SastaSundar Ventures – A new player in the e-pharmacy space

“We spent last few years building most efficient Digital Healthcare Platform in terms of Cost, Consumer Experience and Capital. The continued focus on bringing efficiency everywhere has played significant role in developing very differentiated model. The firm belief of not chasing “Growth at any cost model” rather building unique “Sustainable Growth model” has been proven to be the right strategy.“

Mr. Ravi Kant Sharma, Chief Executive Officer

Stock data

Ticker	SASTASUNDR
Exchange	BSE and NSE
Industry	Finance

Price Performance:

Last 5 days	+1.75%
YTD	+3.87%
Last 1 year	+3.76%

Company description:

Sastasundar Ventures Limited is a Core Investment Company (CIC) focusing on the business of digital networks of healthcare and portfolio management services. The Company aims to provide healthcare services at a reasonable cost with its innovative information and knowledge based web portal.

SastaSundar Digital Healthcare Network:

The Sastasundar Digital Healthcare business consists of Digital Platforms for Healthcare and Financial Services. The Digital Platforms of Healthcare form a substantial part of its business. It’s a partnership between online to offline, digital to personal, AI to hug, and cloud to local care, which facilitates consistent access to affordable healthcare in a convenient manner. 

Market Expansion

In FY20, the co. had set up its 3rd Area Logistic Centre (ALC) in Mumbai. The company has 3 operational ALCs, with 400+ chemists, and has also expanded its Healthbuddy Network in 8 States.

Rapid Growth:

During FY22, for RetailerShakti, (B2B digital healthcare platform), GMV has grown by close to 55% and GENU Path Labs, (diagnostic vertical), revenue has grown by 89%. 

Share acquisition by Flipkart Health+

During FY22, Flipkart acquired a majority share in Sastasundar Marketplace Limited which owns and operates SastaSundar.com as its foray into the healthcare space. 

Share Purchase Agreement (SPA):

The company entered into a Share Purchase Agreement (SPA) with Genu Path Labs Limited and Sastasundar Healthbuddy Limited in March 2019. It sold the investment in Genu Path Labs Limited to Sastasundar Healthbuddy Limited for a consideration of Rs. 6 crores.

Subsidiaries:

SastaSundar Ventures has 10 subsidiaries out of which Sastasundar Healthbuddy Limited and Retailer Shakti Supply Chain Private Limited contribute 45% of total consolidated revenue.

Foreign Investors:

The company is Backed by Globally Acclaimed Investors including Mitsubishi Corporation Japan and Rohto Pharmaceutical company Ltd. 

Investments:

On a consolidated basis the company holds investments worth Rs. 670 crores as of March 2022 compared to Rs. 43 crores in March 2021. Investments are made in mutual funds and equity shares of various companies. 

Financials:

What we like:    

1. Robust management having eyes on the goal:

The problem with investing in a startup/ PE type of company is the high cash burn it entails and the possibility of never reaching profitability. Compared to other peers, SastaSundar has done incredibly well to avoid a lot of cash burn. The company has substantially reduced loss from 30 crores for 9 months FY 20 to around 5 crores for 9 months FY 21. The company is trading almost at breakeven with -1/-2 percent margins which is commendable in an industry where the margins for other bigger companies are at anywhere from -25% to -89%.

The management in its annual report in 2019 had given a guidance of growth of 5 million orders in FY 19-20. The same was fulfilled in 11 months. The management in its annual report in 2020 has given a guidance of growth of over 10 million orders in FY 2020-21, whether the same has been fulfilled will be analyzed whenever the records are released.

2. Growth in e-diagnostics space:

SastaSundar Healthbuddy Limited has forayed into e-diagnostics space via Genu Paths Labs and the same is growing as planned. Health data from medicine sales integrated with the lab’s data has tremendous potential and personalized health-tech is the future of healthcare. The company had 1.2 lakhs tests in 2020.

3. Strong growth backed by Japanese MNC’s:

The company has compounded sales growth by 65 percent CAGR over the past 5 years and almost 96 percent over the past 3 years. The company is in further talks to raise money to go national which shows despite the tough competition in the E-pharmacy space, the company also has investors with deep pockets and the offline to online model can be a significant disruptor in the healthcare space.

Factors to consider:

1. Strong competition:

The e-pharmacy space has brutal competition with players with very deep pockets as mentioned earlier which can result in a 2-3 player consolidation style model like Cab Aggregators (Ola and Uber), Food delivery(Zomato and Swiggy) and online B2C marketplace(Amazon, Flipkart).

2. Low Float/ Illiquid stock:

The company has only around 200 crores worth of free float, which makes entry/exit of any large player extremely difficult and not without some sharp increase and decrease.

3. Business Model change:

The company was earlier a Financial service entity and had tried to venture into digital marketing, brand promotion, food processing and then pivoted into e-pharmacy which is not a very common route. Though it doesn’t impact what the company is doing currently, it is still a minor sign of concern.

4. Holding company discount:

If we take a prospective valuation of 2x sales, the underlying company should be valued at around 1100 crores. In India, where the holding company discount is much sharper even for larger companies like Bajaj Holdings, that could be a case of concern if the company fails to deliver in the growth area