Why the Netmeds acquisition is significant for Reliance Industries?

It strengthens RIL’s retail operation and positions it to compete with Amazon and other e-health market players.

Reliance Retail’s 620 crore cash purchase of a majority share in digital pharma marketplace Netmeds is noteworthy for several reasons.

It appears to be a part of Reliance Industries (RIL) retail segment’s bigger acquisitions-driven growth strategy. RIL is also rumored to be in talks to buy extensive holdings in Future Retail, Urban Ladder, Milkbasket, and Zivame, all of which are online retailers following with the marketing with coupon brands such as couponzania, for Netmeds Coupons.

This plan resembles RIL’s’string of pearls’ digital business acquisition strategy, which included Haptik, Embibe, and Reverie to create a broader digital ecosystem.

Reliance Retail might also merge Netmeds with JioMart’s e-commerce business, run by the company it acquired. Reliance Retail’s recent huge share sales in RIL’s digital holding firm Jio Platforms could be paving the way for development, consolidation, and eventual top-dollar stake sales in Reliance Retail. A future initial public offering (IPO) is a possibility.

RIL’s consumer sector, which includes Reliance Retail, is already one of the company’s most important growth engines, and acquisitions like Netmeds might give RIL even more heft.

An all-out warzone

Amazon recently launched a pilot version of its “Amazon Pharmacy” service in Bengaluru, igniting massive competition in the online pharmacy business. In acquiring Netmeds, Reliance Retail may have gotten the jump on other firms in the online pharmacy industry, including 1Mg, PharmEasy, and Medlife. There are rumors that PharmEasy and Medlife are considering merging, illustrating the industry’s trend toward consolidation and the existence of large firms.

Because of the pandemic, which has hastened home drug deliveries, the online pharmacy and digital health business is expected to see significant development in the following years. According to projections, the overall e-health business is predicted to quadruple in the next year and reach $16 billion over the following five years, from roughly $1.2 billion in FY 20.

As Amazon India and Flipkart prepare to compete in India’s e-commerce market, RIL appears to be acquiring companies like Netmeds to capitalize on this potential growth. The fact that Reliance Retail has gone forward with the acquisition of Netmeds despite the ongoing legal issues and uncertainties facing online pharmacies, the resistance from brick-and-mortar pharmacies, and the lack of a defined regulatory framework is significant.

This shows that RIL has high hopes for implementing an e-pharmacy strategy, easing legal problems and the future possibilities of the segment. However, there is little comfort in knowing that Netmeds is described in the press release as a ‘fully licenced’ electronic, pharmaceutical gateway. Unlicensed players appear to be exempt from the December 2019 prohibition on internet pharmacies.

A total of 20,000 pin codes in the United States are currently served by Netmeds, allowing customers access to more than seventy-thousand prescription pharmaceuticals for chronic and recurring disorders and improved lifestyle drugs and non-prescription goods for wellness health and personal care.

This is a “good” deal

To sum up, Reliance Retail’s acquisition of a 60 percent ownership in Vitalic and a 100 percent stake in Vitalic’s subsidiaries, Tresara Health, Netmeds Market Place, and Dadha Pharma Distribution (together referred to as Netmeds), for 620 crores ($80 million) seems like a fair deal. It had been reported recently that a $120 million price tag was being discussed for the Netmeds takeover. According to reports, an investment round in November valued PharmEasy at $700 million, while Medlife was valued at $450 million in June. However, it’s possible that the Netmeds deal’s lower valuation is due to the acquired companies’ losses or poor profits.

Through secondary purchases and direct investments, Reliance Retail plans to expand its equity stake in Vitalic to at least 80% by April 2024, with an option to extend it to 100%. At this point, it’s difficult to tell whether a future increase in stakes will be justified.

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