After a year in hibernation, Phaneesh Murthy-backed Zigy looks to reboot

After a year in hibernation, the country's two-year-old online pharmacy, Zigy, is now looking to re-build its brand and business. On the back of revived interest from investors in the online pharmacy space, PM Health & Life Care Pvt Ltd, the company that runs Zigy, has spotted an opportunity to get back on its feet.

Backed by technology entrepreneur and former Infosys Director Phaneesh Murthy and four other promoters, the online pharmacy platform stopped operations in February 2017 due to an extreme cash-crunch, resulting from a 'flawed' business model. "We ran out of cash completely in February 2017 and did not want to get into the legal issues, hence, we stopped operations and started looking for investors. We have been in talks with some investors and hope to see a positive outcome soon as we plan to bring Zigy to life again," Hemant Kumar Bhardwaj, MD & CEO and co-founder of Zigy.com, told BusinessLine .

In September 2015, the e-pharmacy started with a combined initial funding of $5 million from its inner circle of promoters and a few technology companies. They developed an online pharmacy platform to order drugs (excluding Schedule X category). The model involved placing orders on Zigy.com by uploading a doctor's prescription and the medicines were home-delivered within 24 hours. Logistics and inventory management were the challenges they faced. When launched, Zigy had its own fulfilment centre (or a type of warehouse), which is where the ordered goods are kept before despatch and sorted and packaged before shipping.

The process that Zigy followed involved a two-layer pharmacist check for verification of the prescription, following which the medicines are despatched. The objective is to avoid substitution of the prescribed medicines so the right medicines are sent to the customer. The initial funding largely went towards developing the technology platform, hiring talent and building a network of retail pharmacies. That left limited funds for brand building, which restricted revenue prospects, Bharadwaj explains.

Bharadwaj admits that their earlier business model needed correction. "Now, we don't plan to own fulfilment centres any more. We will have a captive pharmacy and get the core talent back," said Bharadwaj.

Scale down

Zigy.com had a presence across five cities, Mumbai, Delhi, Chennai, Hyderabad and Bengaluru, and received 1,000 orders daily when it launched. The average value of the orders increased from Rs 150 to Rs 1,750. Profitability was subject to the efficiency and volume of orders, hence, it started focusing on corporate/ institutional clients for sustained business.

But within a year it scaled down to just one city, Bengaluru, due to the fluid regulatory environment governing e-pharmacies. In October 2015, state regulators in Mumbai and Bengaluru cancelled the licences of Zigy's captive pharmacies pending orders from the appellate authority. Later, the order of the appellate authority in Karnataka favoured their model, making stamping of the prescription by the seller mandatory. (A copy of the order is with BusinessLine ).

"We are (the) only online player and probably the only player in pharma retailing who ensured stamping of the original prescription. This order came essentially in our favour. Zigy processes have been endorsed by the regulators in Karnataka and Maharashtra and we now see growing acceptance of our processes as best practice in the online pharmacy space," he said.

"Now, we need money to build the brand. We have the platform and chemist network ready, all that we need is the kick-start with at least $1 million,” he said. The long-term need is for about $6 million, and Bharadwaj is confident of registering profit in two years.

Equity dilution

Currently, Zigy's five promoters hold about 70 per cent equity and the remaining is with the initial investors. The company is looking to dilute the promoters' share to investors at an attractive valuation, he said, so as to not lose a potential investor over prohibitive valuation.

But could the Chairman's unceremonious exit from two reputed organisations, Infosys and iGate, continue to haunt the start-up and create hurdles in raising funds? Bharadwaj says that such issues have no influence on the functioning of the company, and, hence should not hamper the fund-raising initiatives.

...

COMMENT NOW