SastaSundar Ventures Ltd (a new venture in the nascent epharmacy space)

Hi All,

Wishing you a happy 2017.

Recently I came across an interesting smallcap company – rather a startup – called SastaSundar Ventures Ltd.

Why is it unknown?

There used to be a company called MicroSec Finance that offered multiple financial services with many subsidiaries– some of you have even quoted from research published by them on some good midcaps. Microsec seems to have experimented on a couple of business ideas and has zero-ed in on e-pharmacy business after seeing good initial traction. The listed entity converted itself from an NBFC into a Core Investment Company (holding company) and the main business is that of its subsidiary called SastaSundar HealthBuddy Pvt Ltd

About the Business (model):

SastaSundar operates in primarily the e-pharmacy space (84% of their revenues are from medicines; rest is from OTC/ FMCG products like green tea, sugar free snacks, hebal mouthwash, baby products etc). Their vision is to become a holistic healthcare network (network of doctors, telemedicine/ online consultations, knowledgebase of healthcare etc)

On the core business of epharmacy: They aggregate demand by attracting consumers digitally – primarily mobile app - (by giving a 15% discount (cost) and by home delivering the medicines (convenience). The target segment is the chronic patients (90% of their orders are medicines for chronic diseases like diabetes, blood pressure, cardio etc). This segment gives the best value prop for the consumer/patient since savings of Rs 300 on a Rs 2000 monthly regular purchase is a significant value.

The basic model is an inventory led model (warehouse) where medicines are procured at bulk rates from distributors/ manufacturers (could be 30% to 40% less than the retail prices – pharma margins are high as we know). Of this they share 15% back to the consumer as discount). The rest is divided between the HealthBuddy/Pharmacist and SastaSundar.

Private Labels: On the FMCG products, they seem to be launching their own private label brands – this will give them high margins over the long term.

Current Financials:
Currently the company is loss making (remember it’s a startup). They did Revenue of 86 Cr in FY16. In H1 of 2017, they have done Revenue of 76 Cr – so the growth has been rapid. Since it’s a startup, we won’t be able to able to do much financial analysis in the traditional sense. What would matter would be unit economics and breakeven timelines – and that they don’t burn money on customer acquisition and discounting.

Competitive landscape:
There are half a dozen well funded startups in the space. In terms of funding, NetMeds has led the pack (has taken $50m) , but in terms of a pure startup 1mg seems to be the leader (Close on their heels are companies like Pharmeasy, LifCare and Myra). All of these are well funded by well known VCs (http://tech.economictimes.indiatimes.com/news/startups/vcs-new-playground-is-online-pharma/55846201)

Risks:

Regulatory risk is very high as epharmacies operate in a grey area. Snapdeal got arrest warrants from FDA for selling medicines without a proper license. But the central government is supporting the epharmacy industry and looks like will come out with some sort of regulation in a few years (lot of news articles can be found regarding the same).

Offline players Lobby risk: The retail pharmacists fear that epharmacy will do to them what Flipkart and Amazon did to their retail counterparts and are heavily lobbying against the epharmacy industry. So this could delay the regulation, though in the long run the regulation will come. Given the political nexus in the pharma distribution business this could be more serious than what meets the eye.

Expansion/ Execution risk: SastaSundar has been able to execute this well in Kolkata. It remains to be seen if they will be able to replicate this model in other states. Especially given the well funded competitors who are strong in their cities/states where they started, this has to be closely watched on a quarterly basis.

Unit economics Sustainability: The company has mentioned that it would be profitable by FY18. This needs to be carefully watched on a quarterly basis. EBITDA has come down from -30% in Sep 15, to -15% in Sep 2016, so the trend is good.

Valuation:
Since the company is yet to breakeven, we cannot value the company using P/E. A more suitable approach would be GMV multiple that’s typically applied to an early stage ecommerce startup. On that basis this is around a multiple of 1 time the Sales, which appears low. Given the good repeat rates (around 80%), which makes it like a subscription business, and high margins of the pharma retail industry (aided by the multiple private label products launched), a valuation of 5 times Revenue looks reasonable at this stage if the growth momentum continues. The potential market size is quite large (Rs 1 lakh crores pharma sales in India in 2016; epharmacy is nascent and has huge headroom for growth). Risks around execution, especially around expansion outside home state of West Bengal; strong competition from multiple well funded players and; regulatory risks remain and could be priced into the stock.

Disclosure: have entered in this quarter with exposure around 10% of portfolio. This is not a recommendation, please do your own research.

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This company has the first mover advantage in pharma space selling online. And you can find virtually every medicine in their basket. And their are other good things as well being cash rich, not depending upon others for funding, focussed approach.
But all this discussion is in vain when you are fighting with biggies and VC money. All concept of capital allocation, capital efficiency, ROE,ROC goes for toss in such situation. I invested in late 2013 around 25 rs. on sastasundar. com foray. But exited last year at 90 considering senseless competition.

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the stock seems over valued to me.
Also the disclosures from the company seems to be poor. Majority of revenue comes from subsidiary and yet the company declares only standalone results.

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@krishari Can you add some info on the % shareholding in SastaSundar by Microsec? Who are the other shareholders in SastaSundar?

Its a 100% subsidiary (as per FY16 annual report)

Hi Manish

The annual report (FY16) has consolidated results

Apollo has its brick and mortar pharmacy shops in Delhi NCR and in other cities. Entry barrier is very low in Internet space. Brands of company have strong competitors already in market. Personally, this venture will not bear desired results for owners /shareholders.

The easiest way to lose capital is to enter a crowded space, with well capitalised incumbents. If one is doing this then the solution offered better be 10x better than the incumbents. Does SastaSundar have the balance sheet strength to match the marketing expenditure of HealthKart/1mg, Apollo etc? If SastaSundar can offer 15% discount for its customers, what is it exactly that is stopping the other well-capitalised players from doing so? If not, then what is SastaSundar’s USP?

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I did some work on this company as well. The difference between these guys and competition is their health buddy network.

Bulk of the orders are placed by the heath buddies on behalf of customers. Since the health buddies operate like a franchise model, no investment is to be made by sastasundar. They are already the biggest pharmacy company in India by way of revenues because of the rapidly growing health buddy store model.

So while a wellness forever has 30 stores in India, sastasundar has 153 health buddies. Hence much bigger scale and growing faster since a big balance sheet is not required.

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Who are these health buddies exactly? Their website says that:

Sastasundar.Com acts as bridge between users and the Independent Licensed Chemists and enable users to place their enquiry/indent. Sastasundar.com is supported by a network of Independent Licensed Chemists (sellers). All communications on Sastasundar.com are being forwarded to the said Independent Licensed Chemists. On confirmation of the same, the orders are fulfilled by the said Independent Licensed Chemist and delivered to users by the said Independent Licensed Chemist.

So do you mean to say these health buddies are the Independent Licensed Chemists that their website talks about? If so then this implies the inventory is owned by the chemist. How is SastaSundar able to offer 15% discounts then?

Another question - if both the inventory & delivery are managed by the independent chemist, what is the % commission that SastaSundar gets on every order? Apparently apart from paying for the delivery, it seems like the chemist is also offering a discount. I am not sure how the economics work out here. Can you elaborate on this?

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A small pharmacy can be approached by sasta sundar to become a health buddy. Health buddy will basically buy chronic meds from SS. So SS essentially becomes the wholesaler who will provide just in time delivery to the HB, for the HB to fulfill sales driven by sastasundar app or from the HB store.

So SS holds the inventory, sells it to customers at a 15% discount and let’s HB make a 6% margin on the sales.

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I think this epharmacy is a simple order aggregation business which basically works on volume. And where there is volume there are big discounts. While i am not an expert on all this, but if i was sasta sundar , i would collect all the orders offering a 15% discount on the same but with a 3 day delivery. If i collect about Rs 1 lakh rupees worth of orders ( very much possible ), i can easily get a discount of 25% from retailers. I recently placed a Rs 10k order with my local pharmacy and he gave me a 15% off without blinking. Order aggregation is a valid business model where discounts go up based on order slabs as long as the weighted average discount from the retailer to sasta-sundar remains higher than 15%, you can make a fair bit of money in this business

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In Delhi, it is very common to get flat 10% discount on purchases as small as Rs. 100.

Thanks for your comments @Alexxander and @bheeshma.

Would appreciate if you could help me learn more about the promoters. Where can I read more about the promoters of this company? They used to run an NBFC before, how was their track record. Things that I would like to know in particular:

  1. Past experience of founders.
  2. Education.
  3. Track record (dividends, related party transactions, other successful businesses that they may have run)
  4. Transgressions with the law/SEBI, if any.
  5. What are their other sources of income (Since there is no dividend from SS, there has to be some other source of income for promoters).

Are there members from Kolkata on this thread, who can vouch for the promoters or otherwise?

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Both CA’s started a brokerage realized commissions were not heading upwards anymore and so we’re looking for a new venture and came up with this model.

My initial checks suggest clean reputation amongst the Calcutta circuit, no Governance issues. Auditors are E&Y.

No other source of income.

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Unable to see this in the AR. Can you please point out the relevant page.

Disclaimer - Not invested.

This gives out quite a bit of information:

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/CB65A58F_BCD8_4EA7_8DEF_2756134DBE9A_175646.pdf

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Thanks. The presentation is well made and was very helpful.

Some key points to note are that:

  1. Company relies on offline engagement (through health buddies and branded shops etc) along with online engagement to retain a customer.
  2. They are betting on private labels (which will have higher gross margins) - They have already launched quite a few private labels.
  3. They have been depleting their reserves for expanding this business. Still growing at a massive rate. Need to check when they can break even.

A key thing to monitor would be their Android app ratings & downloads on playstore. So far positive reviews far outweigh the negative reviews.

Can someone from West Bengal verify a few things for other members:

  1. Visit the SastaSundar branded medical store and take general feedback on how the company does business.
  2. They have mentioned in the presentation that they place ads in vernacular newspapers. Can someone upload a photo of it?
  3. Do you see SastaSundar branded delivery vans on the streets (I know the probability of spotting a van is low)
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Fundamental Analysis of SastaSundar Ventures Ltd.

Company Profile

Work Profile:
It’s an Online retail Pharmacy.
Sastasundar.com is an Innovative Information and Knowledge based web portal that helps people on their path to wellness.
Company operates as a link between Retailers & Independent Chemists.

Products: All Medical, Pharmaceutical, Healthcare, Wellness & Beauty Products

Founder & Chairman: B.L. Mittal

Corporate Office:

SastaSundar Shop Private Limited
Innovation tower,
Premises No. 16-315,
Plot No. DH 6/32, Action Area – 1D,
New Town, Rajarhat,
Kolkata – 700156

Shareholding Pattern:

Promoter Group: 72.48%
Public Group: 27.52%

(Foreign Investors: 0.31%
Banks: 0.05%
Others: 27.16%)

Technical Profile:

Market Cap: 388.56 Cr.
Current Price: 122.15
Book Value: 66.31
Face Value: 10
Dividend Yield: 0.00%
52 Week High/Low: 146.80/40.50

Notes:

Sales has increased in 1st Quarter of 2017. Expenses are also very high and can be understandable being an IT Driven Pharma Service Provider. Their subsidiary is a financial services provider Company & can be able to utilize the Cope up requirements as well.

Some Important Aspects:

  • Company is still growing & expanding its positions in India
  • Locations for Delivery of Products need to be specified as in certain locations they are not delivering the certain products as of now.
  • Company is operating since March 2006. It has taken the long
    durations in establishments.
  • No Dividend has been paid

Advantages:

  • Company is virtually debt free

Disadvantages:

  • Company has low interest coverage ratio
  • Company has delivered poor growth of -40.10% over past 5 Years
  • Company has a low return on equity of 0.29% for last 3 Years
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[quote="fabregas, post:18, topic:8780, full:true]Can someone from West Bengal verify a few things for other members:

  1. Visit the SastaSundar branded medical store and take general feedback on how the company does business.
  2. They have mentioned in the presentation that they place ads in vernacular newspapers. Can someone upload a photo of it?
  3. Do you see SastaSundar branded delivery vans on the streets (I know the probability of spotting a van is low)
    [/quote]
    I am from Kolkata, and a customer of Sastasundar since early 2016.

I came to know about them after seeing many advertisements inside Metro Rail Coach. I do not read newspapers and so can’t comment on that, but I can see many street side banners.

Their is one sastasundar store in my locality and one near my in-law’s house, but I never visited there. I came to know that the store near my house do not sell medicines over the counter. It has to be ordered online.

It works in franchise model, and since the beginning I have the same healthbuddy, although there is an option to change healthbuddy!

Earlier healthbuddy himself used to come in his car and deliver items, but now they have official delivery associates who come in their uniform in bike and branded bags. I haven’t spotted any delivery van.

Their service is improving. Earlier delivery used to take minimum 3 days to deliver. Now it gets delivered after 1 day. After receiving the order, they take few business hours to confirm the order. If prescription for scheduled drugs is not provided during order placing, they call and asks to send prescription by mail or whatsapp. Failure to attend their call means your order gets cancelled.

There is no minimum order amount. But above Rs. 350/- delivery is free. You can combine medicine and OTC to make the total as Rs. 350/-, but two order will be placed and so you will get two packages. Even if your medicine order gets cancelled due to aforementioned reason, you will receive the OTC order without any delivery charge.

They only confirm the order but do not inform you about shipping and estimated date of delivery. This often creates confusion. To known about it, you need to call your heathbuddy. The delivery associates are well-mannered. Once I was not available in the delivery location, but was within 3 kms from it. They delivered item there on my request.

They have a customer care number, but it is of less use regarding medicine related queries. Healthbuddy is of use in that manner.

Earlier they used to take orders only by cash, even during demonetization. Now they take orders by all payment modes, including wallets.

I never faced any problems with medicine quality, mfg date, quantity etc. The order comes in sealed branded transperent packets.

I ordered only their tomato ketchup which is decent. I do not find other products appealing enough yet.

Their website and app is good but not great. It is improving though.

Disc. Used to have some holdings. No holdings now. May enter again in future. However, positively biased as an user. I do not order from 1 mg or others as I like their service.

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