Gen-AI is a massive tailwind for our business; expect to improve on industry growth rate of 12%: IKS Health Management

Sachin Gupta, Founder & CEO and Nithya Balasubramanian, CFO, IKS Health in talks with ET Now. Balasubramanian says IKS expects to do much better than the industry growth rate of 12%. In terms of margins as well, they hope to touch a steady state of around the early to mid-30s EBITDA margins. With the AQuity acquisition, their margins had come down because the acquired entity had a lower margin profile. They will therefore be able to grow faster in terms of the bottom line. Once they hit that steady state, margins will probably stay at that level.

What should shareholders expect now? I mean, the easy part was to go public. The difficult part is to stay on the course and the promise which you gave of TAM, growth, and underlying relevance of the business to stay on course. How do you plan to do that?
Sachin Gupta: Honestly, beyond a point, not to sound cute, but really nothing has changed. We are talking about an industry where we have a $225 billion TAM, of which only $30 billion has been outsourced and that $30 billion is now growing at 12%. We have already built an industry-leading position as a platform to enable these providers to deliver better, safer care by delegating their chore tasks.

We have about 155,000 physicians in the US in our current customer base, that is 18% of all of America's physicians. And we believe by the cross-sell of our platform across these 155,000 physicians, we should be over the next not two-three years, but if we do right, by the next 10, 15, 20 years, we should be able to deliver growth that is far greater than the 12% at which the TAM is growing. And then we have established a unit economic model that is fairly strong and industry leading and we believe that there is some more tech leverage to be had.

We are transforming AQuity margins, the company that we acquired last year. So that is going to kick in as we go forward. We are fairly confident that over the next at least three to five years, earnings growth will be even faster than revenue growth. We feel absolutely steadfast in our commitment towards that. I continue to believe that this is not just the creation of a company, but it is the creation of an industry that is going to get formed over the next 10, 15, 20 years.

The growth of 50% in revenue, 38% in EBITDA, 26% in profit, at some point in time, the base effect would kick in. How far is IKS away from that base effect?
Nithya Balasubramanian: Like Sachin pointed out, the growth runway is really long. At $30 billion, out of the $225 billion TAM, clearly there is a massive runway. I do not think we are anywhere close to the base effect kicking in. I will refer to what Sachin was talking about in terms of our growth and what we expect to deliver as well.

We expect to do much better than the industry growth rates of 12%. And in terms of margins as well, we hope to touch a steady state of around the early to mid-30s EBITDA margins. With the AQuity acquisition, our margins had come down because the acquired entity had a lower margin profile. We will therefore be able to grow faster in terms of the bottom line. Once we hit that steady state, margins will probably stay at that level.

What should be the margin trajectory because this is a high growth business? If operating leverage and financial leverage kicks in, then FY26 and FY27, at least at the bottom-line level would be significantly better. When will the real synergies of this acquisition kick in and when will that translate into your bottom line?
Sachin Gupta: We see that happening over the next 18 to 24 months. In fact, it has already been witnessed that our EBITDA margins in the first half of FY25 that was just released with our RHP grew by 400 bps over the pro forma margins of FY24. We have already gone from the 24% pro forma in FY24 to 28% pro forma in the first half of FY25. We are very confident of being able to drive that up towards the early to mid-30s over the next 18 to 24 months. And we have a very good visibility of that. It is the level at which we start to see margins stabilize in that sort of early to mid-30s EBITDA range.

We are going through a time when tariffs could be coming. There is a challenge in the way the IT outsourcing model is going to evolve because of AI. There is scrutiny when it comes to H1-B visas. What are the regulatory challenges which you see or foresee because of the change of administration?
Sachin Gupta: It is really hard to call that if I could, it would be a trillion dollar opportunity. But I will say that from everything we have heard from Mr Trump and some of his advisors like Mr Musk. Mr Musk recently tweeted that there is a trillion dollars of waste in health care that they are going to look to eliminate. Our business model is all about eliminating administrative waste from healthcare.

Fundamentally, I feel like historically, regulation in healthcare is going to be our friend, not our foe. That is a fundamental aspect of healthcare regulation. As it relates to tariffs, it is really hard to predict. It seems to me that those tariffs are directed elsewhere in the world and India and the US continue to be geopolitically more and more proximate. I really do not know what to make out of the tariffs. It will be a countrywide, industry-wide issue. We will all deal with it if it were to happen.

But from a healthcare regulation perspective, over the last 18 years, we have seen many administrations: super conservative Republican administrations, super liberal Democratic administrations, and healthcare has found its guardrails. Everybody is trying to drive efficiency and business models like ours that are about driving efficiency in healthcare and eliminating waste are all looked upon very favourably. Honestly, Gen-AI is a massive tailwind for our business. We are working on at least seven or eight Gen-AI use cases amongst our 16 features of our platform. We look at that as a huge accelerator of the value that we create first for our customers and then eventually, obviously, for our shareholders.

You have less than 5% market share in the total addressable market (TAM) of $250 billion. Now, if the addressable market is so large, what is stopping the big boys from really coming into this space? How are you looking at bullet proofing yourself or what is the moat which you will be able to create from future competition?
Nithya Balasubramanian: We believe that there will be more competition and we welcome more competition. We spoke about how large the TAM is and how much room there is for us to continue to grow and there is enough space for another four-five multi-billion dollar companies that would get created over a period of time. However, the reason we believe that we could be one of those larger companies as one of the last men standing is because of multiple things. One is that we are one of the only companies which has built a complete platform which is able to take on the administrative chores and deliver efficiencies to these organisations.

What we see out there in competition are more point solutions. Few features at a time. The second is each of these features have been built over the last 16-17 years of the company in very-very deep conjunction with our customers. While maybe it is possible for others to build it, it is going to take them time. And the third is, again, the rich data that we now have in our system with about 155,000 physicians in the installed customer base, we have extremely rich data that is flowing through our features. This gives us the ability to be able to mature tech faster than anybody else. These are some of the reasons why we believe that we will be able to maintain the competitive edge that we have. But we welcome competition,

From an unknown brand to an incredible journey, you have made the impossible look easy. But the next 10 years would be exciting as well as challenging. We are in 2024, hypothetically, if we are celebrating 10 years of your listing on the same platform, on the same forum, 10 years from now, in 2034, what do you think we are likely to be discussing?
Sachin Gupta: What we are likely to be discussing is how much broader the breadth of the platform has become 10 years from now, because our constant strategy is to take on these tasks in a human-led and tech-enabled model and then transform them to a tech-led and human-enabled model and eventually we eliminate the human altogether.

My vision is that over the next 10 years, for the 16 tasks that we have had, we have today in our platform, we would have eliminated the large part of the human element through the technology interventions and we would have taken on another set of 5, 10, 15 tasks that have not only expanded the TAM, but more importantly, have truly eliminated all the chore work that providers are subjected to so that they can become the true counsellors and navigators of journeys for patients in their care continuum and that really is our vision.

Ten years from now, we want doctors truly focused on patients and the physician-patient relationship to rediscover its sanctity and again become the most important relationship in healthcare. If we did that over the next 10 years, I think we would have done a good job.

Can you compare the healthcare outsourcing industry with IT services? If 2000 was the high growth point for IT services, where are you in terms of that journey before you hit the mature curve?
Nithya Balasubramanian: We do see a lot of parallels with how the IT services industry has evolved. We are of course a fledgling in that sense and we hope to see the kind of expansion and growth rates that IT services did. A couple of things I will highlight and why we believe now is an inflection point for the industry.

We do believe that COVID was that watershed moment for our industry. Two things happened. One is a lot of doctors and nurses who provide care permanently dropped out of the workforce because of the burnout. So, the demand-supply gap that already existed has only exacerbated. Now, these provider organisations are having to deliver care with the fewer number of doctors and nurses that are on board.

The second is during COVID, patients did not visit the physician clinics. They got COVID and they ended up in the hospital, but they did not step foot inside a physician clinic, which meant that these provider organisations realised that the fixed) cost operating model that they were working with was completely unsustainable. They realised they needed to move towards a more variable cost on-demand model, which IKS is able to provide.

So, coming out of COVID, we do see an inflection in the growth. We do see a market difference in the kind of conversations we are having with our customers. They are a lot more keen to come on board with a full manifest of the platform. They are a lot more keener to look at more and more features right from the get-go. We believe that COVID was an important inflection point, and therefore, for an industry – we do hope to see that $30 billion – which is now expanding at 12%, probably will expand even faster in the near future.

The success of Indian IT services was the fact that it had skill, scale, and availability of the talent pool. For your industry, given that one-side skilling has been a problem in today's AI time, how would you ensure that your talent pool engine has been taken care of? Is there enough talent available or will you have to sweat it out to ensure that your organisation has enough talent pool and is future ready?
Sachin Gupta: What we have seen over the last 18 years is we have three pools of talent that we typically require. One is, of course, technology talent, which is available in abundance, especially now that we are starting to create a little bit of identity around being a true product company that is writing proprietary technology to eliminate tasks. So, technology talent is going to be obviously the mainstay of our company.

The second big dimension is clinical talent, both clinically qualified physicians, but also other clinically qualified staff like pharmacists, etc, and that is an area in which we have actually been able to access some excellent talent. As we are constantly eliminating the human task through technology, what happens is as we grow, our talent needs do not grow linearly with revenue.

So, at the confluence of the non-linearity in talent growth needed to support the revenue growth and the abundance of technology talent, as well as the relative availability of clinical talent and when I say relative, relative to any other country in the world, we are able to bring English speaking clinically qualified staff in India better, faster than any other country in the world.

And then last but not the least, the third pool of talent is the administrative talent. And at the confluence of all these three and honestly what we have built now with 10,000 people strong in India, if you apply some turnover rate to that, as well as a standard growth rate, the reality is you are talking about 2000 to 3000 additional people being added a year, at least maybe even more. We have now built a whole talent engine that actually brings this raw talent from the industry and makes it fit for purpose for our organisation.

I feel relatively optimistic and I honestly feel like, like in IT services back in the 90s, when India used to graduate one-tenth of the engineers that we graduate today, as the demand for engineers kept growing through IT services, we graduated more and more talent. I believe this will propagate the expansion of clinical talent education in India, which then we will be able to further absorb into this industry.