Brand Agappe, Symbol of Kerala’s Manufacturing Prowess

Thomas John, Agappe

Kochi: Thomas John, the Managing Director of Agappe Diagnostics Limited, has come a long way on a path taken by very few in the country. When Thomas decided to foray into the field of manufacturing and distribution of medical diagnostic equipment used by laboratories in 1995, less than five years after he finished Electronics and Communication Engineering degree program from Mangalore University, he was virtually peerless. Twenty-three years ago, what the present day business leader had as an asset was only the willingness to learn and mettle to face difficulties and succeed.

At present, Agappe is one of India’s largest and fastest growing companies in the medical diagnostic instruments segment. In a detailed interview to Destination Kerala, the 50-year-old entrepreneur shares the Agappe story. Here are the excerpts from the interview.

How did you enter the diagnostic products industry?

I finished my Engineering degree in 1991. Getting a job was a bit difficult in the early ′90s. So the option was to go to Mumbai (Bombay at that time). My brother was a businessman there. On reaching Mumbai, I landed a job with leading consumer electronics manufacturer Onida. I was the production in-charge of the 14-inch black and white television. It marked the start of my professional career. It was a very different feeling altogether and I really enjoyed it.

But since both my brothers were outside, my family wanted me to come back to Kerala as the youngest of the lot. My father and mother were in the teaching profession and they wanted me to join a college back home as a lecturer. But when things somehow did not work out as expected, I went back to Mumbai and started all over again, working as a sales representative of a firm selling floppy discs. Though there were some initial difficulties, gradually I started enjoying my work. I used to carry floppy discs to Santacruz Electronics Exports Processing Zone (SEEPZ) where I got a chance to interact with the representatives of companies producing electronics goods. As my specialisation was Communication and Medical Electronics, I was really interested in the production of medical equipment. And soon, I began looking for such a job which fascinated me.

After some effort, I found a slot in the production department of a medical equipment company. I worked there for almost three-and-a-half years. Initially, I started as production engineer and from there I got promoted as the production in-charge. Subsequently, I was put in charge of the service department offering technical assistance to customers of western India, which gave me a chance to understand more about the medical field, its clients and their requirements. I became aware of the gap between tier-1, tier-2 and tier-3 cities in the country in terms of medical equipment manufacturing and servicing. It gave me the confidence to enter the in vitro diagnostics (IVD) market.

When did the company commence operations?

The company was formally registered in 1995 and the first product hit the market the next year. So in that sense, it was in 1996 that we launched our operations. We started the company in Mumbai and still our head office is located there.

THOMAS JOHN
Age:
50
Based in:
Kochi
Family:
Meena (Spouse); Reema and Rita (Daughters); Rufus (Son)
Loves to do (when not working):
Read and travel a lot. Most of my travels are official in nature. I also enjoy them though. I like interacting with people too
Gadgets:
Apple iPhone 7 plus
Drives:
Mercedes Benz E 250
Favourite holiday destination:
Japan
Favourite cuisine:
Kerala cuisine, likes fish curry
Favourite movies/music:
Likes watching comedy movies. Loves to listen to Hindi melodies and devotional songs
A leader you admire:
Ratan Tata
A company you admire:
Apple and Google

 

What made you come back to Kerala?

In 2002, after almost seven years of our operations, we realised that Mumbai was no longer a good option for us as first generation entrepreneurs. There were many reasons which prompted our decision to relocate. Mumbai is a very expensive place and that was a major factor. Initially, I considered many other places for shifting the business. Then I thought why not Kerala? After all, we are from Kerala. Moreover, manufacturing of reagents required purest quality of water, which could be sourced easily in Kerala. Again, availability of highly skilled and qualified labour force was yet another consideration which firmed up our decision. And, unlike today, land value was very low in Kerala in the early 2000s. So that is how we decided to come back.

However, as I said earlier, our head office remains in Mumbai and, in fact, all our major operations are based out of Mumbai. We also have branches in Bengaluru, Delhi and Kolkata, and in Switzerland.

Who are Agappe’s direct competitors?

We are the number two in Indian IVD market. Globally and in India, 75 to 80 per cent of the business is controlled by MNCs. The rest 20 to 25 per cent is handled by Indian companies. In that also, four or five Indian companies share among themselves 80 per cent of the business. The rest 20 per cent is shared by some 20 companies. So, our major competitors are the five or six MNCs like Rosh, Siemens and Abbott and the number one Indian IVD company which together share 80 per cent of the business. Our biggest Indian competitor is Transasia Bio-Medicals Limited. But one main difference between Transasia and Agappe is that 60 per cent of Transasia’s business comes from an MNC which is the distributor of that company. But in our case, since we are both manufacturer and distributor, the business returns are entirely ours. But still, they are considered number one.

Does Agappe export manufactured goods?

Though we set up our international division in 2015, we were already exporting to some of the Asian and African countries from Kochi since 2005. We entered into a joint venture with a Swiss company in 2009. However, in 2011 we bought back the stake from that JV partner and made it a 100 per cent subsidiary of Agappe. Now we are exporting to about 55 countries through our European subsidiary.

What is the ratio of domestic and export market shares?

The ratio of Indian business to international business is always about 75 per cent to 25 per cent. I want to cap that ratio to a maximum of 70 to 30. I don’t want to increase the international business too much because there is a reason. India has a population of 1.25 billion and it constitutes about 20 per cent of the world population. But the Indian share of the total (global) IVD pie is less than one per cent at present. So there is a huge opportunity in India itself.

Of course, to cross-subsidise the import or export risks we want to do international business, but our focus is definitely on India. While doing international business, we give importance to developing countries like Thailand, Indonesia, Philippines, Egypt, Kenya and South Africa. There are a lot of similarities in the requirements of markets in India and these countries. Hence, we want to position our products in that segment.

Any diversification or expansion plans?

We want to position ourselves as a total solution provider in the IVD sector, that is lab diagnostics. We don’t want to enter other medical devices segments. In the laboratory diagnostics segment, we are in the analytical domain.

There is a big opportunity in the pre-analytical area. It is a very niche segment. If you go to laboratories you can see a lot of automation happening. But still, when you go to a lab for conducting blood test the procedure is same in all labs, be it small or big. Not much automation has happened in that area. This pre-analytical domain is one area which we want to focus on. Significant automation is possible here which can help reduce errors drastically.

What is your strategy to increase market visibility?

Our business is mainly B2B. Our clients are not always our final customers. They supply to labs which, in turn, give them to customers. So there are advantages and disadvantages. You should be aware of home-care products like Glucometer. Probably, in the next five years, we may enter home-care consumables segment. That is physician-based diagnostics. We believe that manufacturing of home-care products will give us more visibility in the eyes of the common man.

Is skilled labour required for your segment available in Kerala?

Automation is possible in the manufacturing of reagents. Reagents are produced using equipment and we need highly skilled persons for the process. We can train employees for that. But when it comes to equipment, the manufacturing process requires experienced hands and a lot of auxiliary production units. Each piece of equipment is a finished product and it consists of a lot of electronic and mechanical parts, so auxiliary units are very important for producing them. You can find a lot of mould-makers and metal workers in Kerala. In Kalamassery area there are a lot of auxiliary production units. People working in these units are highly skilled.

What is the strength of your customer base?

There are about 45,000 to 50,000 labs in India. In that, about 15,000 customers are using Agappe’s equipment. Naturally, those many customers may be using our reagents, too. But some of the reagents we produce can be used in other equipment also. That way we have about 2000 to 3000, or maybe, a maximum of 4000 additional customers. So, totally about 20,000 customers are regularly using Agappe’s products in India or are getting our support and service.

How do you visualise Agappe’s position five years down the lane?

In India, the diagnostic instruments market is getting consolidated. So after five years, the present 50,000 customers may get reduced to 40,000 or even 35,000. Many mergers are already happening. Small labs are getting attached to big labs. I think in five years’ time, say by 2022, there may be a total of 30,000 to 35,000 customers left in the market. And we should have a direct presence before 20,000 to 25,000 of them. And another 10,000 customers should get our service through distributors. That is the kind of target we should be prepared to meet.

Any plans to go for an IPO?

Of course, we are very seriously thinking about it. I think by 2020, we should be able to come out with an IPO. Before going for IPO, there are certain things which we have to consider seriously. One is the ticket size. Today, Indian IVD business is worth only Rs. 6,000 crore to Rs. 7,000 crore. But the growth rate is pretty good with 15 to 18 per cent. However, the business size is somewhat small and MNCs control about 70 to 80 per cent of the total volume of business.

So you can imagine the share of the pie we have. Secondly, to be a great success in IPO, we need to have a clear visibility among the general public. But today, trends are changing fast and people are not putting money after seeing an IPO ad. They will always study before making any decision. So one way it is an advantage, but in another sense it is a challenge.

Could you share investment plans for the near future?

We have very big investment plans for the next five years. I would say both organic and inorganic. There is a big possibility. On the inorganic route, I will be investing in technologies, which are suitable for me. That is one area. When I say technologies, it will either be a partnership with big companies (co-development) or acquisition of technologies developed by some established companies outside India. Second, we will be looking to add some markets, international as well as domestic, in terms of new product groups.

Organically, we have a CAGR of more than 25-30 per cent. On an average, we touch 29 per cent CAGR but it is not easy to increase it any further as it requires high volume of investment. So we have small growth plans. That is why we are considering IPO as investments are very important for us in the next five years.

The company seems to be active in acquisitions, mergers and tie-ups. How is it helping?

We have a products’ segment, the protein estimation segment, which is a very niche one. We are one of the major players in the segment in India. Our nearest competitors are MNCs. We launched our initial product in 2011 and it was a semi-automatic instrument. In 2015, we came out with our own fully-automatic, single-test analyzer. Then we wanted to come out with automation to fill the gap in the upper protein estimation segment. That is why we signed a technology-licencing agreement with Hitachi. We manufacture the products and the income from consumers is our mainstay.

In the R&D segment, we work with big multinational players. We plan to enter the haematology segment next year. Today, nobody in India is manufacturing equipment for the segment. It is one of the biggest sub-segments of IVD. We are going to launch the first instrument in India, which could revolutionise laboratory diagnostics. This is being developed by the Agappe team and a major Indian multinational company. But I cannot reveal the name now as the product is yet to be launched.

How do you manage the issue of waste generation?

I am happy to say that we have a good effluent management system. Last year, we got an appreciation award from the Kerala State Pollution Control Board (KSPCB) for achieving zero waste discharge. We have invested on the project and whatever waste we generate is being utilised for gardening purpose. Hence, we have effectively managed the issue of effluent generation. We received an award from KSPCB for that also.

What is your take on the impact of new laws in the medical devices manufacturing sector?

It is definitely going to help us. It will help curb unauthorised manufacturing and imports. Illegal imports will automatically stop once the government comes out with policies and regulations on manufacturing. There are a lot of equipment being imported from China. In China, they have two types of products – licensed products that are sold in the domestic market and products meant for export that do not fall under the purview of such regulations. But in India, licencing is essential for all types of products. So, such laws will help crack down on illegal imports.

What is your view on the amendment to the laws governing diagnostic industry?

In fact, the first major change in this regard happened two or three years ago. From January 2017 onwards, certain licensing powers were transferred from the State to the Union Government and inspections have become combined exercises. I think there can be a general delay as inspections will be carried out by regulatory bodies of both the State and Central Governments. Till now drug regulations were being implemented through State systems. So their pattern varied from state to state. But with joint inspections coming into effect, the process will become uniform in nature. That is an advantage.

IVD tests have been under the scanner following concerns raised about increasing price and huge healthcare expenditure. IVD is one area where price increase has not affected the customer for the last 10 years. In fact, it is coming down. It is visible in Thyrocare and other combo tests offered by different labs.

Meanwhile, the customs duty has been reduced giving impetus to import of goods. For distributors and manufacturers, the price pressure is a cause for concern. We are managing it with localisation. The price reduction is, however, spurring increase in sales volumes. That is how manufacturers and distributors are managing. So there is no possibility of an increase in price for at least another five years.

What is the philosophy that drives Agappe?

Reach, Economics and Quality are the three key things. MNCs with their model of expenditure cannot reach tier-to-tier audience. They mainly focus on big cities. Of course, they provide quality. But all MNC product designs and concepts are not mainly meant for India because for them India represents only one per cent of the global market share. So there is a price issue based on the product’s specification. That is why I said Reach, Economics and Quality.

Which Agappe product holds the largest market share?

As I mentioned earlier, Rs. 6500 crore is the market size of IVD. In it, the biggest market share is of biochemistry equipment. That is about 28 per cent. Second is immunology, which comes to about 25 to 26 per cent. Then comes haematology equipment market, which is about 15 per cent. Agappe is very strong in biochemistry, haematology and immuno-chemistry segments. And these three segments cover about 60 per cent of the business. In the remaining 40 percent we are not there. That is why I said that I wanted to enter that segment with some product additions.

What is your advice to young entrepreneurs?

My advice to young entrepreneurs is that they should stick to their principles and not change their focus. Focus should always be on the core business.