India’s largest online pharmacy by revenues, MedLife, could tap the capital markets in the next two years to fund its ambitious future growth strategy, revealed the company’s founder, underscoring the potential of epharmacies that aim to transform India’s fragmented and often chaotic healthcare delivery system through technological interventions.
“We have come to a stage where we have operationally started to make money. We will be profitable operationally by next financial year. So whatever capital is needed is growth capital, so we will fund it ourselves. We may plan an IPO in 2-3 years,” Tushar Kumar, the company’s chief executive officer and director, told CNBC-TV18 at a press briefing in Mumbai.
The Bengaluru-based startup was founded by Kumar and Prashant Singh in November 2014 with an initial investment of $15 million and later received a funding of $30 million from his family-run trust as well as promoters. Kumar is part of the family that runs Alkem Laboratories, which develops, manufactures and markets, pharmaceutical formulations and nutraceuticals in India.
Since inception, MedLife had invested $50 million across its business. Over the next five years, it would invest another $100 million to fuel its growth across different business verticals.
The online pharmacy industry in India is currently worth Rs 2,500 crore, with four players — MedLife, Netmeds, PharmEasy and 1mg — accounting for 85 percent of the market. MedLife claims to have a 30 percent share of the market, which it intends to expand to 50 percent over the next 18 months.
Claiming to be the only epharmacy to have crossed revenues of $100 million (Rs 710 crore at current exchange rate), MedLife is set to close FY19 with a gross merchandise value (GMV) of Rs 830 crore, an increase of more than 2.5 times over FY18.
Speaking about the factors that led to this significant jump in its GMV, Kumar said, “One was our latest television commercial, which was received very well by our customers and gave MedLife top of mind recall."
Kumar was referring to MedLife’s brand campaign
Lafaddu Lal, starring actor Boman Irani. “The second trigger for our growth is our foray into the laboratory business. The third is, because we have been around for four years, customers have begun to trust us and 70 percent orders are from returning customers."
At present, 80 percent of MedLife’s revenues are generated by its epharmacy business, which is operational in 16 cities, delivering to 23,000 pin codes. The company intends to expand its services to 29 cities by January next year and has also launched an express delivery in Bengaluru to make medicines available at short notice by levying a convenience fee. The express service will be expanded to other cities soon.
MedLife’s other business verticals include diagnostic services, which presently accounts for 8 percent of its revenues. The company has one centralised laboratory in Bengaluru that offers sampling and testing services and has also partnered with established players such as Thyrocare, SRL and Metropolis.
Through an investment of Rs 60 crore, MedLife will establish laboratories across 10 cities during this quarter. By FY20, MedLife intends to have 50 laboratories operating across tier 1, 2 and 3 cities.
“We expect main revenues would come from new cities we are launching in. Right now Rs 6-7 crore a month (revenues) comes from Bengaluru, which we want to change by rolling out laboratories in 10 cities. That's where the main revenue growth will come from,” said Kumar.
But what would differentiate MedLife’s services from those by other players? “If you look at how they (other diagnostic companies) operate, their collection is handled separately, marketing and order generation is handled separately and actual sample processing is again done separately. Under MedLife, all these are under one umbrella. So this ensures a lot of value is being created, there is no margin being passed on between players. This extra value is passed on to customer in the form of bringing down his wallet expenses,” said Kumar.
The diagnostics business is expected to touch Rs 100 crore in FY19 and this is expected to grow five-fold to Rs 500 crore by next year.
The company’s private label business is another area of focus. With a portfolio of 20 private labels of ayurvedic health supplements, the ‘essentials’ business, is seeing rapid expansion to include non-ayurvedic supplements, fitness supplements, diabetics footwear and food items and glucose meters. This should see the contribution of the essentials vertical double to 10 percent over the next 3 years.
Unlike the aggregator model followed by companies such as PharmEasy and 1mg, MedLife follows the inventory-led model and owns 33 fulfillment centres across the 16 cities it’s present in, with another 21 centres across 10 new cities in the pipeline.
Keen to establish its omni-channel presence, MedLife is earmarking Rs 25-30 crore to expand its offline presence. With one pharmacy in Mumbai, the company intends to set up 100-150 stores over the next year, many of which will double up as fulfillment centres. While half the pharmacies would be set up through franchisees, the other half would be company-owned.
The company’s econsulting business was established in January to provide specialty doctor consultations and has on-boarded more than 1,500 doctors. The company has acquired Bengaluru-based healthcare startup EClinic24/7 to scale up its customer base. MedLife plans to add over 10,000 doctors in the next one year.
In an industry marred by deep discounting and high cost of customer acquisition, MedLife spends an average Rs 500 a customer, a significant expense that eats into its margins.Kumar says the deep discounting model is here to stay for a while, until customer behavior shifts in favour of online models. "To change consumer behaviour, you need deep discounting. Usually people used to call or go to their neighbourhood store. That's why you need discounts to get people to try our service. Once 2-3 years go by, they have switched to online completely and then you rationalise the discounts. That's the model even used by Amazon and Flipkart,” he added.