Operating losses of e-pharmacies seen falling below 10% next financial year: Crisil report

Sharpening focus on high-margin product segments and operational efficiencies have been attributed by the rating agency as the rationale behind the projections.

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.

Revenue of India's retail pharmacy sector is estimated at Rs 2.4 lakh crore last fiscal.

The unorganised sector dominates with 85 per cent share, while the organised ones, including e-pharmacies, account for 15 per cent.

Compared with 22-25 per cent in developed countries, online pharmacies comprise only 3-5 per cent of the Indian market.

The under-penetration indicates its strong growth potential.

Poonam Upadhyay, Director, CRISIL Ratings, said, "E-pharmacies are eyeing sustainable growth by diversifying into high-margin segments such as wellness products and medical equipments, which are expected to comprise 40 per cent of sales next fiscal, up from about 30 per cent now and under 15 per cent 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 per cent in fiscal 2023 to below 35 per cent next fiscal, which should help narrow losses and accelerate the move to profitability."

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.

Given the focus on profitable growth, e-pharmacies expect revenue growth of 9-11 per cent over this and next fiscal, following nearly doubling of revenues during the Covid-19 pandemic between fiscals 2020 and 2023, Crisil Ratings added. (ANI)