Medicine retailing contributes 65% of 1mg’s operating revenue of Rs 241 Cr in FY19

Selling medicines online has been a great challenge as this space witnessed regulatory challenges time and again in 2019. While the Delhi High Court had ordered all state governments to ban the online sale of medicines in January this year, the central drug regulator had asked states to enforce a court directive prohibiting online medicine sales this month.

Amidst this regulatory uncertainty, Gurugram-based 1mg has demonstrated decent growth with a 2.8X jump in operating revenue. Registering 180% growth, it has posted total operating revenue of Rs 240.85 crore.

The company collected Rs 39.45 crore from offering marketplace services while Rs 68.3 crore through online diagnostics and lab testing services in year ending March 2019. It also made Rs 67.8 lakh from collection charges. 

Importantly, the overall revenue from services grew 90.2% from Rs 41.8 crore in FY18 to Rs 79.5 crore in FY19. All services together accounted for a little over one-third of the total revenues generated by 1mg during last fiscal. 

Leading from the front, revenue from the sale of medicines and other wellness products made most of the revenues ~ increasing 3.7X to Rs 156.2 crore in FY19 from Rs 42.5 crore in FY18. Such sales made up almost 65% of the total operating revenues. 

But this growth has possibly been cut short by the Health Ministry’s revised draft regulations restricting e-pharmacies from maintaining an inventory and mandated them to act only as a delivery partner for brick and mortar retail pharmacies. 

These regulations would certainly force e-pharmacies including 1mg to review their business model. For instance, the company purchased stock in trade (medicines & wellness products) worth Rs 159.6 crore in FY19 increasing 3.7X from Rs 43.2 crore in FY18. 

1mg also saw its inventories increase by Rs 10.43 crore to reach Rs 18 crore at the end of the fiscal year ending in March 2019. 

The company spent Rs 89.5 crore on employee benefits in FY19, registering a 63.5% increase as compared to the expenditure of  Rs 54.7 crore in FY18. Expenditure on advertising and promotions grew by 72% to Rs 82.6 crore in FY19 from Rs 48.04 crore in FY18 while secondary packaging added another Rs 23.3 crore to the expense sheet. 

Expenses related to diagnostic laboratories also shot up 2.3X in FY19 to nearly Rs 20 crore from Rs 8.53 crore spent in FY18 as the orders for diagnostics went up as well. Information technology expenses also increased 2.6X to Rs 10.84 crore in FY19 along with legal expenses which also grew at a similar rate to reach Rs 7.2 crore during the same period.

Payment gateway and outsourced manpower added another Rs 4.36 crore to push total expenses to grow 2.2X to reach Rs 413.02 crore at the end of last fiscal in contrast to Rs 188.2 crore it spent during FY18.

The increase in cash burn resulted in a 66.3% increment in cash outflows from operations to reach Rs 187.6 crore during FY19 from the outflow of Rs 112.8 crore in FY18. Matching pace, losses also grew 73% to Rs 170.4 crore in FY19 from Rs 98.6 crore in FY18.

However, unit economics witnessed an improvement of about 30% as the company spent Rs 1.7 to earn a rupee of operating revenues during FY19 as compared to Rs 2.2 the company spent in FY18. The company also raised Rs 368.7 crore through issue of shares and another Rs 17.8 crore in borrowings to fuel its increasing expenditure. 

While 1mg's revenue has kept up with the expenses in FY19, the company has been grappling with fickle policymaking. Given that India is yet to finalize regulations for online drug sales, or e-pharmacies, the ongoing fiscal may prove to be a sluggish one for the Sequoia-backed firm.