Skanray seeks bigger slice of medical devices market

For the Mysore-based start-up, cracking the domestic market and scaling up production and supplier's base remain the key challenges

Last month, when the promoters and investors of Mysore-based start-up Skanray Technologies acquired Larsen & Toubro (L&T)’s healthcare business, which had a turnover about 20 times higher than Skanray’s last year, many were taken aback. However, people familiar with Skanray and its products weren’t really surprised.

Founded by a team of 40 medical technologists and engineers, many of whom left their jobs at the peak of their careers, Skanray makes high-frequency X-ray machines and other medical devices. While these devices are comparable to the world’s best, they come at about half the price. The company has set up a manufacturing facility at Mysore and is also setting up assembly plants in Brazil (along with a local investor) and West Asia.

Skanray Technologies is wholly-owned by promoters and angel investors, which includes Bangalore-based entrepreneur Arun Kumar.

After a bumpy ride since its inception in 2007, Skanray appears to be on the verge of a takeoff. It’s sitting on an order book of Rs 22 crore and hopes to record turnovers of Rs 20 crore this financial year and Rs 100 crore in 2013-14. This excludes the L&T business, worth about Rs 100 crore.

For the acquisition of L&T’s healthcare business, the promoters and a few investors of Skanray had floated another company, Skanray Healthcare. The acquisition would help it expand its product portfolio, enhance its distribution in the domestic market and record a turnover Rs 300 crore by 2014-15. The acquisition also provides Skanray access to monitoring devices in the critical care, operation theatre and intensive care unit segments. “This has saved us two or years of development time for some of more of the technologies. While the L&T business would give us volumes, Skanray’s business would give us margins,” says Skanray’s Managing Director Vishwaprasad Alva.

While Skanray exports most of its products, penetrating the domestic market has proved challenging. The company now plans to leverage L&T’s distribution presence across India to widen its reach. It also plans to sign a joint venture agreement with a global partner for ultrasound machines.

Skanray is vying for the market for all primary healthcare devices. The global primary healthcare devices and solutions market is estimated at $50 billion, and devices account for about half of this. It doesn’t plan to make devices for pathology and hematology laboratories, but tie up with companies that manufacture these. Frost & Sullivan estimates the Indian market for medical devices at $2.5 billion a year.

The company has to contend with competition from single-product companies such as Sedecal and Poscom in Korea, Nimray in the US, Shimadzu in Japan, and bigger companies such as GE Healthcare, Siemens and Philips, which have an entire range of products. Skanray, however, says the big three companies focus on tertiary healthcare, and it merely complements these.

Skanray also has to contend with rivals such as Trivitron and BPL, which label and sell imported products.

“X-ray is a very difficult market to compete in, as there are more than 15 competitors in the organised and unorganised sectors who ensure stiff price competition, with very few competing on safety and performance. Players like Siemens dominate the upper end of the spectrum; it’s domestic players such as Allengers who offer stiff competition, both in terms of prices and quality,” says Jayant Singh, associate director (medical technology and healthcare practice), Frost & Sullivan. “Moreover, multi-national companies have also started offering value segment products by manufacturing X-ray machines locally in India.”

However, the opportunity is huge. Only 20 per cent of the population in developing countries has healthcare cover. “We enable healthcare providers to bring the cost to less than Rs 100 a person. The market is already there. Every state has national rural health programmes, with huge fund allocations,” says Alva. The challenge is getting healthcare professionals — doctors and paramedical staff — to travel to rural areas. When it kicks off its services business in three years, Skanray would address the issue through telemedicine.

The early days
Its bright prospects notwithstanding, the start-up has struggled to grow. It had to grapple with issues related to land and banking, as well as red tape. Initially, as it struggled to come to terms with the challenges, it used the time to develop core technologies. The aim was to make X-ray machines that hopes to be better in terms of performance and reliability and priced at about half the benchmark.

Starting with a five-member team in 2007, it worked out of an incubation centre for one and a half years, before moving to a prototype phase and finally, into a new facility. The focus on research and development, technology and ‘getting-it-right’ has paid off. “We now have one of the lowest X-ray leakage machines globally,” says Alva.

Crossing the initial hurdles was time-consuming. The registration, single-window clearances, possession of land, etc, also introduced to the company hurdles such as land grabbers in their various garbs. ‘’The Karnataka Industrial Areas Developmental Board stood by us. So did the district magistrate, Manivannan, who helped maintain law and order near the plant,” says a Skanray official. Today, Skanray has a room named after Manivannan in which the company, as part of its corporate social responsibility, provides training to girls from rural areas.

Within a short span, Skanray has made inroads into hospitals and diagnostic centres. It has sold various devices to Narayana Hrudayalaya, Bangalore, and the Manipal group’s hospital in Manipal. Uday Naik, chief executive, Narayana Hrudayalaya Dental Clinic, Bangalore, says, “On-time service is the strength of Skanray. Also, the company’s customer support is very good. They check the machines every now and then to see if these are performing well.” Naik has been using Skanray products for about a year and a half.

Challenges abound
Exports account for about half of its sales, and Skanray supplies to many original equipment manufacturers. ‘’If a company matches safety, reliability and price, it has a good chance in markets in the West,” says Alva. But in the domestic market, the situation is different. “It’s about understanding buyers — who is the decision-maker in a company? We have found there are multiple levels of decision-making. If we are absorbed into the system, marketing overheads would be high.”

Skanray is yet to add big hospital chains such as Apollo and Fortis to its list of clients, though it is expected the L&T acquisition would help it make some inroads. A key hurdle is India’s healthcare sector is unregulated, while in West, it is very tight. Only companies meeting the standards mandated by regulators there can sell devices in those markets. In India, there’s no mechanism to check those violating norms.

In India, Skanray, which has CE certification in Europe, is up against many small players, which do not meet specifications. Most of them have no certifications to speak of. “One can get a certification from the local authorities without their premises being inspected,” says a doctor who runs a small hospital that specialises in orthopedics.

“The company seems weak on marketing. Its problem is its inability to scale up. If volumes are low, finding the right suppliers can be a problem. In the healthcare devices market, scaling-up and capability to market can be challenges,’’ says the proprietor of a Bangalore-based medical devices marketing firm.

Scaling presence in unknown markets is another challenge. When the foundation is strong, funds are not a problem, says Alva. Till date, the promoters and investors have invested Rs 45 crore in Skanray. In six months, it might need another round of funding, and may opt for private equity. “It could be a multiple of the present. First, we have to put people in place. Most importantly, we need stable manpower,”.