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February 23, 2023
India’s economy is in focus globally, and is also at an inflection point.
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April 27, 2022
By Manu Balachandran, Forbes India
Apr 27, 2022
Sometime in 2002, in his mid-20s, Ravi Modi wanted to buy a Mercedes. Not because he was a petrol head or because he wanted to flaunt his newfound success in his hometown, Kolkata.
“My belief was that if you can afford it, buy it,” says Modi, who’s dressed in a blue kurta pyjama at his house in Newtown, Kolkata. His then-four-year-old business, Vedant Fashions, which made popular ethnic wear, Manyavar, was doing reasonably well and money was flowing smoothly. However, as he firmed up his plans to buy a Mercedes, his father, who had earlier inadvertently brought out the entrepreneur in Modi, asked his son a few questions. And then doled out some sound advice.
“He asked me whether I can afford it. I said I can,” the soft-spoken Marwari tells Forbes India. “He asked me if my business was sustainable. I said yes. He said you will require capital. I said yes. He asked me if my business has the potential to grow. And I said yes.” Modi adds: “Then he told me, ‘Thode din ke taklif zindagi bharka aaram, ya thode din ka aaram, zindagi bharki taklif (Pain for a few days, and you can have a lifetime of relaxation, or relax for a few days, and you could have pain for the rest of your life)’.”
That stuck with him forever. Modi skipped his plan to buy a Mercedes, and instead decided to plough back all the profits into the business to avoid falling into a debt trap as he expanded. He stuck with his Honda City for the next 15 years, until his son asked him to change it after a family friend met with an accident. “That’s when I bought my Mercedes in 2017,” Modi says. “All these things don’t matter to me. I am a simple man with no materialistic needs. I like the simple life.”
Modi indeed leads a simple life on the outskirts of Kolkata. Unlike many of his peers who relish the hustle and bustle of city life, he has moved out of his home of 36 years to a calm and greener township where he even grows vegetables. “Whatever vegetables we eat, they come from within the house,” Modi says. He prefers to meet people on the verandah of his house, which overlooks a neatly manicured lawn. The scorching Kolkata heat doesn’t bother him.
“Here, the trees talk to me,” says Modi, who tried 12 houses before shifting to the new one immediately after the first lockdown. He has built a clay tennis court there and is now learning to play the game. Modi has also renounced wearing western clothes, claiming not to have worn one in five years. “We must realise that clothes such as suits aren’t meant for the Indian climate,” he says.
He’s even reduced the time he spends in office, and now goes there only once a week. It hasn’t made any difference to his business. Modi makes his debut on the 2022 Forbes World’s Billionaires List—he’s ranked 1,238 with a net worth of $2.5 billion. As of April 15, Modi’s wealth stood at $3 billion and he is among the youngest billionaires in India.
His 23-year-old company, Vedant Fashions Limited, of which he is chairman and managing director, is worth ₹26,000 crore after it listed on the bourses in February. It has over 600 stores across India and 11 international stores, where it sells everything from men’s kurtas, sherwanis and jackets to women’s lehengas, sarees and gowns. They are sold under brands such as Manyavar, Mohey and Mebaz.
Last year, amid the pandemic, Vedant Fashions closed the year with a revenue of ₹564.81 crore, while net profit stood at ₹132.9 crore. A year before that, revenue was ₹915.54 crore and net profit ₹236.6 crore. Modi’s wife Shilpi has a board seat, while his only child, Vedant, after whom the company is named, is chief marketing officer.
“I am a firm believer in destiny,” says Modi. If it wasn’t for his destiny, the 45-year-old believes he would have perhaps been sitting at his nearly-50-year-old family-run shop in Kolkata’s AC Market, selling menswear, and at best opened one more store to expand the business.
Destined for Success
As a child, Modi, the only son of his parents, was good at mathematics. His father then ran a 140-sq-ft retail store inside AC Market in Kolkata—one of India’s first air-conditioned markets set up some 50 years ago.
“In Class 2, I got 100 in mathematics, and my mother threw a party,” says Modi. “In Class 3, when I got 100, my mother didn’t give a party. That’s when I realised that nobody celebrates the same achievement twice. I needed some kick and I started solving the paper faster.” By the time he appeared for his Class 12 exam, he finished his mathematics papers in 45 minutes, scoring a near cent. “Anybody who remembers me from school days would remember me for mathematics,” says the soft-spoken billionaire.
The untold story of how Ravi Modi built Vedant Fashions—the makers of Manyavar—into a .5 billion behemothThat meant, by the time he was 13, Modi joined his father at their retail store, which sold everything from shirts and pants to jeans, after school. “I found a lot of interest,” says Modi. “Somehow, I didn’t realise that my entire childhood from 13 years went in my store.” While he did contemplate doing an MBA after graduating in commerce from St Xavier’s college, Kolkata, his father suggested otherwise. “The real MBA happened in those nine years between 13 and 22,” says Modi.
At the store, Modi played salesman, often catering to buyers his staff didn’t want to deal with. “I would see that the salesmen would deal with some customers with a lot of attention, and some without,” says Modi. “When I probed them, they said the customers wouldn’t buy. I would ask them if they were astrologers, and used to take it on me to sell stuff to them. That was my kick.” Soon, Modi would end up selling over 20 clothes to a customer who would have come to buy one shirt. “It was the best time of my life,” Modi says. By the time he was 21, he was married, and by 22, Modi became a father.
As the business grew, Modi began to run the show and took decisions that would be a contrast to his father’s. He also introduced Indian wear, manufactured by them, in the store after realising a massive vacuum in the Indian wear category. It was Modi’s first tryst with manufacturing. “But one day, my father said something, and I got hurt,” Modi says. His father had questioned a decision that Modi had taken for ₹20,000. “He said ‘Humko barbad kardoge (Will you ruin us)? I might commit suicide one day.’ I said this is enough, I won’t come from tomorrow.”
He took ₹10,000 from his mother and turned to manufacturing Indian wear, selling the finished products in Uttar Pradesh, Odisha, Bihar, Madhya Pradesh and West Bengal, among others. “I started selling to multi-brand outlets (MBOs),” he says. The inability to hire a creative agency meant Modi had to come up with a name. “I thought what was the purpose of life… it was to earn some respect for oneself,” says Modi. “That’s how we came up with the name Manyavar.” He denies that the choice of the name had anything to with his father’s chiding. “He was someone who would never say something like that,” says Modi. “It’s all destiny. Because there was no plan, and I was happy at the store. We would, at best, have opened one more store.”
With Manyavar, Modi started by selling 20 percent of his stock to Kolkata-based Vishal Mega Mart, to raise enough working capital to sustain his business. He sold the rest of the stock to other outlets. “Vishal Maga Mart was the only place that used to buy on cash,” says Modi. “So initially, for about eight months, the working capital came from them.”
Modi sold kurtas which cost ₹200 at a loss of ₹10 to ensure he was paid in cash. “Just because I was strong in math, I thought I will sell 20 percent of my production to him to get working capital, and from the remaining 80 percent production, I will get revenue. That is how we generated revenue in the first year,” Modi says.
Among others, Manyavar’s clothes were sold at outlets such as the Kashmir Vastralaya collection and Kala Mandir in the early days.
Turning point
By 2005-06, Modi had begun selling his products to large format stores (LFS)—from Future Group to Shoppers Stop and Westside—building a pan-India presence. Heeding his father’s advice, he ensured he did not take on debt, and instead channelled most of the money into the business.
In 2006, to take care of his ailing father, Modi stepped away from work for some six months. “I used to work like a typical entrepreneur, managing everything. Life was very busy. Then I realised we were unnecessarily involving ourselves in operations. The business was running well without me for six months. From that day I understood, that instead of ROI (return on investment), it should be return on time invested (ROTI). I realised I should not waste time on things where I don’t add any value,” he says.
That took him back to the drawing board—to focus on strategy for the next phase of growth. By 2008, Manyavar set up its first exclusive brand outlet (EBO). “That’s when the real journey began,” says Modi. “Until then, we used to sell for ₹20-25 crore every year.” The company’s first store opened in Bhubaneswar, and over the next year, opened 12 stores. The early ones were opened by the company before it moved to a franchise-led model. “By that time, I was clear that the way forward for any fashion apparel business in India is EBO,” says Modi.
Modi believed multi-brand outlets were becoming more of a hindrance than being facilitators. “They never used to work on data,” he says. “It was difficult to make them understand anything. And because I had spent nine years with consumers, we used to always think of the customers first.”
That means an obsession with data, and efficiency, something Modi spends a considerable amount of time on. “Anything and everything we do, we want to bring efficiency,” he says. “We have one of the highest productivities in retail. We haven’t sold a single garment at discount. Even then, the dead stock in Manyavar is less than 3 percent. We make 30 percent PAT (profit after tax). We don’t make that by charging more to the consumer. That’s an outcome of efficiency. We keep pricing reasonable and despite that, we have the highest margin. Efficiency is a key pillar in our entire organisation.”
Today, the company operates mostly on a franchise-owned-franchise-operated model. “When we started, we had a COCO (company-owned-company-operated), COFO (company-owned-franchise operated), FOFO (franchise-owned-franchise-operated), and all kinds of models. By 2016-17, we converted all our stores into the FOFO model. People were doing backward integration, and we felt doing forward integration was the way to go. We will do the marketing, designing and supply chain, and not do anything else.” Over the past few years, Modi claims several young customers have become franchise owners, including doctors and consultants, who see massive potential in the brand.
In 2016, the company pulled a coup of sorts by landing then Indian cricket captain Virat Kohli as brand ambassador. “He had just become captain It was the best time of his life,” says Modi. Over the next few years, Kohli led the brand campaign and Modi even roped in his girlfriend Anushka Sharma for a commercial prior to their marriage. Today, the brand has actors Amitabh Bachchan, Alia Bhatt, Ranveer Singh and Kartik Aaryan as brand ambassadors.
The success
Today, Manyavar operates some 1.3 million sq ft of retail stores in the country, choosing not to chase the number of stores. Every year, Modi wants to add between 1.5 lakh sq ft and 2 lakh sq ft of retail space. “The whole business is on a variable, asset-light model,” he says. “There is no capex, there is no fixed expense other than corporate head office salary. Every rupee of working capital can generate an equal rupee of PAT, with 90-95 percent free cash flow. Only Unilever will have a ROCE (return on capital employed) of 100 percent, and we might be the second, and within a year or two, we will be at more than 100 percent.”
The untold story of how Ravi Modi built Vedant Fashions—the makers of Manyavar—into a .5 billion behemothThe company operates in 230 cities, and is busy firming up plans to open stores in 150 new cities. A significant portion of its customers are spread across Southern India, with Bengaluru and Hyderabad emerging as the two big centres. “We have a cluster approach where we believe in 50 or 60 markets, where we have numerous stores,” Modi says. “This is just the beginning of a multi-decade growth opportunity for the category.”
Along the way, in 2017, as business expanded rapidly, Modi decided to turn to private equity, not because he needed money for expanding the business. “We always thought that there is a limit for wisdom and knowledge,” says Modi. “We had been meeting private equity players since 2008 and we thought why not get a good partner. We liked Kedaara Capital and its approach. Money was not the intent, but to have a wise board and to understand whether we were missing on anything.” Kedaara Capital acquired 7.5 percent stake in the company.
“They’ve ridden well on the sector’s growth and consolidation into modern trade, as the desire for brands has grown among buyers of Indian traditional clothing,” says Devangshu Dutta, chief executive of Third Eyesight, a management consulting firm, and managing partner of PVC Partners, an early-stage investment & advisory firm. “Also, the wedding market is more recession-proof than many other segments, which has been a favourable factor during the pandemic.”
Last year, despite the pandemic, Modi says Vedant Fashions closed the year with better profit margins, despite most states putting a ban on weddings and other social gatherings. “The beauty of our business is that while business had reduced, our margins were 30 percent PAT,” Modi says. “The entire business is on the variable model and even franchises didn’t lose money.”
In India, the men’s wedding and celebration wear market was estimated to be worth approximately ₹13,300 crore as of FY20, according to brokerage firm HDFC Securities. It is projected to increase to between ₹17,000 crore and ₹18,000 crore by 2025. In comparison, the women’s wedding and celebration wear market is significantly larger, estimated to be worth approximately ₹7,500 crore as of 2020. It is expected to grow to ₹95,000 crore and ₹100,000 crore by 2025.
“Seventy-three percent of Vedant Fashions Limited’s (VFL) franchisees have operated its stores for three or more years and 65 percent of the sales of its customers from its franchisee-owned EBOs are derived from franchisees having two or more stores is testament to the success of EBO distribution model,” HDFC Securities said in a report in February. “Through a network of over 300 franchisees as of September 2021, VFL has demonstrated a track record of commanding a high initial capital commitment and, in return, providing all necessary support in connection with identifying potential locations for new stores, managing multi-channel advertising on a national and regional basis, assisting in-store development and inventory management, directly managing the supply chain and providing detailed training programmes for store staff and franchisees.”
Today, 90 percent of the company’s business comes from EBO with about 8 percent from online models, a segment that Modi’s son, Vedant, and his team are extensively looking to build. “We might be the only brand with such a high percentage from EBOs,” Modi says. “The segment is unorganised, fragmented, and understanding this is a journey. Because we were data-focussed, we could work it out.” Along the way, Modi says his biggest advantage has been in reducing the inconvenience of wedding purchases.
“Pre-Manyavar, the wedding shopping experience was a problem,” Modi says. “You had to go a few times to the store for measurements or alterations. Now people don’t have the time. We are a one-stop solution where work can be done in one hour.”
Now, as the company looks at avenues for its next phase of growth, Modi has forayed into categories within the wedding market that can drive sales. The company recently launched Twamev, a premium collection of men’s wedding wear, and Manthan, a cheaper option to its popular Manyavar wear. “When you look at the Indian pyramid, there are five consumer layers. Manyavar and Mohey are in the third layer which is the sweet spot, comprising the typical aspirational middle class,” Modi says. “In India, one crore weddings take place, and 30 lakh to 35 lakh marriages happen in that category, which is about 50 percent in terms of value. We believe that is the largest segment, but now we have a strategy where we are going one level up and down.”
While Manyavar caters to the ₹5 lakh to ₹50 lakh wedding market, the ₹50 lakh to ₹5 crore market is being catered to by Twamev, while the less than ₹5 lakh is being addressed by the Manthan range. “We believe once the category grows, we should be there in all these three layers. So, there is clear demarcation and no overlap,” Modi says.
All that means that the reclusive billionaire, who started out two decades ago after his tryst with destiny, is getting ready for a long period of growth. It also helps that he has more time to plot his strategy for it. “People talk about wealth, I believe the real wealth I have earned is time for myself,” Modi says. “The mission is to be a dominant player in the celebration space. We have cracked an unorganised market and we’ve been able to organise it and scale it. Now, the vision is to instill pride in Indian wear.”
Modi seems determined to do that. And he is certain to walk that talk, if the two decades are anything to go by.
(This article was published in Forbes India.)
admin
June 17, 2020
Written By RASHMI PRATAP
A handwritten note on a piece of recycled paper plus a hand-made trinket or pen is what one receives along with every order from Gwalior-based iTokri, an online store of handcrafted fabrics, jewellery, paintings and other artworks. Just like its little free gift, all the products in iTokri’s catalogue are unique and especially crafted for the brand, which has been doubling its revenues every year since launch in 2012. The small town retailer has achieved all this without following the typical e-commerce template of being a marketplace.
iTokri online is India’s only crafts and artwork retailer with its own inventory of handmade artisanal products ranging from Punjab’s phulkari dupattas and Gujarat’s bandhani sarees to Andhra’s ikkat handloom fabrics and Odisha’s pattachitra paintings. It sources products including jewellery, dress materials and household items from nearly 500 artisans and NGOs across India. iTokri founders Jia and Nitin Pamnani believe in taking away the burden of sale from artisans and allowing them to focus on what they are best at – their craft.
The inventory model
“Artisans don’t have the financial strength to hold on to the inventory after production. If we put the onus of holding inventory on the artisan and tell them to dispatch the products as per demand, we cannot succeed. We buy from artisans in bulk, stock goods at our warehouse and courier orders from here,” says Pamnani, a documentary maker who left Delhi in 2010 to start the sustainable business in his home town Gwalior with Jia.
“Some of my friends were in the art and crafts sector. They suggested that an e-commerce platform could work from anywhere in the country. Since the availability of traditional art and craft products was still limited to government emporia and exhibitions those days, I decided to take the plunge,” he says.
Set up with an investment of Rs 50 lakh in 2012, iTokri has now expanded its reach to the nooks and corners of the country both for sourcing as well as sales in the last 8 years.
“Sometimes, artisans have ready products and we procure them. We also design our collection and send it for production, like we make our own prints for textiles and those are exclusive to us. You won’t find them anywhere else,” says Pamnani, adding that some factories make products only for iTokri.
Unlike other retailers, who follow the marketplace model and charge sellers or artisans a commission for using their platform, the inventory model is more capital intensive. “The working capital requirement in an inventory model is high as the retailer holds the inventory. Moreover, overheads like warehousing add to costs,” says Devangshu Dutta, Chief Executive at retail consultancy Third Eyesight.
In the case of Pamnani, warehousing is not a big cost as his family already owned one when he started the business.
But Dutta says an inventory model offers some advantages. “The biggest benefit is that you have the complete control over curating a product as well as its production and branding. This helps build a consistent customer experience,” Dutta adds.
Besides, when products are not generic, there are significant margin advantages to retailers. A case in point is itokri masks, the largest variety of which can be found on the online shopping site. From hand-woven handspun Eri silk natural-dyed masks to Lucknowi chikankari and ajrakh print cotton masks, the retailer has them all.
“There is a huge amount of margin play in that. If you are a marketplace, the major margin in such a case will go to the merchant and you will only receive the regular commission for usage of the platform. But if you own the inventory, you can decide the margin and selling price,” Dutta says.
Artisans love iTokri
While Pamnani has bootstrapped the venture so far and is fully in control, he has managed to keep away from increasing his margins to generate higher profits. “iTokri keeps the least margin of all the retailers we work with,” says Jaipur-based Ahmed Badhshah Miyan, award-winning master craftsman of resist tie and dye technique leheriya. He was associated with the Ministry of Textiles for many years, supporting textile traditions, and has won many national and international awards.
Award winning tie and dye craftsman Ahmed Badshah Miyan at his workshop in Jaipur. His son, Shahnawaz Alam, says during the lockdown, iTokri was the only retailer that did not stop payments to artisans.
“iTokri supported us and made payment for all orders as per schedule so that artists are not impacted.”
Alam and his father, who have been associated with Pamnani since 2012, say that iTokri trusts artisans with designs and colours, not forcing them to deviate from the tradition to meet mass requirements. “We don’t repeat the collection sent to iTokri,” says Alam, who supplies leheriya dupattas and sarees to the retailer.
iTokri also provides the name of the craftsman or organisation below every product detailed on its website, giving them due credit.
Hyderabad-based A G Govardhan, Padma Shri master weaver for ikkat, says Pamnani does not try to bring down prices by negotiating rates with craftsmen. “He wants perfect, authentic quality. Unlike others who are now mixing power loom products with handloom, iTokri’s only expectation from us is high quality genuine products. This supports traditional weavers like us,” he says.
t is this exclusivity, moderate pricing and following of the traditional craft processes that has helped iTokri gain a customer base of over 3 lakh across India and overseas.
Nearly 20 percent of these are from the UK, US and Canada and almost one lakh are regular buyers.
Despite its rapid growth, iTokri has not roped in any other investor so far. “We don’t want to go for funding as we are not yet ready for it,” Pamnani says.
It was love for sustainability that brought Pamnani to Gwalior in 2010. And it also helped him keep the business going even when the country was under total lockdown from March 25 till mid-May. During this period too, iTokri’s 8 am e-mailers announcing the collection of the day did not stop.
“There was enough in our warehouse to keep sharing with our customers. And we resumed operations in the first week of May itself after getting clearance from local administration,” says Pamnani.
The advantage: Gwalior, being away from the hustle bustle and without the population density of a metro, has reported only 150 cases of COVID-19 so far and most of them have recovered. “If we have to understand small businesses and work with them, we have to understand sustainability. And that comes from de-centralisation, not necessarily being in big towns,” says Pamnani.
At a time when most businesses are still struggling to resume operations in the COVID-19 world, iTokri’s toli (as its team is referred to) is busy writing lovely notes for putting in their customers’ orders.
And that’s the beauty of being a sustainable enterprise — it can sustain even during a crisis like COVID-19.
(Rashmi Pratap is a Mumbai-based journalist specialising in financial, business and socio-economic reporting)
Source: 30stades
Devangshu Dutta
April 7, 2020
Oil shocks, financial market crashes, localised wars and even medical emergencies like SARS pale when compared to the speed and the scale of the mayhem created by SARS-CoV-2. In recent decades the world has become far more interconnected through travel and trade, so the viral disease – medical and economic – now spreads faster than ever. Airlines carrying business and leisure-travellers have also quickly carried the virus. Businesses benefitting from lower costs and global scale are today infected deeply due to the concentration of manufacturing and trade.
A common defensive action worldwide is the lock-down of cities to slow community transmission (something that, ironically, the World Health Organization was denying as late as mid-January). The Indian government implemented a full-scale 3-week national lockdown from March 25. The suddenness of this decision took most businesses by surprise, but quick action to ensure physical distancing was critical.
Clearly consumer businesses are hit hard. If we stay home, many “needs” disappear; among them entertainment, eating out, and buying products related to socializing. Even grocery shopping drops; when you’re not strolling through the supermarket, the attention is focussed on “needs”, not “wants”. A travel ban means no sales at airport and railway kiosks, but also no commute to the airport and station which, in turn means that the businesses that support taxi drivers’ daily needs are hit.
Responses vary, but cash is king! US retailers have wrangled aid and tax breaks of potentially hundreds of billions of dollars, as part of a US$2 trillion stimulus. A British retailer is filing for administration to avoid threats of legal action, and has asked landlords for a 5-month retail holiday. Several western apparel retailers are cancelling orders, even with plaintive appeals from supplier countries such as Bangladesh and India. In India, large corporate retailers are negotiating rental waivers for the lockdown period or longer. Many retailers are bloated with excess inventory and, with lost weeks of sales, have started cancelling orders with their suppliers citing “force majeure”. Marketing spends have been hit. (As an aside, will “viral marketing” ever be the same?)
On the upside are interesting collaborations and shifts emerging. In the USA, Jo-Ann Stores is supplying fabric and materials to be made up into masks and hospital gowns at retailer Nieman Marcus’ alteration facilities. LVMH is converting its French cosmetics factories into hand sanitizer production units for hospitals, and American distilleries are giving away their alcohol-based solutions. In India, hospitality groups are providing quarantine facilities at their empty hotels. Zomato and Swiggy are partnering to deliver orders booked by both online and offline retailers, who are also partnering between themselves, in an unprecedented wave of coopetition. Ecommerce and home delivery models are getting a totally unexpected boost due to quarantine conditions.
Life-after-lockdown won’t go back to “normal”. People will remain concerned about physical exposure and are unlikely to want to spend long periods of time in crowds, so entertainment venues and restaurants will suffer for several weeks or months even after restrictions are lifted, as will malls and large-format stores where families can spend long periods of time.
The second major concern will be income-insecurity for a large portion of the consuming population. The frequency and value of discretionary purchases – offline and online – will remain subdued for months including entertainment, eating-out and ordering-in, fashion, home and lifestyle products, electronics and durables.
The saving grace is that for a large portion of India, the Dusshera-Deepavali season and weddings provide a huge boost, and that could still float some boats in the second half of this year. Health and wellness related products and services would also benefit, at least in the short term. So 2020 may not be a complete washout.
So, what now?
Retailers and suppliers both need to start seriously questioning whether they are valuable to their customer or a replaceable commodity, and crystallise the value proposition: what is it that the customer values, and why? Business expansion, rationalised in 2009-10, had also started going haywire recently. It is again time to focus on product line viability and store productivity, and be clear-minded about the units to be retained.
Someone once said, never let a good crisis be wasted.
This is a historical turning point. It should be a time of reflection, reinvention, rejuvenation. It would be a shame if we fail to use it to create new life-patterns, social constructs, business models and economic paradigms.
(This article was published in the Financial Express under the headline “As Consumer businesses take a hard hit, time for retailers to reflect and reinvent”.
admin
March 25, 2020
T. Surendar, The Morning Context
25 March 2020
Standing on the porch of the Grand Hyatt Hotel in Mumbai suburbs, Diwakar Vaish, co-founder of Noida-based AgVa Healthcare, was trying to catch the attention of software industry executives. This is at the annual conference hosted by IT trade body Nasscom. Vaish’s stall was a side-show for startups to exhibit digital technologies in the healthcare sector.
On a cool, breezy February day, the atmosphere was nothing as grim you would expect in a hospital emergency ward. Vaish’s rig, comprising an iPad-like device on a short steel column mounted on wheels with dangling wires, was a cost-effective version of a ventilator used in critical care. There wasn’t much excitement about his solution, as few executives really understood the medical problem he aimed to solve.
Today, a robotic engineer by training, Vaish is super busy.
It is not easy to get him on the phone, as AgVa’s ventilator is suddenly in demand from all parts of the country. The company is running three shifts fulfilling orders, which have been pouring in since it became apparent that Indian hospitals did not have enough ventilators for patients rendered ill by the novel coronavirus.
Unwittingly, the need for ventilators has once again drawn attention to India’s medical devices industry or the lack of it. So much so that Anand Mahindra, chairman of the $17 billion Mahindra group, which has interests in automobiles, software and resorts, said that he was finding ways to manufacture ventilators in his factories. It isn’t easy putting together a ventilator, not when you are racing against time, but Mahindra is a hardy businessman with deep pockets, and maybe, just maybe, he will succeed.
In many ways, the Indian medical devices industry is an anomaly. India has a space programme, a nuclear programme, it is among the few countries that has developed patented medicines and a low cost version of anything from power turbines to trucks but when it comes to medical equipment, it fares poorly.
India is also the biggest supplier of FDA-approved drugs to the US, the biggest pharmaceutical market in the world. Even as the Indian market for medical equipment has grown at double-digit rates in the last five years to Rs 1 lakh crore, two-thirds of its needs are met by foreign companies such as Philips, GE Healthcare, Siemens and Abbott.
Import domination is all pervasive extending to even non-critical but common equipment like sonography machines, dentistry chairs and diagnostic equipment. Less than five Indian companies had revenue of more than Rs 500 crore a year and 90% were classified as small scale, with annual revenue less than Rs 10 crore. The biggest player in the domestic market is the Rs 1,300 crore Mumbai-based Transasia Bio-Medicals, which makes in vitro diagnostic solutions that are exported to Western markets too.
“For a long time, the government was the biggest buyer of medical equipment and they always preferred imported equipment. That meant that it was not lucrative for local entrepreneurs to invest their capital in the sector,” says G.S.K. Velu, managing director of Trivitron Healthcare, which makes and exports imaging equipment.
The proliferation of private hospitals in the last two decades also did not change things much. With well-entrenched foreign players and a liberal import duty structure to make available the best facilities in India, there were few local companies of scale who could invest big money to fend off competition. AgVa’s ventilators were priced at a fifth of the ones sold by the foreign competitors, yet it couldn’t make inroads into big hospitals. “It’s almost as if our cost was our barrier to sell. Being critical equipment, customers had a lot of inertia to even place test orders,” says Vaish.
Thanks to meagre domestic manufacturing. India also could not set standards of equipment specifications to suit the local needs. It had to tweak its own equipment standards to fall in line with those of foreign manufacturers. For example, in the US, defibrillators used to restore heartbeats by giving shock to patients had to last at least two shock cycles. But, in India, since access to hospitals and medical care was not as easy. patients arrive long after they have suffered heart attacks and Indian doctors use defibrillators for even 10 cycles at a time.
The local standards did not specify this need and as a result many imported defibrillators were not of much use in Indian conditions. “We still don’t have an act to regulate medical devices and it falls under the drugs category. Everything is still borrowed from the West,” says Aniruddha Atre, co-founder and director of Pune-based Jeevtronics Pvt. Ltd, which makes the world’s first hand-cranked defibrillator.
Trivitron’s Velu says that the share of locally produced medical equipment will increase within the next decade. This will be a combination of help from the government which will enforce more domestic manufacturing by overseas firms and increased entrepreneurship.
There is also a view that more global manufacturing will come to India, as firms de-risk their strategy of manufacturing everything in China. “In the past, when labour costs went up in the Chinese west coast, Indian garment companies were beneficiaries of increased orders even though other countries like Bangladesh and Vietnam too got a big share of it. The availability of labour and ability to scale up operations is something global players look for and to that extent India will always be an important outsourcing destination,” said Devangshu Dutta, managing partner at consultancy firm Third Eyesight.
The trend started even before the COVID-19 pandemic as companies in the US began to brace themselves for a trade war with China. For example, a US-based company has started sourcing Indian tyres at a 10-15% premium as it wants to diversify its risk from China. “India has witnessed a surge in mobile phone manufacturing. This is bound to increase the ecosystem in electronic manufacturing which in turn create ecosystems for industries like medical equipment,” says Sharad Verma, senior partner who oversees industrials at Boston Consulting Group.
The timing is also right for increase in local manufacturing, argues Verma. One of the important criteria for that is viable domestic consumption. It’s happened time and again in sectors like automobiles, mobile phones and more recently in manufacture of metro bogies after domestic consumption has reached a scale where it makes sense for companies to set up manufacturing facilities. “The industry is no longer small and the incidence of medical technology will only go up from here making it viable for even foreign companies to look at a manufacturing set up in India,” says Verma.
It will be interesting to see how it all plays out. The sector, so far, hasn’t seen much by way of private equity or venture investment. The most prominent one was an investment by a Morgan Stanley fund and Samara Capital in Surat-based Sahajanand Medical Technologies and Fidelity Growth Partners’s investment in Trivitron. But starting 2014, a government fund run by the Biotechnology Industry Research Assistance Council-incubated several companies who are slowly bringing their products to market. As some of these products hit home, especially in the wake of COVID-19, the action is definitely bound to pick up.
(published in The Morning Context)
