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ECONOMIC OVERVIEW & OUTLOOK
Indias Real GDP growth rate slowed down to 6.8% in FY2019 compared to the GDP growth rate of 7.2% in FY2018, as per Central Statistical Office (CSO). The growth was lower due to stress in NBFC sector, slowdown in Auto sector and weakening consumption. People are buying fewer cars and have also slowed down their sales of consumer staples.
As per RBIs latest monetary policy meet in Aug2019, Indias GDP is expected to grow 6.9% in FY2020 as domestic economic activity remained weak, but the global slowdown and trade tensions intensified. The central bank slightly revised upward its inflation projection for the second half (October-March) to 3.5-3.7%.
Global Market for Pharma reaches $1.2 Trillion
The global market for pharmaceuticals reached $1.2 trillion in 2018, up $100 billion from 2017, according to the Global Use of Medicines report from the IQVIA Institute for Human Data Science. Going forward, the global market will grow by 4-5% CAGR, reaching $1.5 trillion (based on invoice pricing)
Indian Pharma Market Size
The Indian domestic organised pharmaceutical market grew by 9.4% year-on-year (YoY) to Rs 129,015 crore in CY2018. The growth, much faster than 2017, was led by uptake of drugs to treat chronic diseases and normalisation of supply chain after the disruption caused by GST, according to market research firm AIOCD-AWACS. As per the market research firm, anti-diabetes, cardiovascular, respiratory and dermatology categories have closed the year with double-digit growth. Overall volume growth stood at 4.8% while new introductions accounted for 2.4% growth.
As per ICRA, the growth trajectory for the Indian pharmaceutical industry is likely to remain at 11-13% in FY2020, on the back of healthy demand from the domestic market, given increasing spend on healthcare along with improving access. This along with moderation in pricing pressure for US market, new launches and market share gains for existing products and consolidation benefits will drive growth in FY2020. India enjoys a key position in the global pharmaceutical industry. The country is the worlds largest supplier of generics, accounting for 20% of global exports. It supplies over 50% of global demand for various vaccines and 40% of the demand for generic products in the US. The domestic pharmaceutical market contributes to ~2% of the global industry in value and ~10% in volume terms.
E-Pharma Indian Market Size
A report by EY on E-pharma: Delivering Healthier Outcomes states that e-pharma players are expected to reach a combined market size of $2.7 billion by 2023 from the current size of $360 million in the next four years.
The report added that factors such as increasing internet penetration and smartphone ownership along with the ease of ordering medications through an ecommerce platform, increase in chronic diseases, rising per capita income and resultant healthcare spend are the key growth drivers for the e-pharma industry.
Nearly 35% of the domestic pharmaceutical market relates to chronic medications and the remaining 65% to acute medicines. Out of this, e-pharmacies are expected to target 85% of the chronic market and 40 percent of the acute medicine market (up from 25% in 2019) by 2023.
An emerging market, e-pharmacy has large opportunities that are gaining interest from some key players in ecommerce, consumer tech, fintech and hyperlocal space and from investors, both in India and globally.
Over the last few years, especially with the increasing use of e-prescription by hospitals coupled with internet penetration and enormous growth in the number of smartphone users, the e-pharmacy industry in India is slowly gaining significance. Instead of visiting brick-and-mortar pharmacies, there has been a rising demand for buying medicines online and one of the main reasons for this is convenience.
Online sales of medicines could account for 15-20% of total pharma sales over the next 10 years due to multiple factors including Digital India, e-healthcare initiatives, increasing health insurance and largely by enhancing adherence and access to medicines for a majority of the under-served population by schemes like Ayushman Bharat - says a report by Frost & Sullivan.
Noncommunicable Diseases on Rise in India
Noncommunicable diseases (NCDs) or Lifestyle diseases (also known as chronic diseases), tend to be of long duration and are the result of a combination of genetic, physiological, environmental and behaviours factors.
The main types of NCDs are cardiovascular diseases (like heart attacks and stroke), cancers, chronic respiratory diseases (such as chronic obstructive pulmonary disease and asthma) and diabetes.
Noncommunicable diseases (NCDs) kill 41 million people each year, equivalent to 71% of all deaths globally.
Each year, 15 million people die from a NCD between the ages of 30 and 69 years; over 85% of these "premature" deaths occur in low- and middle-income countries.
Cardiovascular diseases account for most NCD deaths, or 17.9 million people annually, followed by cancers (9.0 million), respiratory diseases (3.9 million), and diabetes (1.6 million).
These 4 groups of diseases account for over 80% of all premature NCD deaths.
Tobacco use, physical inactivity, the harmful use of alcohol and unhealthy diets all increase the risk of dying from an NCD.
Detection, screening and treatment of NCDs, as well as palliative care, are key components of the response to NCDs.
While life expectancy rose, data revealed that six out of 10 Indians (in 1990, it was less than one in three) now succumb to NCDs like heart diseases. Child and maternal malnutrition is the leading cause of premature death and poor health and the burden of tuberculosis is the highest in the world.
The share of NCDs in the total burden of diseases increased to 55.4% in 2016 from 30.5% in 1990 as follows:
Source: Ministry of Health and Family Welfare
The study also puts the spotlight on the countrys spending on healthcare; at present, it is 1.2% of GDP.
Kerala, Goa, and Tamil Nadu, relatively prosperous states, have the largest share of NCDs such as cardiovascular diseases, diabetes, chronic respiratory diseases, mental health and neurological disorders, cancers, musculoskeletal disorders and chronic kidney diseases.
Malnutrition is particularly severe in so-called empowered action group (EAG) states that are socio-economically backward Assam, Bihar, Chhattsgarh, Jharkhand, Madhya Pradesh, Odisha, Rajasthan, Uttaranchal and Uttar Pradesh. Malnutrition is higher among females.
World Health Organisation (WHO) Findings on NCDs
According to the World Health Organization (WHO), there are four major risk factors for NCDs -- alcohol, tobacco, poor diet intake and lack of physical activity. The WHO says that by investing just US $1-3 per person per year, countries can dramatically reduce illness and death from NCDs.
Some of the most common type of lifestyle diseases are the following:
According to the eight edition of the International Diabetes Foundations Atlas, the number of Indians with diabetes will rise to 134.30 million in 2045 from the existing 73 million.
2. Heart Disease
India ranks number 1 when it comes to cardio patients with 50 million Indians suffering from heart health issues.
3. High Blood Pressure
100 million people in India suffer from high blood pressure.
According to the National Family Health Survey, India ranks 2nd with 155 million obese citizens, and this number is increasing at 33-51% every year.
Cancer burden in India has more than doubled over the last 26 years. As per The Indian Council of Medical Research (ICMR), India had 14 lakh cancer patients in 2016and this number is expected to increase. The cancers of the breast, lung, oral and cervix top the list.
Stroke occurs when the blood supply to the brain is reduced or interrupted. Major causes include obesity, heavy drinking, drug abuse, diabetes and smoking. Effects include paralysis, speech problems, memory loss and vision problems.
According to WHO India, the number of depressive disorders in India in 2015 was 56 million which is more than the population of Australia.
8. Heart Attack
As per WHO, in 2016, there were an estimated 62.5 million years of life lost prematurely due to cardiovascular diseases (CVD) in India.
Indian Diagnostic Market
As per CRISIL Research Report, the Indian diagnostic industry is highly fragmented and dominated by unorganised players. Standalone labs constitute 48% of the market and hospital-based labs make up for 37%, thereby amounting to a combined cover of 85% of the entire diagnostic market. Diagnostic chains cover close to 15% of the overall diagnostic market.
Indian diagnostic service industry is currently pegged at INR 596 billion (USD 9.1 billion) in FY2018 and is expected to grow at a CAGR of 16% to reach INR 802 billion by FY2020 as per Frost & Sullivan research report.
Within diagnostics, pathology segment is estimated to contribute approximately 58% of total market by revenue, while the remaining 42% is estimated to be contributed by the radiology segment.
Health awareness, demand for quality healthcare, willingness to spend on healthcare, rise in disease prevalence and incidence, expansion of the pathology diagnostic market and the developing clinical research market are the key growth drivers for diagnostic market in India.
DIGITAL INDIA INITIATIVE: A SUPPORTIVE PHENOMENON
While e-pharmacy, e-diagnostics, and e-healthcare are still at developing stages in India, the governments Digital India initiative may act as a driving force for the growth of these industries. Covering multiple Government Ministries and Departments, Digital India aims to provide thrust to the following nine pillars:
Universal Access to Mobile Public
Internet Access Programme
Information for All
IT for Jobs
Early Harvest Programmes
By embedding the digital thread in itself, Indian pharmaceutical industry is anticipated to bring in the following additional benefits: Transparency
A unique quality of technology is its ability to break barriers. E-healthcare breaks the barrier of information lying with the experts and brings it to the common man. E-Healthcare envisages new-age concepts like e-pharmacy, e-diagnostics, e-insurance and more. These facilities provide a robust ecosystem support to the patients and service providers alike with access to information - anytime, anywhere.
Access to Quality Health Services/Products
One of the progressive technology models to have evolved in the last few years is digital health platforms which has enabled accessibility to the finest doctors at the tap of a button. Another recent innovation that has positioned itself as an attractive model in the healthcare space is e-pharmacy which enables accessibility to cost-effective drugs.
With the help of technology, healthcare is going to be massively altered and will move to a system where the consumer is informed and empowered. This shift could be brought about by an e-healthcare model which is built around solving problems of the consumer in the most optimised manner, where the consumer would have the power of knowledge and demand better service, a transparent system which would be free of middlemen causing distortions, and price/quality mismatch. At the same time, an online model, operating across the country, to procure healthcare services will ensure organised tracking and recording of the data for audit trails, thus making the healthcare system more structured.
Key Drivers of Digital Transformation
Increasing number of Internet subscribers coupled with the explosive growth of smartphone users
India is one of the fastest growing Internet markets in the world. According to Telecom Regulatory Authority of India (TRAI) data, the number of Internet users in India rose by 124.29% in last 5 years to around 604.21 million by December 2018 from 267.39 million in December 2014, making India one of the largest Internet user base in the world.
There is an enormous surge in the number of mobile Internet users in India due to the increasing adoption of smartphones. The country is estimated to have around 468 million smartphone users in 2017 which is expected to double to 859 million by 2022 according to an ASSOCHAM-PwC joint study.
Rising standards of living of the middle-class population due to increasing income levels.
Busy lifestyles, traffic congestion and lack of parking spaces available for offline shopping in urban regions.
Digital Transformation: Consumer takes the Centre Stage
Indian consumers, today, prefer to access both domestic and global products at the click of a button and at competitive prices. This also extends to the rural consumers who have a rising economic status with better access to the Internet. From a long-term perspective, this change in the consumer behaviour is expected to benefit the countrys economy as well.
On the contrary, there is a lot of debate around the ecommerce industry impacting brick-and-mortar retailers and SMEs. The current battle by the retailers against ecommerce is similar to the scenario during the industrial revolution. There was a threat posed against machines replacing manpower and impacting the economy of the country; however, in reality, the industrial revolution created a massive demand for labour. Similarly, when organised retail stores as well as online shopping sites came into the market, there were similar concerns raised around them being a threat to local traders, corner stores and retailers. However, it has been repeatedly observed that newer models have only led to market creation; thus, leading to sufficient space for coexistence.
From the above examples, it is clearly evident that the battle is mainly due to a perception of threat than any actual threat. Ecommerce is a shift in the way business will be done in the future, and everyone will have to align themselves according to the changing trends. Overall, consumers are in the driving seat, and technology is the catalyst for change.
In todays world, when most of the products and services are conveniently delivered to the patients doorstep, there is a need for access models that would help patients and consumers avail the convenience of medicine delivery without needing to leave their
homes. This need could be addressed by an e-access model, a functioning online model, which provides access to medicines & healthcare through mobile and Internet-based platforms.
Market Opportunity of USD 62 Billion
|FY18||FY20E||CAGR (%) FY18- FY20|
|Indian Pharma Size ($BN)||17.5||20.8||9.0|
|Indian Diagnostic Size ($BN)||9.1||12.2||16.0|
|Indian OTC market (OTC + Personal Care + beauty care + home care) ($BN)||24.5||29.2||9.3|
|Total Market Size ($BN)||51.1||62.2||9.3|
Source: Care Rating, Redseer, Nielsen, IBEF, Frost & Sullivan
SASTASUNDAR DIGITAL HEALTHCARE NETWORK
The SastaSundar healthcare network is designed to use digital technology and knowledge to integrate following services in a digital platform connected with offline Healthbuddy centres to provide counselling and last-mile human touch: -
a. Delivery of prescribed medicines
b. Delivery of wellness products
c. Connect to diagnostic services
d. Connect to doctors and health service providers
e. Health information services
f. A portfolio of own digital-first brands
At SastaSundar, we offer a competitive experience to our customers by integrating technology with a human touch and the following are the value propositions: -
1. Genuineness: Our centralised purchase of inventory and a proprietary unique delivery system ensures that we supply only 100% genuine products.
2. Low Cost: Our model works on a low-cost basis, enabling us to pass on savings to our customers.
3. Counselling: Pharmacists at our Healthbuddy stores, powered by a digital health information network, are our backbone.
4. Informed Decision Making: Targeted contents such as reviews, blogs and videos provide accurate information. The personalisation of content provides convenience to the customers.
5. Integrated Digital and Healthbuddy Centres: Live inventory for 100% fulfilment of prescriptions makes SastaSundar unique.
6. Use of Data and Artificial Intelligence gives us power of disease-based offering and predictive analysis of the health of our consumers.
7. The local Healthbuddy centres have convenience in terms of delivery options, payment options, complaint redressal, emotional connect and customer servicing.
8. Our unique offering by our own brands like DNAVITA (customised made-to-order health supplement) place us in the minds and hearts of our consumers.
9. Our unique model of Health Information Service provides personalised reports on medicines, substitutes, health articles, health tools, pill organizer, etc.
The Segment wise consolidated financial performance on year to year basis is given below:
(Rs. in Lacs except for EPS)
|Revenue||FY 2018-19||FY 2017-18|
|Profit/(Loss) before exceptional item and Tax||(4,268.99)||(1,888.12)|
|Profit/(Loss) before Tax||(4,268.99)||(1,236.14)|
|Profit/(Loss) after Tax||(4,368.58)||(1,472.91)|
Details of significant changes in key financial ratios along with explanation
In compliance with the requirement of the SEBI (Listing Obligations & Disclosure Requirements) (Amendment) Regulations, 2018, the key financial ratios of the Company alongwith explanation for significant changes (i.e., for change of 25% or more as compared to the immediately previous financial year will be termed as significant changes), has been provided hereunder:
|1||Debtor to sales (in days)||-||-|
|2||Inventory to Turnover Ratio (in Months)||-||-|
|3||Interest Coverage ratio||-||-|
|4||Current Ratio *||1.66||44.73|
|5||Debt Equity ratio **||-||-|
|6||Operating profit Margin (%)||-||-|
|7||Net Profit Margin (%)||-||-|
|8||Return on Net Worth (%) ***||2.90%||35.58%|
* The significant changes in Current Ratio has been recorded on account of Investment made in its subsidiary company.
** There is no borrowing in the Company.
*** The significant changes in Return on Net Worth has been recorded on account of extraordinary exceptional items recorded in the previous year.
OPPORTUNITIES AND THREATS
1. Social responsibility is the DNA of the business model of sastasundar.com. We have this opportunity to solve one of the biggest problems of India, i.e., consistent access to affordable healthcare.
2. Our innovative model provides us with an opportunity to scale the business as to make it the most cost-effective and customer-centric channel which provides an unprecedented convenience to the consumers.
3. Our model has an opportunity to provide access to health data and an opportunity to work on Artificial Intelligence to make available the fastest and accurate healthcare delivery.
4. This is an opportunity for us to have the most respected leadership brand in healthcare in India both in terms of distribution and/or own portfolio of digital-first brands.
5. We have this opportunity to operate as a national distributor for international supply chain. We shall be a single point distribution company both for producers and consumers.
The initiative of the Government on Digital India, digital health and Goods and Services Tax gives us a favourable environment. Threats
1. We are cost conscious and therefore, have control on our spending. We face threats from startup companies that are backed by capital and offer discounts sponsored by capital.
2. We shall be needing capital for fast expansion, and any delay in raising capital is a threat to our growth.
3. We operate in the domain of healthcare which is highly regulated, and therefore any adverse regulation may affect our growth.
4. We operate with a high technology backbone and therefore data security is a threat.
We have tested the model in the state of West Bengal, Delhi/ NCR and Jharkhand and now we are expanding for pan India operations.
During the year the Company and the Rohto Pharmaceuticals Co., Ltd. and the Sastasundar Healthbuddy Limited, the subsidiary Company has entered into a Share Purchase Agreement (SPA). In terms of the SPA the Company and Rohto Pharmaceutical Co., Ltd., Japan has invested Rs. 35.24 crores each in Sastasundar Healthbuddy Limited, subsidiary Company and has subscribed to 36,000 Cumulative Compulsory Convertible Preference Shares each.
After looking at the initial response in Delhi, we plan to further expand pan India.
We shall be raising equity for expansion of our pan India operations.
The outlook for business is very exciting and we take it as an opportunity to do something very unique and exceptional.
RISKS AND CONCERNS
1. We shall be needing capital to expand our operations PAN India, and any delay is a risk.
2. We work in a highly regulated environment, and therefore, any adverse regulatory change possess a risk.
3. We carry the risk of mindless competition primarily based upon heavy discount on the back of capital.
4. We carry the risk of a digital base and therefore, are exposed to data security threats.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Your company has adequate Internal Audit and Control system across all businesses. The internal control systems are competent and provide, among other things, reasonable assurance of recording transactions of operations in all material respects and of providing protection against significant misuse or loss of company assets. Your company believes in the conduct of its affairs in a fair and transparent manner by adopting the highest standards of professionalism, honesty, integrity and ethical behaviour. The internal processes have been designed to ensure adequate checks and balances at every stage. Internal audit is conducted to assess the adequacy of our internal controls, procedures and processes, and the Audit Committee of the Board reviews their reports. Policy and process corrections are undertaken based on inputs from the internal auditors.
Your company was able to grow last year only because of the employees of the company and their hard work. The group employed a total 794 employees in the last year. Your company also utilizes independent contractors and temporary personnel to supplement our workforce. The relation of the employees with your company is considered good.
Statements in the Management Discussion and Analysis, describing the Companys objectives, outlook, opportunities and expectations may constitute "Forward Looking Statements" within the meaning of applicable laws and regulations. The Actual result may vary materially from those expressed or implied in the statement. Several factors make a significant difference to the companys operations including the government regulations, taxation and economic scenario affecting demand and supply condition and other such factors over which the Company does not have any direct control.