Tata 1mg Prioritizes Profitability Over Growth in FY24
Thank you for reading this post, don't forget to subscribe!In a strategic pivot, Tata 1mg, the leading online pharmacy, has shifted its focus from rapid growth to profitability, resulting in a significant reduction in losses for the fiscal year ending March 2024. This move marks a notable change in the company’s financial strategy, emphasizing sustainable growth within the competitive e-commerce landscape.
Revenue Growth Amidst Cost Control Measures
Tata 1mg experienced a modest revenue growth of 21% in FY24, reaching Rs 1,968 crore, compared to Rs 1,627 crore in FY23. This growth, though slower than previous years, highlights the company’s new priority: improving the bottom line. Notably, income from operations formed the bulk of this revenue, primarily driven by the sale of medicines, which alone accounted for 81.3% of the total revenue and saw a 24% increase to Rs 1,599 crore.
Additional revenue streams included lab test fees, patient support programs, advertising, and shipping services. The firm also generated Rs 23 crore from interest, gains on financial assets, and other miscellaneous sources, pushing the total income to Rs 1,991 crore for FY24.
Strategic Cost Management
Operating with significant inventory, Tata 1mg faced substantial procurement costs, which represented 56% of its total expenditure. These costs increased by a modest 8.5% to Rs 1,289 crore. Meanwhile, the company’s overall expenses rose by 20.4%, totaling Rs 2,303 crore, which included spending on employee benefits, IT, legal services, advertising, commissions, packaging, and other overheads.
Substantial Reduction in Losses
The most remarkable outcome of Tata 1mg’s strategic shift was the reduction in losses by 75%, from Rs 1,255 crore in FY23 to Rs 313 crore in FY24. This achievement is attributed to controlled spending and an increase in revenue. Consequently, the company’s EBITDA margin improved significantly, from -71.66% in FY23 to -10.85% in FY24. On a unit level, Tata 1mg spent Rs 1.17 to earn a rupee in the last fiscal year, down from Rs 1.78 in FY23.
Tata Digital’s Increasing Stake
Tata Digital, which acquired a 55% stake in 1mg in June 2021, has since increased its stake to 63.5%, highlighting its confidence in the e-medicine platform. According to TheKredible, Tata Digital’s current valuation of 1mg stands at $1.25 billion, with an enterprise value to revenue multiple of 4.87X.
Evolving Market Dynamics
The shift in Tata 1mg’s strategy is reflective of broader trends in the e-commerce sector. With customer acquisition costs rising and loyalty becoming harder to secure, e-commerce companies are increasingly moving away from indiscriminate discounting towards more data-driven, targeted campaigns. This approach aims to attract and retain customers more effectively and sustainably.
