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Tata Digital's 1mg buy a prescription for strong e-pharma growth

1mg reported revenue of Rs 357.9 crore for 2019-20 (FY20), and Rs 266 crore for the period from April 1, 2020, to January 31, 2021

Tata Digital’s 1mg buy a prescription for strong e-pharma growth
1mg saw 3.5x growth in its unique users and strong growth across all its revenue lines - especially pharmacy and diagnostics.
Samreen Ahmad Bengaluru
5 min read Last Updated : Jun 14 2021 | 12:14 PM IST
Continuing its push into the digital online ecosystem, Tata Digital, which is building its super application ecosystem, has now put online pharmacy player 1mg in its cart after betting on e-grocery BigBasket and fitness start-ups Cult.fit. 

According to sources, Tata Digital, a 100 per cent subsidiary of Tata Sons, has acquired 60 per cent stake in the start-up. The deal size is valued at $270 million.
 
1mg has presence in the online health space and enables access to medicines, health and wellness products, diagnostics services, and teleconsultation. It operates three diagnostic laboratories and has a supply chain servicing over 20,000 pincodes across the country.

For 1mg, a deal with the Tatas signifies a collaboration with one of the country’s iconic industry conglomerates, enabling it access to advanced health care products to consumers. 

According to the Gurugram-based start-up, it saw 3.5x growth in its unique users and strong growth across all its revenue lines - especially pharmacy and diagnostics.

1mg reported revenue of Rs 357.9 crore for 2019-20 (FY20), and Rs 266 crore for the period from April 1, 2020, to January 31, 2021, according to the filings the company has done on the Ministry of Corporate Affairs website. 

According to the company’s filing, its adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda) has continued to drop. For FY20, the adjusted Ebitda was at a loss of Rs 266.19 crore. For the period April 1, 2020, to January 31, 2021, the loss was Rs 153.9 crore.

The company, according to a valuation report filed, said the Ebitda would get positive only in 2023-24 which it projected at 0.2 per cent. 

It expects revenue to grow at a compound annual growth rate (CAGR) of 60 per cent over a period of five years - 2020-21 to 2025-26.

1mg and its contemporaries - Netmeds and PharmEasy - were founded in 2014-2015, with most getting funded the following years by top-draw investors, such as Sequoia Capital, TPG Growth, and Omidyar Network.

But online pharmacy is a large and difficult market to crack, something Tata Group needs to ready for. The online pharmacy has seen stiff competition - not only between online players, but from neighbourhood chemists as well.


“There were days when it was not unusual to get 25 per cent discount on medicines. Without delivery charges or a tactical discount from pharmaceutical (pharma) manufacturers, it was definitely going to be a loss-making proposition for online players,” says a prominent venture capital partner.

This is also a low retention, low repeat use-case category since medicines are not a daily essential unless someone is a chronic patient. There is a large customer base in India of 100 million-plus people who are diabetic, hypertensive, etc. These start-ups would have benefited by capturing this user base. 

“Unfortunately, a large part of this user base is older and not as experimental as the millennials and have pre-existing relationships with the neighbourhood pharmacies,” explains Arpit Agarwal, director, Blume Ventures.

Some of these players started adding features such as online consultation and diagnostics on the platform to scale up. While the market is still nascent, Covid has added tailwinds to the sector, with this market seeing 3x increase in the number of first-time users. 

With increased health awareness among consumers and greater convenience promised, especially during the pandemic, the online health care sector is now around $1 billion and is expected to grow at 50-per cent CAGR.

Naturally, this has caught the attention of large companies like Amazon, Reliance, and the Tatas. While Mukesh Ambani-led Reliance Industries has acquired 60 per cent stake in online pharmacy Netmeds for Rs 620 crore, e-commerce giant Amazon, too, had forayed into the online pharmacy segment last year. 

There is also consolidation happening, with PharmEasy acquiring Medlife.

"This is not a winner takes all. There is room for more than one player. Companies that play along the entire value chain, provide a range of services, and are able to better harness data will win in the segment. At Trifecta Capital, we bet on PharmEasy five years ago, when it was a Series A company, and are proud to see it grow to be the largest e-pharmacy in the country backed by the world’s largest investors,” said Nilesh Kothari, managing partner, Trifecta Capital. 

The e-pharma unicorn last month acquired Medlife. As a combined entity, it aims to serve 2 million customers on a monthly basis. It is also eyeing a $3-billion initial public offering, say reports.

“Tatas have bought BigBasket, which has a lot of customers. They may look to cross-sell 1mg products,” says Rehan Yar Khan, managing partner, Orios Venture Partners. 

Bengaluru-based BigBasket fulfils around 15 million orders per month in 30 cities across India. 

It will also be easier for horizontal players like Reliance and Tatas to have a wider reach that uses their existing distribution networks, supply chains, and back-end logistics for this business.

“Tata Group’s investment in 1mg aligns with its vision of creating a vibrant online ecosystem catering to the varied needs of consumers,” says Bimal Raj, partner at Singhi Advisors.

With inputs from Shivani Shinde

Topics :Tata groupE-Pharma1mg

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