E-Pharmacies in India: A Prescription for Profitability

India's online pharmacy sector aims to slash operating losses to below 10% by next year, down from over 30% in 2023, as efforts focus on high-margin segments and efficiency. Despite ongoing cash losses, significant growth potential is noted due to under-penetration in the market.

India's online pharmacy industry is projected to reduce its operating losses to below 10% by the next financial year, down from over 30% in 2023, according to Crisil Ratings. This promising outlook is attributed to a focus on high-margin product segments and enhanced operational efficiencies.

Despite the decreasing loss trend, the sector is expected to face continued cash losses over the upcoming two fiscal years due to substantial operational costs and intense competition. Revenue growth remains steady, but timely equity funding is crucial to capitalizing on growth opportunities and managing cash burn effectively during expansion phases.

The Indian retail pharmacy sector's revenue was approximately Rs 2.4 lakh crore last fiscal, with the unorganized sector accounting for 85% and organized sectors, including e-pharmacies, making up the remaining 15%. Online pharmacies represent just 3-5% of the Indian market compared to 22-25% in developed countries, highlighting their significant growth potential.

Poonam Upadhyay, Director at CRISIL Ratings, stated that e-pharmacies are steering towards sustainable growth by diversifying into high-margin segments like wellness products and medical equipment. These are expected to constitute 40% of sales next fiscal, up from 30% currently, and substantially more than the 15% in fiscal 2023.

To achieve profitability, players are shifting away from aggressive discounting to cut key delivery, distribution, discounts, and employee (DDDE) costs from 65% in the fiscal year 2023 to below 35% next fiscal. The sector is at an early growth stage, facing significant operating losses due to substantial initial investments and other challenges like high customer acquisition costs.

Focusing on profitable growth, e-pharmacies anticipate a revenue increase of 9-11% over the next two fiscals, following a revenue surge during the COVID-19 pandemic from fiscals 2020 to 2023, as reported by Crisil Ratings.

(With inputs from agencies.)