[What The Financials] Medlife In The Red For FY19 As Ad Spending Cancels Out Growth

Even though India’s healthcare ecosystem has challenges when it comes to access to facilities and doctors in rural areas, in the urban context, the established healthcare sector is backed by the rise of epharmacies such as Medlife, 1mg, Netmeds and others. While epharmacies are dealing with regulatory challenges, they are also expanding rapidly and in the past year, many have spread their wings to reach Tier 2 and 3 cities as well.

While a slew of healthtech and epharma startups have emerged in the last few years changing the face of Indian healthcare, the industry took a hit when in October 2018 when the Madras High Court announced a ban on the online sale of medicines. The same was followed by the Delhi High Court and in January 2019. The ban on epharmacies was stayed until a decision is announced in the matter.

In February 2019, Delhi HC had also inquired about the guidelines for epharmacies from the centre. In June 2019, the government stated that it was still working on them. Since then, there has been no clarity on the future of epharmacies.

DataLabs by Inc42 also noted in its Annual Tech Startup Funding Report 2019 that healthtech startups raised $512 Mn in 2019 across 62 deals. Between 2018 and 2019, the funding amount and deal count plunged by 4% and 17% for healthtech startups.

The policy uncertainty towards epharmacies played a crucial role in depleting the investor confidence in this sector. With disturbed investor sentiment and regulatory upheaval, the companies were expected to have faced a tough time in regular operations. However, it looks like healthtech startup Medlife could, at least, manage growing its revenues in this situation.

The company filed its financial performance filings for FY19 with the Ministry of Corporate Affairs, which showed that on a standalone basis, it has grown its revenue by 1.65X reaching INR 364.67 Cr, while its losses grew 1.45X reaching INR 403.6 Cr. It is to be noted here that revenues for FY19 make 90% of the company’s losses for the year while expenses are, nearly double of its losses, at INR 768.36 Cr.

Ananth Narayanan, cofounder and CEO, Medlife told Inc42, “It was a year of growth and expansion where we have built capacities for upcoming years and expanded our footprint in more than 2600 cities of India through various business lines. We are thriving to keep up our momentum in current year on the back of the infrastructure built over last year towards a profitable and sustainable business.”

On a consolidated level, the company’s revenue, expenses and losses remained nearly the same, hence, we have a closer look at its standalone performance for the year. The consolidated performance includes the newly-setup subsidiary Medlife Retail, which manages the retail vertical and has no revenue.

Narayanan told us, “We are excited about the hyper growth we have achieved last year and continue on the trajectory this year too.”

The Sources Of Revenue For Medlife

Founded in 2014 by Tushar Kumar and Prashant Singh, Medlife brought ex-Myntra CEO Ananth Narayanan on board as a cofounder and CEO in August 2019. The company started its journey as an inventory-led epharmacy company. It claims to make over 25K deliveries every day across 29 states and 25000 pin code locations. As of March 2019, the company claimed to have crossed INR 1K Cr plus run rate.

Narayanan had told Inc42 in an earlier interaction that in the next 12 to 18 months, the company will achieve breakeven in terms of unit economics.

The CEO told us that pharmacies are a large portion of the business and diagnostics is the fastest growing. Narayanan also said that consultation is also growing very rapidly, but the company is using it mostly to onboard labs and diagnostics.

When we look at revenue generation for FY19, clearly sales of products generated 87.3% of the total revenue while the sale of services was 12.2% of the total revenue.

CEO Narayanan told Inc42, “We have made great progress on getting to operational break even in the last six months and target to get there in the next quarter.”

Burning Cash On Ads, Legal Fees

In terms of mergers and acquisitions, the company has made quite a few investments in the recent past. In May 2019, Medlife acquired Bengaluru-based medicine delivery pharmacy startup Myra Medicines for an undisclosed amount.

In February 2019, it acquired a digital healthcare platform and a ‘diagnostics at home’ services startup called Medlabz. In 2018, the company acquired Mumbai-based EClinic24/7.

Narayanan had earlier told us that for acquisitions, the company focuses on the capability and the customers it is acquiring. “I think every time we have got capability, we’ve been able to scale it across the network. The labs business is one of our big success stories. It has grown 4x-5x in the last one year, and it’s been wonderful as a business. The express business which we acquired recently is also scaling up really rapidly,” he had said.

In many ways, the company has strengthened its capabilities, but in terms of financial performance, its expenses continue to grow.

Legal hurdles, in particular, have taken a toll. In FY19, Medlife spent INR 10.82 Cr as legal and professional expenses, which was a 106% Y-o-Y increase.

However, Narayanan told Inc42  that these expenses are related to regulatory and professional fee for various expansion (organic and in organic) related expenses.

Further, the company’s advertising expenses grew 2X in FY19, transportation distribution expenses grew 1.5X, and brokerage and commission fees grew 2.3X. On this, Narayanan told us, “We have a substantial increase in brand building as we scale the business during the year.”

As the company builds its diagnostics business, the costs involved are also increasing. For instance, Medlife’s collection charges grew 2.98X reaching INR 6.57 Cr in FY19. As the company widens its horizons, its employee benefit expenses grew 93.7% reaching INR 107.5 Cr in FY19.

Narayanan had earlier told us that in FY20, Medlife expects to achieve overall sales of INR 1.5K Cr with an exit run rate of INR 2K Cr. On FY20 targets, he told us, “In the current year business growth have been on track to end the year with a GMV run rate of $250 Mn with achieving operational profitability.”

Correction Note: January 9, 2020| 12: 30 PM
The story wrongly mentioned that Medlife was making 20K deliveries in 25 pin codes location. We have updated the same with the correct information.

Update: January 8, 2020| 11: 40 PM
The story has been updated to include comments from Medlife.