PharmEasy Raises $216 Million Despite 90% Valuation Drop

PharmEasy, India’s once largest-growing online pharmacy and healthcare platform recently raised Rs. 1,804 crore ($216 million). This funding round was led by Ranjan Pai’s Manipal Education and Medical Group (MEMG). However, this funding came at a significant cost as the company valuation saw a drop by 90% from its peak of $5.6 billion in 2021 to $710 million. Read on to know why this funding took place and how it impacts PharmEasy’s financial performance and future growth.

Purpose of this Funding Round

This funding round took place as part of PharmEasy’s broader strategy which is to convert its convertible preference shares into equity shares. In simpler terms, this decision was taken to manage its debt obligation. The company is trying to raise Rs. 3500 crore to repay its debt taken from Goldman Sachs.

This highlights PharmEasy’s need to stabilize its financial obligations and positions to prevent further defaults. The goal was to raise Rs. 3500 crore to repay the outstanding debt to Goldman Sachs. Earlier, the company had defaulted on repayment as per its loan terms in June 2023.

Once a leading online pharmacy in India, PharmEasy attracted big investors like Temasek and TPG Growth. The latest investment round was headed by Ranjan Pai who contributed Rs. 800 crore along with major investments from other investors. Rs. 221 crore was raised from Prosus, Rs. 360 crore from 360 One, and Rs. 183 crore from Temasek. An additional Rs. 400 crore was raised from CDPQ Private Equity, WSS investments, Goldman Sachs, and Evolution Debt Capital. The involvement of diverse investors indicates a strong interest despite current financial distress. The support of investors is pivotal at this point to help PharmEasy navigate its debt crisis.

Why did Pharmeasy fail recently?

The company’s aggressive growth during the pandemic was majorly fueled by debt-financed acquisitions. However, this strategy ultimately led to its default on loan terms as most of the initial fundings raised were burned for acquiring rivals such as MedLife, Thyrocare, and Aknamed. Another reason for PharmEasy’s downfall is that the Indian pharmaceutical market is heavily regulated. Not just that it also has comes with low profit margins and complex logistics to crack. Given these factors, sustaining such growth seems unlikely without significant changes to its business model and financial strategy.

How Are Pharmeasy Shares Doing?

Despite the lurking financial charges, PharmEasy has reported a 16% increase in its revenue in FY2023. But this is not enough. The company has been consistently performing poorly in terms of net profit. Even though the earnings reached Rs. 6,643 crore the losses widened by 30% totaling Rs. 5,211 crore for the same period. In 2022, the net debt-equity ratio also worsened from 9.94% to 34.62%. As a result, pharmeasy shares in the unlisted market saw a 90% drop.

Currently, the pharmeasy share price is trading around Rs 10 compared to Rs. 105 three years ago. This indicates a very high volatility rate. There is also a need to be cautious as the high debt-equity ratio of PharmEasy indicates significant financial risk for investors who want to invest in the med-tech sector.

What lies ahead for PharmEasy?

PharmEasy’s future depends on raising the necessary funds through the right issues to meet its debt obligation. This can help the company stabilize its finances. The involvement of experienced investors like Ranjan Pai’s Manipal group could also provide some strategic guidance at this stage.

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