8 min read
Hello, hope you are doing well!
To sum up Week 1 of July 2021, we will be reading about…
PharmEasy's acquisition of Thyrocare
Zomato’s big plans
Bharti Global’s injection in space start-up OneWeb
Snippets of other things that happened
Wrap-up
Thyrotically speaking, the Pharm has been Eased!
Over the weekend, PharmEasy just leveled up the Easy game. It acquired 66% equity in BSE-listed Thyrocare for $613 million. The public company is a diagnostic lab chain, which primarily picks up samples from customers' homes. It’s a complex deal that will potentially see a promoter of Thyrocare pick up a 4.9% stake in PharmEasy at a valuation of $4 billion. This is the first time a venture-funded technology company in India has made a play for a listed firm.
But how does PharmEasy make money? For the uninitiated, it charges a delivery fee and makes a small margin from the medicines it delivers. For that reason, it is still a loss-making company. But diagnostics is a very high-margin business. With this deal, not only does PharmEasy get a high-margin business, it also gets data. It knows what its customers are afflicted with and what they need. PharmEasy can nudge medications and tests tying its customers in a virtuous circle.
Thyrocare Technologies Ltd., on the other hand, has had its stock price tripled from its IPO, all thanks to its focus on low prices and high volumes that have yielded extraordinary results for its shareholders. And as API Holdings Ltd, the parent of PharmEasy, acquires a controlling stake, Thyrocare’s shareholders have another opportunity to monetise their investments, though at lower than market price. But as the proposal was offered at an 11% discount on the stock price and there is no certainty about the new management's future course of action, Thyrocare’s stock price fell.
PharmEasy fills a major gap at Thyrocare. Compared to its peers, Thyrocare has a lower on-ground presence. Around three-fourths (78%) of Thyrocare’s revenues are generated by the business-to-business (B2B) segment, showed analysis by B&K Securities last year. In comparison, Dr Lal Pathlabs derives 60% or the majority of its revenue from the business-to-consumer (B2C) segment. Even Metropolis Healthcare derives a significant part of its revenue from B2c than Thyrocare. The recovery of the non-COVID-19 business has been much faster at Lal Pathlabs than at Thyrocare last year, perhaps reflecting the network benefits. Both Lal Pathlabs and Metropolis Healthcare are focusing on B2C expansion and trade at superior valuations to Thyrocare.
B2B may have good profit margins, thanks to cost efficiencies. But the business is less sticky. It is volume-driven and is more prone to market volatility. B2C, while difficult and expensive to scale up, creates brand value and customer stickiness. The Indian diagnostics market is largely unorganized. Focused diagnostic firms with strategic tie-ups and competitive products can create enduring value for shareholders. PharmEasy, with a huge online presence (6,000 digital consultation clinics and 90,000 partner retailers), will provide a dedicated clientele for Thyrocare. In fact, the digital platform can help Thyrocare thrive in its low prices and high volumes business model if integrated well.
Check mate, Swiggy?
The Securities and Exchange Board of India (SEBI) has approved the Initial Public Offering (IPO) application of the food tech unicorn, Zomato, paving the way for one of the most keenly awaited share sales in recent history.
Zomato, backed by China’s Ant Group, filed for IPO in April this year and is said to be looking to raise up to $1.2 billion. SEBI is likely to give the official approval this Monday (05.07.2021) for the IPO, a person familiar with the matter told Moneycontrol.
This soon-to-list food delivery company, Zomato, has reportedly made a play for Grofers. Zomato, along with Tiger Global, will invest a shade over $120 million in Grofers at a valuation of $1 billion- all of this with an eye towards an eventual acquisition.
There are two interconnected parallels here. One, it makes Zomato more palatable to potential institutional investors who are looking at Swiggy, which optimizes its delivery personnel to do food and grocery deliveries. Two, Grofers primarily targets a non-premium user base, with low order values. This is an important customer segment for Zomato, which has seen a surge in order values and customers willing to pay a delivery fee. This mix of the customer base will keep its topline healthy despite a slowing economy in lockdowns amidst this pandemic.
Airtel's One digital life in space, far away from Jio
India’s Bharti Global has injected $500 million in UK-based space start-up OneWeb and will now be the biggest shareholder in the satellite provider with a 39% stake. OneWeb has now secured $2.4 billion of funding to fulfill its ambitions of launching more commercial satellites into space.
Last year, Bharti and the UK government had put $1 billion in OneWeb to pull it out of bankruptcy. OneWeb currently has 218 satellites and launched 36 new low earth orbit (LEO) satellites yesterday.
OneWeb is slated to launch high-speed satellite internet services by mid-2022 in India. Bharti’s investment will ensure that it happens. Elon Musk’s SpaceX is already offering a beta version of Starlink. And Jeff Bezos’ Project Kuiper is en route India. Hughes Communications, the India arm of US’ Hughes Network Systems, is also eager to launch a high throughput satellite, but its proposal has been stuck since 2016, in what else if not, bureaucratic apathy.
The pandemic exposed the full extent of India’s internet reach problem. Ground networks have geographical limitations. Satellite services could not only provide high-speed internet but also have the previously unimaginable reach, as Starlink has already proven by taking the internet to the trans-Himalayan zones. Overcrowded space may become an issue, but that’s a problem for another day.
What else happened?
Sudhar jao ya nikal jao: MSCI (Morgan Stanley Capital International, a firm that provides benchmark indices such as the MSCI Emerging Market Index) has warned India, China, Brazil, Korea, and Turkey that it will scrap their emerging market (EM) status if they do not increase foreign investors’ ability to buy shares and bonds. MSCI says India, which currently has about 10% weightage in the EM and Asia Pacific Ex Japan indices, limits FPIs in many stocks and does not offer any mechanism to trade among themselves. It also complained about the country not having an offshore currency market, curbs on the onshore currency market, and complex rules for foreign investors. Losing the EM status means India could lose millions of dollars of foreign investments annually from global funds that automatically follow the MSCI indices. The firm recently stripped Argentina of its EM status.
(Happy?) 4th Anniversary: A nationwide Goods and Services Tax (GST), which subsumed 17 local levies like excise duty, service tax and VAT, and 13 cesses, was rolled out on July 1, 2017. With the GST regime completing four years, the Finance Ministry on Wednesday (30.06.2021) said more than ₹ 66 crore GST returns have been filed so far and lower tax rates have helped increased compliance. The multiple markets across India, with each state charging a different rate of tax, led to great inefficiencies and costs of compliance. Under GST, compliance has been improving steadily, with around 1.3 crore taxpayers registered, the ministry said.
The complicated Variant: Covishield- and Covaxin-vaccinated Indians hoping to travel to Europe may have to wait. European Union is opening up to foreign tourists and will start issuing Green Pass — a digital document certifying travellers’ vaccinated status — from July 1 but it has kept Covaxin and Covishield out of it.
On the other hand, India's drug regulator DCGI has granted permission to Mumbai-based pharmaceutical company Cipla to import Moderna's Covid vaccine for restricted emergency use in the country, official sources told PTI on Tuesday (29.06.2021). Cipla’s stock touched a record high on this news. Moderna's vaccine will be the fourth Covid jab to be available in India after Covishield, Covaxin, and Sputnik.
To wrap it up…
India reported a current account surplus of 0.9% of GDP in the pandemic-hit FY21, as against a deficit of 0.9% in FY20, data released by the RBI showed on Wednesday. The CAD, the gap between the country’s overall foreign receipts and payments, is an important factor representing a nation’s external sector’s strength.
On the other hand, the rising price of fuel is a serious concern for India’s economy and households. The country’s import bill gets inflated as it imports most of its crude requirements, while the pump shock affects household budgets—not just of commuters but also transporters who pass on higher fuel costs to companies who in turn pass it on to consumers. In this week’s meeting of the OPEC+, while UAE raised objections to the plans of increasing production, it also pushed for an extension of the phase-out period of the cuts undertaken post-pandemic from April 2022 to the end of 2022. What this powerful group of producers decides will partly determine how oil prices move in the near future!
On the markets’ front, both Nifty & Sensex ended almost 1% lower on a weekly basis to close at 15,722 (-0.9%) & 52,484 (-0.8%) respectively. The stimulus measures announced by the Finance Minister on Monday (28.06.2021) starkly show the paucity of fiscal resources. Although the headline number is an impressive Rs 6.3 lakh crore, a good chunk of this (as usual) is credit guarantees. The actual cash outgo will be less than Rs 1.5 lakh crore. The bulk of the measures are also mostly off the government’s balance sheet – unless the credit guarantees are invoked.
The reason for such low extra spending is because the Centre’s fiscal deficit is budgeted at 6.8% of GDP this FY. Even that number might be an understatement, some economists say. June quarter revenues could take a hit owing to the second wave and lockdowns 2.0, while disinvestment revenues remain a pie in the sky. The government would also be chary of adding to inflationary pressures, which in turn would make the task of maintaining an accommodative monetary policy more difficult for RBI.
Data shows that even though activity levels are showing improved numbers, consumer sentiments are not improving; and if that does not happen, it is difficult for businesses to remain optimistic. That said, will businesses come forward and take loans in a scenario where sentiments are weak?
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That brings us to the end of this weekly wrap-up.
See you next weekend. Stay safe!
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Sources: Moneycontrol, The Signal, The Boring News Co., and Stock Edge.
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