India’s online pharmacy sector is expected to witness steady revenue growth with operating losses expected to be below 10 per cent in the next fiscal from over 30 per cent witnessed during the fiscal 2023. The growth is expected to be driven by high margin products and operational efficiencies plus funding support. As per a recent report by CRISIL cash losses though on the decline, will continue for the next two fiscals due to high operational costs and intense competition.
The report points out that though the sector will see steady revenue growth, securing timely equity funding will be essential for reasons such as to secure the capital needed to maximise growth opportunities arising from under-penetration; and to effectively manage cash burn while supporting credit profiles during the expansion phase.
“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,” said Poonam Upadhyay, director, CRISIL Ratings.
The e-pharmacy sectors in India is in its 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 that also entails substantial spending on marketing and discounts, leading to high customer acquisition cost.
As per CRISIL experts ongoing operating losses highlight the need for continued support from promoters, private equity investors and venture capitalists, as bank funding will be limited to working capital. As e-pharmacies expand operations and aim to reduce losses, they will still incur cash losses and likely require additional equity funds of Rs 2,300 crore over this and next fiscals, following over Rs 9,200 crore already secured since fiscal 2020.
As per Statista, the online pharmacy market in India is projected to be valued at about three billion US dollars. This is about an eight-fold increase in the market value in comparison to 2019. As per Statista, the revenue in the online pharmacy market is projected to reach US$ 0.92 billion in 2024 and the revenue is expected to show an annual growth rate (CAGR 2024-2029) of 13.33 per cent, resulting in a projected market volume of US$1.72 billion by 2029. The user penetration is expected to be 6.72 per cent in 2024 and is expected to hit 10.04 per cent by 2029. At the same time, the average revenue per user (ARPU) is expected to amount to US$9.48. However, as per Statista, when compared to global comparison, most revenue will be generated in the United States (US$24,180.00 million in 2024).
