitoring, and these processes can go on for a lifetime.

The chronic disease market is about US$ 40 billion, with the chronic care urban OPD market at US$ 17 billion in 2022. It presents a vast opportunity for digital chronic care management companies because, right now, they represent only 1% of the market.

Indian Home Healthcare Market Segment

Indias home healthcare market is divided between urban and rural, with disparities in access to healthcare in villages. Tier 1 cities contribute the markets most dominant share (~76%). Post Covid, these cities shifted significantly from traditional to home healthcare services. The home healthcare market is further divided into equipment and service-oriented. The equipment sector is divided into three sub-categories – therapeutic, diagnostic and mobility assist equipment. The therapeutic device segment contributed 42.57% in 2022 of the overall equipment market. In-home therapeutic respiratory devices have the largest market share. Credible sources suggest that the diagnostic device market will grow fastest at 20.27% CAGR from 2023-2030.

Opportunities & Threats

Business Overview

Nureca Limited is an inspiring story in the Indian home healthcare and wellness space. It has played a pivotal role in growing the home healthcare segment in India with its thought-provoking technologies, novel products and associated digital ecosystem. These products enable early detection and management of lifestyle diseases.

The Company is a D2C company with 150+ SKUs in different categories. Nureca has adopted the asset-light model where the Company owns trademarks, copyrights, and design registrations, and product manufacturing is outsourced to dedicated vendors with stringent quality control parameters, which are monitored by the Companys quality control team.

These Companys product accuracy is unmatched as its products are certified by reputed global regulatory agencies, namely US, FSA, European CE, ROHS and ISO standards.

Most of Nurecas products are marketed through leading online channels in India and across the globe. The Company is supplementing its online presence with a distribution channel comprising distributors and retailers.

Financial Performance Overview

• GMV for the year was at C1,523 million as compared to C3,403 million in FY22, a decrease of 55.25%

• EBITDA was C(79.05) million as compared to C632.04 million in FY22, a decrease of 112 %

• EBITDA margin stood at C(6.67)% as against 24% in FY22, margin decreased by 128%

• PAT stood at C(82.50) million; it was C449.60 million in FY22, dipping 118%

• Cash and Cash Equivalents stood at C709.66 million, while Investments were at C590.85 million as of March 31, 2023 – a showcase of the strength in the Balance Sheet

Analysis of the profit & loss statement Revenue

Revenue from operations dipped by 56% from C2,555.5 million in FY22 to C1,113.2 million in FY23.

Other income dipped by 7.7% and accounted for a 6% share of the total revenue reflecting the Companys dependence on its core business operations.

Expenses

Total expenses decreased by 36% from C2022.6 million in FY22 to C1291.7 million in FY23 primarily owing to decrease in sale and other expenses due to decrease in revenue. The cost of goods sold (constitutes 67.9% of the Companys revenue from operations) decreased by 43% from C1326.24 million to C755.3 million owing to decrease in operations. Other expenses (constitute 31.21% of the Companys revenue from operations) decreased by 39.6% from C575 million to C347 million mainly due to decrease in operations during the year.

Analysis of the Balance Sheet Source of Funds

Net worth decreased by 4.1% from C2,032 million in March 31, 2022 to C1,949 million in March 31, 2023 owing to accrual of losses to Reserves by C(83.16) million. The Capital Employed decreased by 4.52% from C2,076 million as on March 31, 2022 to C1,982 million as on March 31, 2023. Return on average capital employed, a measurement of returns derived from money invested in the business, decreased from 30% in FY22 to (5%) in FY23.

Application of funds

Cash and cash equivalents and other bank balances decreased from C843.5 million as of March 31, 2022 to C709.66 million as of March 31, 2023. The Investment portfolio increased from C331.9 million as on March 31, 2022 to C590.8 million as on March 31, 2023 owing to investments in mutual funds. Net increase in funds is primarily due to realization from inventories. (Inventories came down from C631.77 million as on March 31, 2022 to C344.77 as on March 31, 2023). However the same was offset to some extent by operational losses.

Working capital requirements

Current assets decreased by C196.30 million from C2061.9 million in March 31, 2022 to C1865.6 million in March 31, 2023. Inventories of the Company increased by C287 million from C631.8 million as on March 31, 2022 to C344.77 million as on March 31, 2023. Current liabilities of the Company decreased by C33.6 million from C122.4 million as on March 31, 2022 to C88.8 million as on March 31, 2023.

Margins

The EBITDA margin of the Company is reduced to -6.67% in FY23 from 24 % in FY22. This reduction was a result of decrease in revenue. Net profit margins of the Company decreased from 17.1% in FY 2021-22 to -6.97% in FY 2022-23. Gross Margin of the Company reduced from 48% in FY22 to 32% in FY23 as the gross margins were impacted post covid surge due to inflation in input cost, currency fluctuations as well as inflationary pressure in other non-core costs.

(a) Financial performance with respect to operational performance

The Companys revenue during FY23 stood at C1,113.2 million as against C2,555.5 million in the previous year recording a decrease of 56.4%.

Significant changes in key financial ratios

Return on Net worth (PAT / Net Worth)

Internal Control and Adequacy

A robust internal control culture is an important focus and thrust area in the Company. The organisation has comprehensive internal systems, controls and policies for all the major processes to ensure the reliability of financial reporting, timely feedback on the achievement of operational and strategic goals, compliance with policies, procedures, laws, and regulations, safeguarding of assets and economical and efficient use of resources.

The formalised systems of control facilitate effective compliance as per LODR Regulations. The Company also has well-documented Standard Operating Procedures (SOPs) for various functions, which are periodically reviewed for changes warranted due to business needs.

The Internal Auditors of the Company continuously monitor the efficacy of internal controls and ensure compliance with SOPs to provide the Audit Committee and the Board of Directors with independent, objective and reasonable assurance of the adequacy and effectiveness of the organisations risk management, control and governance processes.

The scope and authority of the Internal Audit activity are well defined in the Internal Audit scope and guidelines and approved by the Audit Committee. Internal Auditors develop a risk-based annual audit plan with inputs from major stakeholders and major focus areas of previous audit reports. All significant audit observations are reviewed periodically and followed up with the Audit Committee.

The panel also meets the Companys Statutory and Internal Auditors to incorporate their views on the financial statements, including the financial reporting system, compliance with accounting policies and procedures, and adequacy and effectiveness of internal controls and systems followed by the Company.

Top and senior management also assesses the scope for improvement in business processes, systems and controls, provides recommendations designed to add value to the organisation, and follows up on implementing corrective actions and improvements in business processes.

The senior management meets periodically to assess the performance of business segments and essential functions of the Company, and areas for improvement of performance/ controls are identified and reviewed continuously.

Human Resource

Nurecas HR management philosophy revolves around empowering the employees to make them more productive, efficient and integral to the organisation.

The Company always believes in hiring the best talents across disciplines and nurturing their skills to help them grow professionally and personally. It provides a suitable and growth-oriented work environment that ensures workplace safety and room for individual growth.

It nurtures the skills and competencies of its employees to drive shared organisational objectives. The Companys people development practices help strengthen the capabilities of its human capital that, contribute to business growth.

Nureca believes in retaining its knowledge capital by involving them in business strategies. This initiative cements their bond with the Company and prepares them for future leadership. As on 31st March 2023, the Company has 102 employees on its payroll.

Managing Business Uncertainty

With the global and domestic macro- and micro-economic scenarios evolving unfathomably, business risks are becoming increasingly dynamic and complex.

Cognizant of the changing business ecosystem, Nureca has developed a robust and resilient risk management framework for identifying, analyzing and managing business risks.

The Companys Risk Management Committee, along with the senior leadership, monitors situations and emerging risks. It draws the blueprint of the mitigation plans, which are then executed by the functional heads.