Met the management last week. Sharing some takeways.
Disclosure – Invested.
Firstly on the eComm pharmacy space. India has a pharma market of 2.5-3 lac cr and it grows at 9-12% per annum. Medicines can be easier to buy online (especially chronic) as there are fixed brands and strengths which need to be ordered, compared to other eComm online purchases like Shoes, clothes etc which are difficult to choose. Also, chronic medicines in general are simply repeat purchases and hence easier executed by the click of a button. Presently the eComm market size is less than 10kcr which means is still under 4% of the industry. However, it is growing at a scorching pace and can reach 10-15% of pharma market share in the near term itself. That would imply a growth at 50-100%+.
SS is a leader in the ePharmacy space. Other important players being Pharmeasy, Reliance Netmeds and Tata 1mg.
SS: The total Operating revenue of the company reported in 2QFY23 was 254Cr which is an implied GMV of 300+Cr. On a monthly basis they are now almost caught up with the leader Pharmeasy in Pharmeasy’s B2C business. However, SS is almost close to breaking even on EBITDA (likely by FY23 exit quarter) versus Pharmeasy and others which are still massively loss making. Pharmeasy though is trying to turn things around.
SS is a debt free-cash rich company and the market cap is less than 1000cr now. SS Ventures (listed entity) owns 72% in its subsidiary SHBL which owns 25% in SastaSundar Market Place (SML). Flipkart owns the balance 75% in SML.
Hence when you own a share of SSVL (listed entitiy), you own 18% share in the front end Flipkart Health business. Refer to the PPT below by company slide 8 to understand the structure better.
SS has created a network of Health Buddy (franchisee owned stores), which manages last-mile delivery to customers. Currently, the Health Buddy network is focused on West Bengal, Jharkhand and Uttar Pradesh. The company is planning to roll this out on a pan-India level. The beauty of the Health Buddy network is that at a unit economics level, each Health Buddy is hugely positive in ROICs and they break-even in 2-3 months of operations. I have personally visited a few Health Buddies and verified the same.
SSVL is now doing complete supply chain for Flipkart Health and also building a network of warehouses. Presently they have already opened 7-8 warehouses across different states in India and plan to open in all 17 warehours in different states.
SSVL deal with Flipkart was a really smart move by SSVL and here is the reason why I believe so
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This business is a cash burn business in initial few years because of discounting. Flipkart has deep pockets and the backing of Walmart. They can run the long mile unlike some peers who are presently struggling to stay above the water.
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Customer acquisition cost is a high cost in this industry and peers spend as much as 15-20cr monthly for advertisement etc. Not many know that Flipkart is even bigger than Amazon in India (Flipkart owns – Myntra, PhonePe, Cleartrip, Flipkart health+, eKart, Shopsy and ofcousre Flipkart ecomm), has a customer base of 30cr plus customers. In the Pharmacy business this synergy of customer base will be extremely helpful.
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SSVL has ensured that the company would turn profitable by keeping profit making supply chain business and passing on the advertisement and cash burn needing B2C piece to SML.
SSVL also has entered the B2B business where they leverage their existing relationship with pharma companies to source medicines and directly supply to retailers in India. This business also already at a run-rate of more than 250-300cr and is expected to be very big. The margin benefits which comes out by removing intermediaries like C&Fs and Distributors are partly passed to retailers making the business attractive. Other important players in this segment are Arkamed (Pharmeasy), Entero health etc. Again the market is really really huge for this and this is likely the way business will be done going ahead in this industry.
The promoters and top management of SSVL are really smart people and have made a ship that is here to sail as it is self sustainable, cash rich and profitable (almost).
They were earlier owning another company called Microsec. Microsec was ultimately bought out and is in a way part of Motilal now post subsequent deals.
On Valuations: At an annual GMV of ~1200Cr run-rate, the market cap is just 900cr and the company has cash on the books ~300cr. Effectively EV is just 600cr. Expecting next year EBITDA to be Peer valuations are nowhere close and in 10s of multiple of GMV.
Disclosure: Invested.
This is not a recommendation to buy or sell. Please DO YOUR OWN RESEARCH.
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