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Poly Medicure Ltd Management Discussions

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Jul 19, 2024|09:44:59 AM

Poly Medicure Ltd Share Price Management Discussions

1. The Global medical devices sector has grown significantly in the last decade and is estimated to reach USD 433 billion by 2025, growing at a compound annual growth rate of 4.1% from 2020 to 2025. The market is dominated by United State of America (40%), European market (25%) and Japan (15%) etc. The Global medical devices industry is also growing in the emerging markets like Thailand, Brazil and China. Electronics and Equipment are the biggest segment followed by Disposables & Consumables. The Disposables & Consumables segment is expected to grow at the fastest rate of 10 percent, followed by Surgical Instruments at 9.49 percent between 2020 and 2025.

The per capita spend on medical devices in India is very low at USD 3, compared o global average of per capita consumption of USD 47 as well as the per capita consumption of developed nations like USA at USD 415 and Germany at USD 313.

Leading Medical Device Clusters in the World

Medical device firms are many a times operating in clusters. This is necessitated due to the various cross-functional support required by the units, including the presence of hospitals and doctors for conceptualizing and testing and quality raw materials. USA has over ten clusters. Europe too has a number of medical device clusters in Germany Netherlands, France, Italy, Switzerland, etc. India has over ten clusters. Medical devices clusters are also present in Japan, China, South Korea, Brazil, Australia etc.

India Health Scenario

Indias he industry comprises hospitals, medical devices and equipment, health insurance, clinical trials, telemedicine, and medical althcare tourism. The countrys healthcare sector has grown rapidly over the last 5 years with a Compound Annual Growth Rate (CAGR) of approximately 22% since 2016. Healthcare has become one of the largest sectors of the Indian economy, in terms of both revenue and employment.

The Indian healthcare sector is growing at a brisk pace due to its strengthening coverage, services, and increasing expenditure by public as well private players.

Indias healthcare delivery system is categorized into two major components - public and private. The government, i.e., public healthcare system, comprises limited secondary and tertiary care institutions in key cities and focuses on providing basic healthcare facilities in the form of primary healthcare centres (PHCs) in rural areas. The private sector provides a majority of secondary, tertiary, and quaternary care institutions with a major concentration in metros, tier-I and tier-II cities.

Indias competitive advantage lies in its large pool of well-trained medical professionals. India is also cost-competitive compared to its peers in Asia and western countries. The cost of surgery in India is about one-tenth of that in the US or Western Europe. The low cost of medical services has resulted in a rise in the countrys medical tourism, attracting patients from across the world. Moreover, India has emerged as a hub for R&D activities for international players due to its relatively low cost of clinical research. (https://www.ibef.org/industry/healthcare-india) India has a public-funded universal healthcare system providing access to healthcare to poorest of the poor in the country. Indias share of government health expenditure in total GDP has increased from 1.15% in 2013-14 to 1.28% in 2018-19 and is expected to reach 2.5% of GDP by 2025 as prescribed by the National Health Policy of 2017. In per capita terms, the government health expenditure has significantly grown from Rs 1042 in 2013-14 to Rs.1815 in 2018-19, with more emphasis on the primary healthcare sector. The out-of-pocket expenditure as a share of total health expenditure has come down to 48.2% in 2018-19 from 64.2% in 2013-14. As on 2021-22, nearly 70 percent of the population is protected by health insurance coverage including state government schemes, social insurance schemes, and private insurance. In a landmark step, the Government of India introduced the Ayushman Bharat- Pradhan Mantri Jan Arogya Yojana (PMJAY). PMJAY provides cash less and paper less benefit cover of Rs. 5.00 lakh per annum per family on floater basis in the empaneled hospitals across India. At present AB-PMJAY target to cover 10.79 Crore families (covering more than 50 crore population in India).

India Medical Devices Sector – Overview:

The medical devices sector in India is an essential and integral constituent of the Indian healthcare sector, particularly for the prevention, diagnosis, treatment and management of all medical conditions and disabilities. It forms an important pillar in the healthcare delivery system along with healthcare providers, pharmaceuticals and healthcare insurance industry, thereby helping achieve the key objective of the National Health Policy (NHP), 2017. Medical devices is a sunrise sector of the Indian economy, which is growing at a fast pace and is expected to become important in the future.

The size of the Indian medical devices market is estimated at USD 11 Billion in 2020, expected to grow to USD 50 Billion by 2030 with CAGR of 16.4%. The Indian medical device market share in the global market is estimated to be 1.65%. India is the 4th largest Asian medical devices market after Japan, China, and South Korea and among the top 20 global medical devices markets in the world.

India being an emerging market is also evolving as a potential manufacturing hub for the key global medical device companies. It has huge market potential and is witnessing a double-digit growth rate. As per "Invest India", there are 750 800 domestic medical devices manufacturers in India with an average investment of USD 2.3 2.7 mn and an average turnover of USD 6.2 6.9 mn. Since 1989, the regulations for Medical

Devices including IVD in India has been growing consistently under Drugs & Cosmetics Act 1940.

The growth of medical device sector in India is primarily driven by growing and ageing population, increased per capita and disposable income, demand for healthcare infrastructure, rise in diagnostic services and spread of healthcare services and insurance.

The Indian medical devices sectors contribution has become even more prominent as India supported the domestic and global battle against COVID-19 pandemic through the production of medical devices & diagnostics kits. The pandemic has also created a demand for innovative products focusing on digital services, miniaturization, wearables etc., which offer opportunity to leverage Indian IT skills and digital ecosystem to capture higher value in the global market.

Almost all the lead global firms have their Indian subsidiary. The lead 50 medical devices leaders of the world have their Indian subsidiaries.

50 per cent of those are from USA, 20 per cent from Japan, 4 each from France and Switzerland, 3 from Germany and the remaining from UK, China, etc.

Medical Devices Exports from India

India exported USD 2.9 billion worth of medical devices in FY 2021-22, a growth of 15.47 per cent over 2020-21. The CAGR for the period 2019-20 to 2021-22 is 8.43%. In 2021-22, USA (21.6%) was the top export destination of India, followed by China (5%), Germany (4.4%), France (3.1%) and Singapore (2.8%). The top 5 export destinations in 2021-22 accounted for around 36.9 percent of Indias exports.

Exports of Medical Devices as per Product Category

(Value in USD Million) Category

2019-20 Percent of Total in 2019-20 2020- 2021 Percent of Total in 2020-21 2021- 2022 Percent of Total in 2021-22 Growth rate in 2020-21 over 2019- 20 (%) Growth rate in 2021-22 over 2020- 21 (%) CAGR 2019-20 to 2021- 22 (%)
IVD Reagents 67.58 2.95 104.18 4.12 175.7 6.01 54.16 68.65 37.50%

Disposables & Consumables

1082.53 47.21 1290.26 50.97 1378 47.14 19.19 6.80 8.38%

Equipment & Electronics

998.87 43.56 984.73 38.9 1163 39.79 -1.42 18.10 5.20%

Surgical Instruments

49.77 2.17 53.64 2.12 71.21 2.44 7.78 32.76 12.68%
Implants 94.12 4.1 98.81 3.9 135.2 4.63 4.98 36.83 12.83%

Source: EEPC, DGCI&S

Disposables and Consumables: In 2021-22, ‘disposables and consumables contributed towards 47.14% (50.97% in 2020-21) of medical device exports, with India having comparative advantage in manufacturing high-volume, low-cost medical devices of this category.

Equipment and Electronics: In 2021-22, exports had a fair share of 39.8% (38.9% in 2020-21), with an export value of USD 1.16 billion in FY 2021-22, showing substantial growth of 18.10% in 2021-22.

IVD reagents, Implants, and Surgical Instruments: IVD reagents contributed to 6.01% of export of medical devices in 2021-22. Exports 68.65% in 2021-22, with USA being the top export destination. USA also imports majority of Indian manufactured implants (USD 29.46 mn) like artificial joints, cardiac catheters, artificial teeth, and defibrillators.

Imports by India

India is a net importer of medical devices, with total imports of USD 8.5 bn in 2021-22, a growth of 36.8% over 2020-21. China is the top source of imports (19.4%), followed by USA (17.2%), Germany (9.2%), Singapore (8.5%), and Japan (4.0%). Together, the top 5 import destinations accounted for 58.3 percent of Indias imports in 2021-22.

Imports of Medical Devices as per Product Category

(Value in USD Million) Category

2019-20 Percent of Total in 2019-20 2020- 2021 Percent of Total in 2020-21 2021- 2022 Percent of Total in 2021-22 Growth rate in 2020-21 over 2019- 20 (%) Growth rate in 2021-22 over 2020- 21 (%) CAGR 2019-20 to 2021- 22 (%)
IVD Reagents 527.2 9.02 871.89 13.97 882.65 10.3 65.38 1.23 18.74%

Disposables & Consumables

1076.23 18.41 1470.77 23.57 1623.55 19.0 36.66 10.39 14.69%

Equipment & Electronics

3646.53 62.38 3568.64 57.18 5441.22 63.7 -2.14 52.47 14.27%

Surgical Instruments

180.1 3.08 103.62 1.66 169.02 2.0 -42.47 63.12 -2.09%
Implants 415.35 7.11 225.63 3.62 423.06 5.0 -45.68 87.50 0.61%

Total

5845.4 100 6240.55 100 8539.5 100.0 6.76 36.84 13.47%

Equipment and Electronics: In 2021-22, import dependency on equipment and electronics grew by 52.47%. It comprised 63.7% of total medical devices exports in 2021-22 (57.18% in 2020-21).

Disposables and Consumables: India imported USD 1.6 bn worth of disposables and consumables in 2021-22, consisting of 19% of medical devices import (23.57% in 2020-21). Imports grew significantly by 36.66% in 2020-21, moderating to 10.39% in 2021-22. Major products of this import segment include syringes and needles, animal blood used for therapeutic, prophylactic, and diagnostic uses, surgical gloves, opacifiers for X-Rays and diagnostic reagents for patient administration.

IVD reagents, Implants, and Surgical Instruments: Indias import dependence on ‘IVD reagents sky-rocketed by 65.38 percent to USD 871.89 mn in 2020-21, moderating to 1.23% in 2021-22. The CAGR from 2019-20 to 2021-22 was 18.74%. Import growth rate from USA (33.43%) shot up significantly, making it the top import destination for IVD reagents in 2021-22.

Growth Factors: India Medical Devices

Increasing Demand: India is expected to become the third largest economy by 2030, with an expected GDP growth rate of 7.8 percent in FY 2022-23. The growth in GDP is likely to trickle down to priority sectors like health technology, in particular medicines and medical devices. Backed by growing healthcare needs and governments focus to facilitate growth, the medical devices industry is likely to experience strong growth.

The population in India is expected to reach 1.4 billion by 2025, with an increase in life expectancy to 70+ years in 2022 from 67 years in 2015.

This has come with an increased burden of chronic/communicable diseases. By 2051, around 57 percent of the disease burden is expected to be from chronic/communicable diseases (46 percent in 2006) as per NCBI Resources, May 2022. In case of chronic diseases, clinical diagnostics and care are required throughout the patients life. With the growth in 65+ age-group population, the prevalence of non-communicable diseases is also expected to steepen. These factors can attribute to significant growth in demand for medical devices in India.

Indias per capita income is expected to reach USD 2730 by 2025 (USD 1875 in 2016) (As per India GDP per capita, Trading Economics Report). With the rising income levels, and better health awareness, Indias per capita spend on healthcare is projected to be the highest (9.3%) in Asia-Pacific market as compared to China (6.7%), Thailand (5.4%), Malaysia (4.0%), Japan (3.9%), and Australia (1.3%). The governments expenditure on healthcare as a percentage of GDP has grown from 1.15% in 2013-14 to 1.28% in 2018-19 and is expected to reach 2.5% by 2025 as prescribed by the National Health Policy of 2017. The medical devices industry will experience a boost with rising private and government spending in India.

Export Opportunities: Despite recent experiences in accelerating domestic production of medical devices, most imports of medical devices are largely high-value and low-volume devices while the domestic production are largely low-value and high-volume diagnostic tools. However, in recent years, Indian medical devices manufacturing industry is improving its coverage even among sophisticated and high-end segment. Indian industry has begun manufacturing more sophisticated devices like electro-diagnostic apparatus, used in medical, surgical, dental, or veterinary sciences, orthopaedic appliances, splints and other fracture appliances, artificial parts of the body etc. (Datta and Selvaraj, 2019).

Labour Cost (2252 USD/annum) of Indian Manufacturing Sector is among the lowest in the world as per the ILO 2018 data. In fact, Labour Cost (2547 USD/annum) of Indian Medical Devices Industry is also among the lowest and is significantly cheaper from other fast-developing countries like China (9274 USD/annum), Brazil (8038 USD/annum), Mexico (7415 USD/annum) and Vietnam (3090 USD/annum). Percentage of high skilled workforce (13%) in Medical Devices Industry is third highest in Manufacturing Sectors after Petroleum Products Industry (15%) and Pharma Industry (14%). However, the percentage of low to medium skilled workforce (65%) is lowest in Manufacturing sector after Pharma Industry (61%). More than 8% of the Medical Device Industry receives foreign investment, second highest after Automobile Industry (11%) in the Manufacturing Sector and 30% more when compared to Pharma Industry (6%). Although less than Pharma, average GVA and Profit of Medical Devices Industry is 20% higher, on an average, than most industries in Indian Manufacturing Sector.

Policy Support: The industry has particularly benefitted because of two flagship schemes of the Department of Pharmaceuticals PLI and Medical Devices Park. It is also benefitting local manufacturers with special purchase policy. The Industrial land bank portal will make investment easier too. A number of medical devices arks are also opening up in various parts of the country. However, comparatively low R&D base is one of the major weaknesses of the Indian medical devices manufacturing industry. As per Annual Survey of Industries (2017-18) by Foundation of MSME Clusters (FMC) shows that only 8% of factories manufacturing medical devices and equipment have R&D units (whereas 15% of pharmaceuticals, medicinal chemical & botanical products manufacturing factories have R&D units). If this is taken care of India will be more confident a manufacturing base for innovative products.

With a rising domestic demand, the support through various programs of the various Ministries, especially the Department of Pharmaceuticals, the Indian medical device industry is all poised to grow.

Increasing Investment: Recognizing the importance and need for investments in the sector, 100% Foreign Direct Investment (FDI)through automatic route was allowed in the medical devices sector in 2014. FDI per annum increased from Rs 942 crores in 2014-15 to Rs 1545 crores in 2021-22. There was a quantum jump in FDI in 2022-23. FDI during the first three quarters of the year was Rs 2,798 crores. The cumulative FDI during the years 2014-15 to December 2022 stood at Rs 13955 crores.

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