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A year after the Tata Group took a majority stake in the healthcare platform it is leveraging the group’s strength to expand its presence in the lucrative diagnostics business, increasing its share of business combinations and expanding online pharmacy offerings.
“Our plan this year is to grow 80-85% year-over-year, and we’re on track to hit those numbers,” says Gaurav Agarwal, Co-Founder and CTO, Tata 1MG, in an exclusive interview with YourStory Media.
In 2021, Tata Digital, a wholly owned subsidiary of Tata Sons, acquired a majority stake in digital health company 1MG Technologies. The group’s goal was to enter the billion dollar digital health market which is expected to grow at around 50% CAGR (compound annual growth rate).
The Tatas aren’t the only ones to have sniffed out this billion dollar opportunity. A flurry of biggies – like Reliance through NetMeds and even Amazon through Amazon Pharmacy – in the Indian e-health market indicates the phenomenal opportunity ahead.
E-pharmacy activity
A full-fledged battle is underway in the Indian e-pharmacy space. In-depth analysis of the Indian e-health market shows that e-pharma constitutes 91% of India’s e-health GMV, or gross merchandise value, and diagnostics only 9%, according to RedSeer Strategy Consulting .
“We have seen 30-40% growth in the last year in the online pharmacy sector. One of our main focus areas will be acute drug delivery. We are now looking to introduce orthopedic support systems etc. through the online platform. We are also working on growing our private label portfolio and these could contribute around 6-8% of overall platform sales in the future,” says Gaurav of Tata 1MG, which recently completed its Grand Savings sale. Day. More than 2,000 brands participated in this sale and the platform saw its daily revenue increase by 5 times during the sale days.
Categories like homeopathy and ayurveda are doing well, and the platform is also seeing good demand in the chronic medicine segment.
“In a few cities, we’ve piloted an IoT-enabled cold chain delivery supply chain, where we have a guaranteed temperature chart that can be monitored in the background. This ensures that chronic medications reach consumers at the correct temperature,” says Gaurav.
Tata 1MG has also worked on reducing the delivery time of the service and sees high demand from Tier II and III cities, especially in UP and Bihar, for this reason. However, 35-40% of orders still come from Tier I cities.
At present, Tata 1MG holds around 18-20% market share in the online pharmacy segment and has 40 million monthly unique users and 500 million monthly page views.
According to business intelligence platform Tofler, Tata 1MG’s operating revenue increased by 65.7% to Rs 222.10 crore in FY22, while its net loss narrowed. reduced to Rs 146.30 crore. The e-pharmacy accounts for 60-65% of Tata 1MG’s overall turnover.
Diagnosis: The Game Changer
Even though e-pharmacy continues to dominate e-health revenue at present, all eyes are on the e-diagnostic segment, which experts say will be a real game-changer as margins in this segment are quite high.
“Diagnostics is a high-margin business and therefore improving its share of the e-health pie would significantly improve overall gross margins,” according to a RedSeer report. The average gross margins made by e-health platforms from the e-pharmacy are around 25-30% and those for diagnostics 45-50%.
“Last year we offered 300 tests and performed 200 tests in-house. We now offer 350-400 tests and most of these tests are done in-house through Tata 1MG labs,” says Gaurav, who is now looking to add genetic testing to the platform.
Tata 1MG is also working to improve the quality of service by increasing the number and length of time slots for home sample collection and further speeding up the turnaround time for test reports.
The big area of focus in diagnostics has been to increase the number of laboratories. “We have a total of 12 labs right now and will increase the number to 15 by the end of this fiscal year,” says Gaurav. This lab expansion will help improve report delivery times, as samples will get to the labs for testing faster.
“Most of the diagnostics industry has seen post-COVID-19 decline, but we’re up 61% from last year,” Gaurav says. Tata 1MG currently offers diagnostics in 42 cities and plans to expand to 70 by the end of this fiscal year.
Tata 1MG is also piloting an omnichannel game for diagnosis. It plans to set up diagnostic centers in existing points of sale as well as autonomous collection centers. Tata 1MG currently derives approximately 15% of its revenue from diagnostics and expects to grow 100% year-on-year over the next two years at least.
The rest of Tata 1MG’s revenue comes from business combinations and other outpatient programs.
“Business is a priority for the company. We think it can be a Rs 1,000 crore business over the next couple of years. This business is basically lucrative because it generates quite a bit of revenue from convenience and services,” says Gaurav.
The healthcare platform currently generates around Rs 100 crore in revenue through corporate links. Through its corporate health platform, Tata 1MG covers over eight lakh lives (including employees and dependents). After the deal with Tata, 1MG was able to expand its reach to more than 150 companies this year, up from 20-25 last year.
The challenges of the e-health segment
Despite the rapid growth of the industry, profits are not very easy to find in the e-pharmacy space. That’s why experts think the focus will be on the diagnostics business, which has better margins.
“E-health players witnessed a huge business boom during the COVID-19 period as demand for drugs was at an all-time high and deals were not needed to drive sales. It is becoming difficult to make money now,” said an industry insider who did not wish to be named.
Channel audits revealed that customer acquisition costs (CAC) have returned to pre-COVID levels and that discounts have once again become important in retaining consumers for e-pharmaceutical players.
“Discount and CAC are the largest spend areas for Indian e-health platforms and they currently exceed margins earned. Spending rebates will likely remain at similar levels to keep e-health players competitive,” said Kushal Bhatnagar, engagement manager at RedSeer Strategy Consultants in a blog post.
Despite the competition in the market, Gaurav argues that Tata 1MG has always been reasonably conservative when it comes to discounting and cash burn.
“We are starting to have a positive reinforcement of our strategy. Our retail business is profitable in terms of EBIDTA at the store level, the patient support business is profitable in terms of EBIDTA, our corporate business is lean and efficient. The majority of the competition is in online pharmacy and now online diagnostics,” says Gaurav.
However, Tata 1MG does not feel the fire of competition.
“The thesis that winner takes all is no longer true for the internet space. Players find their own niches and play there. We don’t care too much about competition but focus on quality of services and selection of products that we can offer. Despite the competition, we haven’t seen much of an impact from a growth perspective,” says Gaurav.
