However, the valuation of India’s largest online pharmacy has fallen sharply and could be at a significant discount that could be almost half of its pre-October 2021 IPO valuation of $5.4 billion at its pre-IPO round, at $2.5-$2.75 billion.
Along with new investors, existing investors in API Holdings – TPG Growth, Prosus Ventures and Temasek will invest around $70-$100 million in this latest round via a convertible security (CCPS), but the valuation and price will be set by the new set of investors
ADQ already owns a minority stake in PharmEasy, invested in a $350 million pre-IPO round in October last year. Morgan Stanley and Bank of America are the fundraising advisers.
The talks are ongoing and there is still no guarantee that they will lead to an agreement, the sources mentioned above warned.
Prosus Ventures (formerly Naspers Ventures) is the startup’s largest shareholder with a 12% stake. Singapore-based Temasek has an 11% stake in the company, while TPG Growth owns 6.6% and Evermed Holdings has a 6% stake. Up to 43 investors own around 70% of the company.
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Spokespeople for GA, CPPIB, ADIA, Prosus Ventures, Temasek and TPG Growth declined to comment. PharmEasy and ADQ spokespersons did not respond to queries.
Founded in 2015, Mumbai-based PharmEasy is the largest healthcare technology player with GMV of $1bn, contribution margin of 5% and EBITDA of -26% in FY21. The FY22 run rate is approximately $1.5 billion GMV as per 3MFY22, based on estimates by Sanford C Bernstein Research.
Between April and October 2021, it raised $700 million in two funding rounds. His valuation multiplied by four in seven months. Riding the aggressive avalanche wave of mergers and acquisitions, API Holdings’ consolidated revenue had soared 6-fold year-on-year to around Rs 4.36 billion rupees during the year ended March 2021. However, API Holdings also spent Rs 5,868 crore in the same period.
Its business segment covers physical distribution selling to “Pharmeasy” retailers and other independent retailers, an online B2B marketplace connecting distributors and retailers, distribution to hospitals (Aknamed), diagnostic services (Thyrocare), EMR/EHR platform for Physicians (DocOn ), ERP technology product for Retail (Marg, Redbook), and Healthcare Super App (Pharmeasy) that integrates all consumer services and enables compliance. It has 25 million registered users (as of June 2021), 2.4 million transacting customers, and processed 8.8 million orders in fiscal 2021, according to the company’s website.
“API Holdings has a differentiated business model with an extensive and strong back-end compared to its peers that will help them increase efficiency, enjoy the scale benefits of direct sourcing, and improve fulfillment rates for the consumer (90 -95% compared to 70% average), said Nithya Balasubramanian, in a pre-IPO note. “ In B2C they enjoy leadership in epharmacy (50% stake in GMV) and e-diagnosis (national chain Thyrocare) but they still have a long way to go in teleconsultation. We estimate through profitability levers such as a) cross-sell diagnostics, b) increased private label share, and c) RetailiO 3P monetization, API Holdings can break even in 3-4 years or FY25 EBITDA. 26. However, timing is at the mercy of discount levels.”
API Holdings had plans to raise Rs 6,250 crore through an initial public offering of shares and use Rs 1929 crore to pay off the debt. A portion of the debt payment was due in August 2022. However, IPO plans were kept on hold due to weak market conditions and tech valuations facing a global meltdown. API Holdings’ annual loss rose to around Rs 1,500 crore in the year ending March 2021. And the company remains in the red, according to Bernstein’s February 2022 estimates.
In June, US investor Goldman Sachs provided a high-cost loan of 2.3 billion rupees ($285 million) to PharmEasy to refinance another loan from Kotak Mahindra Bank that was used to acquire diagnostics chain Thyrocare last year. PharmEasy had acquired a 66% stake in Thyrocare in June 2021, its largest acquisition to date. At 40 times Thyrocare’s operating profit from the acquisition, it was also costly to most industry observers.
API Holdings’ net debt-to-equity ratio as of March 2020 stood at nearly 83%, according to the DRHP. This figure dropped to around 13% due to a capital injection of Rs 342 crore ($43 million) during the year ending March 2021. A quarter later, it dropped further to 5.3%. . But it did not take into account additional debt financing and acquired debt on API Holdings’ balance sheet after the acquisition of Thyrocare and Aknamed.
“The company is drastically trying to minimize cash consumption and focus on profitability, but has no bargaining power on valuations. Its leverage is high and it urgently needs capital,” said an investor who is evaluating the asset but spoke on condition of anonymity as the talks are still private. The company had accumulated a debt of Rs 2,495 crore ($312 million) as of September 15, 2021, according to its IPO filings.
Last week, the online pharmacy owned by Tata
the startup 1mg had joined the unicorn club with a new round of financing of more than 40 million dollars, led by Tata Digital. 1 mg is now valued at $1.25 billion. Tata Digital had acquired a 62% stake in 1mg at a valuation of around $450 million in June last year.
Netmeds is owned by Reliance Retail Ventures with a stake of around 60%.
The e-pharmacy market in India is valued at $345 million in 2021, growing at a robust growth rate of 21.28% CAGR during 2021-2027, according to a recent report by KPMG-FICCI.