India’s online pharmacy sector is on course to reduce operating losses to below 10 percent next fiscal from over 30 percent in fiscal 2023, by sharpening focus on high-margin product segments and operational efficiencies.
According to CRISIL, cash losses, though on the decline, will continue for the next two fiscals due to high operational costs and intense competition.
“While the sector will see steady revenue growth, securing timely equity funding will be essential for two key reasons: one, to secure the capital needed to maximise growth opportunities arising from under-penetration; and two, to effectively manage cash burn while supporting credit profiles during the expansion phase,” the rating agency said in a statement.
A CRISIL Ratings analysis of e-pharmacies accounting for over 80% of the online segment indicates as much.
“E-pharmacies are eyeing sustainable growth by diversifying into high-margin segments such as wellness products[2] and medical equipments, which are expected to comprise ~40% of sales next fiscal, up from about 30% now and under 15% in fiscal 2023. Players are also moving away from aggressive discounting to reduce key operating costs (discounting, delivery, distribution and employee — or DDDE) from around 65% in fiscal 2023 to below 35% next fiscal, which should help narrow losses and accelerate the move to profitability,” Poonam Upadhyay, Director, CRISIL Ratings said.
The e-pharmacy sector is in the early growth stage and faces significant operating losses due to high initial investments in technology, large inventory and supply chain inefficiencies. Attracting customers in a fragmented market also entails substantial spending on marketing and discounts, leading to high customer acquisition cost.
“Ongoing operating losses highlight the need for continued support from promoters, private equity investors and venture capitalists, as bank funding will be limited to working capital. As e-pharmacies expand operations and aim to reduce losses, they will still incur cash losses and likely require additional equity funds of ~Rs 2,300 crore over this and next fiscals, following over Rs 9,200 crore already secured since fiscal 2020,” Naren Kartic. K, Associate Director, CRISIL Ratings said.
