Diagnostic giant warns cash-burning startups they have got it all wrong

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26 Aug, 2025 12:21

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In her polished style, Ameera Shah delivers a damning verdict on health technology startups that have mushroomed in the past half a decade. “Their (business) model is not sustainable,” Shah said.

The managing director and promoter of Metropolis Healthcare, one of the largest diagnostics chains in India, believes the theory of many health technology companies of acquiring a customer at a loss and cross-selling products and services to them to make money is not working out.

“The reality is none of these companies are making money, they're all doing it at losses, and they were all hoping that they will acquire a consumer and then they will cross-sell something else to that consumer to make money,” Shah told Moneycontrol in an interview.

Backed by deep-pocketed venture capitalists and private equity funds, health technology startups have sprouted in the diagnostics sector over the past five years, hoping to disrupt the existing status quo through low-cost testing procedures.

“I think there is a struggle as far as funding such models is concerned because the model itself is not sustainable,” Shah said.

The Harvard Business School graduate indicated that her company has no interest in acquiring cash-starved startups.

“So there are many, many deals up for sale including many brick-and-mortar labs as well as health tech companies. But you only want to buy something that is sustainable, and something that has a fundamentally sound model, right?” Shah said.

Shah also denied recent media reports that Metropolis is looking to raise $500 million to fund its growth going ahead.

“We have never as an organization come out and said that we want to raise capital for any reason. And at this point, it remains the same,” she said.

At 1.17 pm, shares of Metropolis Health were down 0.84 percent at Rs 1,608.3 on the National Stock Exchange.

Edited excerpts from the interview:

Good results from Metropolis on an adjusted basis. What have been your key takeaways from this quarter's results and how does it set you up for the rest of FY23? 

There are many new activities that we have started, whether it's in terms of expanding labs, expanding collection centers, expanding the wellness category, or doing more to engage with consumers. And all of these activities are giving us very positive signs and encouragement to expand more in the second half of the current financial year.

I think we'll see a further addition of 12 laboratories and about 380 wellness centers in the second half. Wellness will continue to be pushed digitally and offline.

I think the pressure points are, of course, the dollar appreciation’s impact on material cost. We've lost about point 5 percent of our margin due to the dollar appreciation. Another pressure point has been competition coming in talent acquisition. The kind of irrational compensation that talent in the industry is getting offered, I would say that is another pressure point.

Besides these two pressure points, I think we have a fairly good idea of how we need to grow.

Non-COVID part of the business seems to be coming back. What sort of growth are you looking to accomplish?

We are hoping to continue to sustain the sort of growth we are seeing currently, and that will be the attempt in the second half as well. Along with growth, we will also try to sustain the margins at current level.

There is a lot of noise out there around new competition in the industry and how that is going to spoil the business for us. I think it all depends on how you build a business. Metropolis built the business as a player that focused on acute illness patients, where the quality of diagnostics needed to be high. Therefore, we targeted specialists, we built our science and medical expertise, and really worked on that area.

I think for companies who built themselves more as a direct-to-consumer company, they are focused more on pricing and they are now seeing an impact on their business. Customers don’t come to us for pricing, they come to us for quality. When the competition comes with lower prices for tests, our customers are not tempted because they come to us for a different reason. So I think we continue to build on those core values.

How do you assess the competition around you? While a suggestion is that organised players will win the market, startups have become major disrupter?

See, I think competition is coming from two sides.

One side is the brick-and-mortar competition from pharmaceutical companies, pharmacy chains and hospitals. They thought it's a good idea to get into diagnostics and that they can use their existing laboratory setup as a base point to build a business-to-consumer (B2C) operation. These guys have realized quite early that building a good quality B2C business is not that easy and therefore, they have turned to low pricing, volume-focused business-to-business (B2B) segment in the semi-specialized category. So there is pricing pressure in the B2B semi-specialised testing segment because of that.

The second kind of competition is from the health technology guys who came in saying “Let's go straight to the consumer and we will forget the doctors.” “We'll go to consumers and offer them prices really cheap.”

The reality is none of these companies are making money, they're all doing it at losses, and they were all hoping that they will acquire a consumer and then they will cross-sell something else to that consumer to make money. That entire theory is actually not working because the cross-sell percentages are very low.

Therefore, if these startups acquire a consumer at a loss, and if they're not able to convert enough number of consumers, then who's going to fund this business model? I think there is a struggle as far as funding such models is concerned because the model itself is not sustainable.

Would you be happy to acquire competitors that may be facing a cash crunch? 

So there are many, many deals up for sale including many brick-and-mortar labs as well as health tech companies. But you only want to buy something that is sustainable, and something that has a fundamentally sound model, right? And that has been, frankly, the challenge that we have seen in the offline and the online spaces. The way that people build their businesses is not built on sticky background, it's built on short-term tactics. Frankly, we could have done that as well, but we took the harder route and let go of some of the growth. So then why would we go and buy businesses which have been built on short-term tactics, which are inferior to you? So I think, we will be very selective as to what we buy and where we would like to allocate our capital.

Coming back to the business side of things. There has been a considerable sequential fall in revenue per test and revenue per patient in the second quarter. Your thoughts on what is driving this?

The Hitech (diagnostic centre) business that we recently acquired, it has a lower revenue per patient and revenue per test than Metropolis. If you separate Hitech from Metropolis, then at Metropolis revenue per patient has gone up by 2.5 percent in second quarter. The product mix is different in both businesses.

Hitech business is more routine and semi-specialized testing, and therefore the revenue profile is lower. I think we will continue to look at them as separate businesses and not try to merge them because each of them has their own product mix.

You were also planning to raise about $500 million in growth funding. How close are we to that and what sort of mix can we expect in terms of equity sale and/or debt?

So that was all gossip and news that was never told by us. We have never as an organization come out and said that we want to raise capital for any reason. And at this point, it remains the same.