India’s healthtech startup ecosystem has been buzzing with innovation and disruption. According to DataLabs by Inc42, this year, the total market size of the healthcare industry in India is projected to be $202 Bn. This is a growth of 84% from the $110 Bn market size in the year 2016. The healthtech sector has gained significant investor interest as well. According to DataLabs by Inc42, healthtech startups have raised $1.9 Bn across 405 deals between 2014-H1 2019.
Within the healthtech sector, epharmacy has been stuck in regulatory hurdles over the past year. It even reached a point where the Indian government placed bans on epharma companies and introduced draft regulation guidelines for the sector.
Offline retailers staked a claim for a share of the pharma market as well, which also played a part in halting the rise of epharmacies. Last year, epharmacy startups faced an interim ban from Madras High Court on the sale of medicines online — which was lifted later. The startups faced a ban from the Delhi High Court as well.
Today, epharmacy players are busy lobbying their offline counterparts to find a mutual way out to move business forward. However, there is no resolution yet as the case is stuck in the court.
Amid this, Gurugram-headquartered healthtech startup 1MG has announced its financial performance for 2018-19, so there was a lot of curiosity about the impact of these regulatory hurdles, if any.
Launched in April 2015 after Healthkart — founded by Prashant Tandon, Gaurav Agarwal, and Vikas Chauhan — separated its generic drug search business, HealthkartPlus, and rebranded it to 1MG. The company has three business verticals — Pharmaceuticals, Labs, and Doctors.
In filings, 1MG noted the regulatory hurdles but remained optimistic of the result. “During the Review Period various writ petitions are pending before the Hon’ble High Courts of Delhi, Calcutta and Madras with respect to regulation of online sale of medicines. However, basis the legal opinion received by the Company, it appears that the Company has a strong and arguable case in its favour and there does not appear to be any issue with respect to the going concern.”
In terms of financial performance, as a standalone company 1MG reported a revenue of INR 54.16 Cr, a jump of 35.7% from INR 39.89 Cr in FY18. At the same time, the expenses jumped 64% to INR 210.34 Cr in FY19 from INR 128.2 Cr in FY18.
As a result, the company’s losses have jumped 76% reaching INR 156.17 Cr from INR 88.31 Cr in FY18.
Epharmacy Biz Dominates Revenue
In its filings, 1MG said that it is a “hyperlocal marketplace that aims at connecting local buyers and local sellers by enabling discovery of local merchants, product, inventory and pricing information.” It also said it provides tech-enabled healthcare services such as health information services and lead generation for healthcare services.
Examining the company’s revenues, we noted that over 76.75% of its operational revenue came in from epharmacy business. Further, 1MG earned INR 39.7 Cr via epharmacy business, a 71% Y-o-Y growth from INR 23.23 Cr in FY18.
Further, nearly 13.35% of the operational revenue came in from e-diagnostics. The revenue generated was INR 6.91 Cr in FY19, a 22% decline from INR 8.86 Cr in FY18.
Also, the company earned operating revenue of INR 5.11 Cr in FY19 from e-consultancy advertisement etc.
Growing Expenditure On Tech, Content And Advertising
The company filings reveal that one of the biggest expenses for 1MG is employee benefit expense. In FY19, the company spent 35% of its total expenses on employee benefits bringing this to INR 73.77 Cr. This was a 54.76% Y-o-Y growth from INR 47.66 Cr in FY18.
However, one of the biggest yearly increase in expenses came in technology and content expenses and advertisement and publicity expenses. In terms of technology support, the company spent INR 6.6 Cr, content writing cost INR 1.43 Cr, advertisement and publicity expenses was INR 34.45 Cr in FY19.
Further, 1MG spent INR 25.22 Cr on fulfilment expenses, which grew 40.44% Y-o-Y. The company spent INR 48.34 Cr on business promotional expenses, a 49% Y-o-Y growth.
Amid other expenses such as communication costs, finance costs, one of the biggest hikes for legal and professional charges. This became INR 4.82 Cr of expense from INR 2.06 Cr in FY18. The legal expense increase is an expected one with the amount of regulatory hurdles the company has been facing.
We have reached out to 1MG for comments on its burgeoning expenses, the company’s thoughts on the legal tussles and the plan to counter the dependency on the epharmacy vertical. The company did not respond till the time of publishing.