If things had gone to plan, SastaSundar Marketplace Limited (SML), an online pharmacy and digital health platform would have seen an infusion of funds from at least one private equity player.
The story took a dramatic turn four months ago when investment bank, Intellecap, led by its Managing Director, Pramod Kasat met B L Mittal and Ravi Kant Sharma, Sastasundar's founders, to suggest an alternative plan. The argument put forth was that there was steam left in the business and the private equity route was not the way to do it.
Now, SML, owned by SastaSundar Healthbuddy Limited (SHBL), has Flipkart as a joint venture partner, though the financial details remain under wraps. This is only the B2C business where Flipkart will hold the majority stake.
Now, the strategic rationale for this transaction comes down to how the market is structured. In terms of the gross merchandise value (GMV), SML is the second largest player after PharmEasy. Industry trackers point out that this is a cash-burn business, making it a huge challenge for SML. "It would have been difficult for the promoters to scale up and bringing in Flipkart is a win-win situation."
How exactly is that? At the outset, the game has really opened up for the online pharmacy business. M&A is in play with the Tatas having bought out 1mg and Reliance acquiring Netmeds. Amazon has taken its baby steps in the business and PharmEasy is already a name. For Flipkart, it gives it a foothold in an existing and established business and with its base of over 30 crore customers can easily up the game.
"With the Walmart ownership, they can really bring in the expertise and get a serious shot at the game. Online pharmacy is the next frontier," says an official familiar with the transaction.
In a statement, Flipkart's Senior VP and Head - Corporate Development, Ravi Iyer said, "The consumer Internet ecosystem in India is growing rapidly as consumers recognise the opportunities and convenience that digital adoption is enabling in their lives. With growing awareness and focus on health heightened by the pandemic, there is a large opportunity and demand for affordable healthcare and ancillary offerings."
The other piece is the B2B business (housed in SHBL), which is not a part of this deal. That consists of fulfilment, distribution and has Mitsubishi Corporation and Rohto Pharmaceuticals with a 28 per cent stake.
"With Walmart, there is a good chance that the relationship can be strengthened. Once regulations are clearer, they will invest in the B2B business," says the official.
Given Walmart's ability to play the long-term game, this could be the beginning of an interesting association. SHBL also owns a diagnostic lab business, one which has a limited organised play but has the attraction of high margins. That combined with the marketplace story and the B2B business could see Flipkart slowly moving ahead.
"Getting the best out of the Indian promoters' understanding of the business and bringing in the money when needed is what will be the gameplan here," he says. A low-profile deal without a doubt but, over time, can be the one to look out for.
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