Pharma Retail Market in India

MedPlus Retail Pharmacy Chain IPO Over subscribed, Wellness Forever is also lining up with one. Apollo’s pharmacy business is showing decent revenue growth with a national presence,

The Indian pharmaceutical market forms a significant part of the healthcare sector’s ecosystem. According to the National Health Accounts, 2016-17, published by the Ministry of Health and Family Welfare, pharmacies account for 28% of the healthcare expenditure in India. Data from the World Bank indicates that India is characterized by low per capita healthcare expenditure and a high share of out-of-pocket expenses. This presents a good growth opportunity, considering the limited penetration of healthcare services, especially in the rural parts of the country.

A retail pharmacy is a retail store that sells drugs and medicines that are either patented, over-the-counter (OTC, or does not require a prescription), or generic. Being an essential service, the retail pharmacy sector, in general, witnessed a rising demand for OTC and prescription drugs as well as wellness products during the pandemic. The sale of pharma products associated with preventive healthcare and personal hygiene also gained prominence as consumers looked to boost immunity in the wake of the situation due to the virus.

Medplus has done its IPO in the last week. Wellness Forever is following up in the next few months, and if we look at e-commerce players, PharmEasy has filed its DRHP in November. With the effects of the pandemic seeing a declining trend, a lot of companies in the pharma and associated sectors have reached the top of the earnings cycle compared with the pre-pandemic quarters. In the last one year, over Rs, 1,00,000 crores have been raised from IPOs, FPOs, and OFS. The conditions have lately started looking ripe to take companies public.

In the context of the Indian pharmaceutical industry, the supply side looks a little like this:

Pharmaceutical companies usually have a C&F agent (carry forward agent) who is tasked with handling the warehousing, transportation, and distribution of the drugs to distributors. In certain cases, the distributor also supplies through a sub-distributor, or an exclusive distributor may be appointed for a particular channel or customer.

According to the red herring prospectus filed by MedPlus, the network of pharma ecosystem in India consists of more than 500 companies involved in manufacturing, around 65000 distributors, and around 8800,00 retail outlets that supply over 100,000 medicine brands to the consumers. Hence, the retail side of pharmacies is a big market. So far, it has been dominated by the traditional channels — the local pharmacy shops within a general range of 150-600 sq ft.

In recent years, there has been an emergence of modern retail channels. These mainly include a chain of pharmacies that operate under a brand name, maintain a value chain right from sourcing of products to warehousing, and then distribute through their stores.

The modern retail channel also includes the e-commerce channels that deliver drugs at home and only have an online presence. This includes players like PharmEasy, Netmeds, and 1mg. Additionally, there are omnichannel networks, too, which combine the two modern forms by having brick-and-mortar stores and also an online presence. Medplus, Apollo Pharmacy, and Wellness Forever Frankross are some examples of such omnichannel networks.

The store count of Apollo Pharmacy, Medplus, and Wellness Forever has seen a steady increase in the last three years:

This multitude of three players has had amazing income numbers per store — over Rs 1 crore for every store — over the most recent three years. Drug store retail is additionally portrayed by high stock turns and economies of scale because of working capital productivity.

Now, let’s look at the picture of these companies when it comes to margins:

 Low edges are not really something terrible on the off chance that the volumes are high and manageable. In any case, let us presently check out a portion of the difficulties this industry faces or will confront, and could amplify the issues for players developing at skinny edges:

• Profoundly stuffed space – A ton of players have arisen in this space in the last 4-5 years. All players are battling to acquire an online presence, while retail drug store faces contest from internet business players too. Notwithstanding hardened contests, productivity may get additionally hampered because of the need to bring about higher advertising expenses to improve presence and furthermore the need to give higher limits than contenders.
• Change in market elements – Covid has been the main justification for the current flood in the quantities of retail drug stores. Omnichannel stages had good tailwinds during the pandemic as there was an expanded requirement for medications and interest for items like nutraceuticals. The climate later the pandemic dies down is as yet dubious, and it is not yet clear assuming that the climate will keep on excess helpful for retail drug store chains.
• Firmly managed industry – In an industry including the offer of drug items, laws, and guidelines are exceptionally controlled. Factors like medication qualification and covering of specific doctor prescribed medications could unfavorably influence the business. The cost of specific drug drugs is constrained by organizations like the DPDO (Drugs Price Control Order) and the NPPA (National Pharmaceutical Pricing Authority) and this could be a critical obstruction on the edges.
• Expansion into newer markets comes with various challenges – Retail pharmacy chains need to expand into newer markets constantly in order to grow. This comes with challenges like establishing newer supply chain networks, decoding behavior patterns, gaining knowledge of risks of local laws, and the need to undertake debt to expand. Failure to expand can significantly hamper the operations and margins of the company.

Adding on to the factor of high competition, it is also important to note that certain businesses like Apollo Pharmacy have the backing of their hospital business to help sustain and grow their numbers. The pharmacy stores of Apollo, for example, which are located on the premises of Apollo Hospitals, have strong numbers and are sticky as they offer convenience to patients. Certain drugs prescribed by doctors at these hospitals might be available only in their own pharmacy. Brands like these have a longer operating history; high recognition; better financial and supply chain management, and technical resources that other players might not possess.

Hence, the revenue and store-growth numbers in the modern retail pharmacy industry might continue to look impressive. But the challenges are significant as well. The retail pharmacy chain business and e-commerce pharmacy business will look to cash in on the share of the unorganized market in this sector — a massive space. However, it remains to be seen how these companies will grow as the pandemic wanes and whether the growth comes at the cost of margins. and profitability 

Disclaimer:

The article was written by Monoranjan Roy, but the contents of this website/ pages are solely managed and posted by Mr. Rajarshi Roy on behalf of Mr. Monoranjan Roy. For any details and/or inquiries, mail at rajarshinpil@gmail.com