Tata Digital’s 1mg scales 2X in FY22, losses cross Rs 525 Cr

Tata Digital emerged as one of the major acquirers in the Indian startup ecosystem during FY22. To ramp up its digital play, it acquired the largest e-grocer BigBasket and online medicine ordering platform 1 mg in FY21. While BigBasket’s scale shrank in FY22 which was the first fiscal year after the acquisition, in contrast, 1mg recorded a 2X surge in its collection in FY22.

1mg’s operating revenue soared almost 2X to Rs 627 crore in FY22 from Rs 309 crore in the previous fiscal year (FY21), as per its annual financial statement with the Registrar of Companies (RoC). Sales of products such as medicines, healthcare devices, and personal care products constituted 57.7% of operating revenue in FY22.

The rest of the operating revenue came from the sale of services which includes facilitation fees, e-diagnostic and pathology services which spiked 62% to Rs 185.7 crore in FY22 from Rs 114.6 crore in FY21.

In line with revenues, the total expenses of the company soared 86% to Rs 1,171 crore in FY22 from Rs 630 crore in the previous fiscal year (FY21). The cost of materials was the largest cost for the company, which formed 30% of the overall cost and surged 2.3X to Rs 351.3 crore in FY22.

Employee benefit expenses were the next major cost, jumping 2.8X to Rs 219.8 crore in FY22 from Rs 76.2 crore in FY21. The cost of advertisement and promotions also shot up 2.3X to Rs 180.3 crore in FY22 from Rs 78.5 crore in FY21. Legal-professional fees and Information technology costs grew 156% and 45% to Rs 55.30 crore and Rs 22.5crore respectively.

As the overall cost of the company escalated, losses of Tata 1mg also climbed 68% to Rs 526 crore in FY22 from Rs 314 crore in FY21. With a 2X surge in cost, the cash outflow of 1mg increased 76.5% to Rs 109.8 crore in FY22.

On a unit level, 1mg spent Rs 1.87 to earn a single rupee in FY22. This indicates an improvement in unit economics as the company spent Rs 2.04 to earn a rupee in the previous fiscal year.

1mg has managed to scale 2X in FY22 but its overall costs also surged at a similar speed. It looks like the company prioritized growth against profitability and several analysts tracking the medtech space outlined that 1mg will be in growth mode and won’t bother much about unit economics in the ongoing fiscal year (FY23) as well. The medtech space is also going through an exciting time in which the country’s two biggest business groups Tata Digital and Reliance are squaring off. PharmEasy is another large player in the space but it’s not in a good shape at the moment. It deferred its IPO plan and is looking to raise capital with trimming on its last valuation round.

Most firms of scale, when acquired, typically do start off slowly as acquirers tend to clean up during the honeymoon period, so to say. For 1mg, that period is probably over or will be soon, as Tata's now looking at the promised value at the time of acquisition. The extra leeway, courtesy the well funded competition and an opportunity that is still considered young, will no doubt give the firm a little extra runway to deliver. The fact that employee benefit expenses have risen faster than overall growth indicates the churning going on, before the firm settles into a more stable pathway under this head, even as revenue will be expected to continue climbing with better unit economics.