PharmEasy Raises $216M After 90% Valuation Drop

PharmEasy, India’s leading digital healthcare platform, made headlines for its daring decision. This article delves into PharmEasy's latest move, shedding light on the company's debt and the strategic decision to opt for a rights issue. Join us as we take a sneak peek into the analysis that lies ahead, unravelling this bold move's implications and potential outcomes.

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Dissecting The Situation: PharmEasy's Debt And Decision

To truly understand PharmEasy's recent decision to raise ₹2,400 cr through the Right Issue, exploring the intricacies of the company's debt scenario is crucial. Even though India has played a pivotal role in high-end drug manufacturing, the real challenge is moving towards digitalisation. With the healthcare industry experiencing significant growth, projected to reach $130 billion, PharmEasy faced the challenge of managing its debt amidst expanding operations and ambitious expansion plans.

Let’s Look Closely At The Events That Led To Today's Debt-Laden PharmEasy

Mumbai-based PharmEasy is the biggest online drug and medical service platform. The company is backed by top global investors like Temasek, TPG Growth, Prosus, B Capital (owned by Facebook’s co-founder Eduardo Saverin) and Fundamentum Partnership (owned by Nandan Nilekani). Initially, in 2014, the company raised a total funding of $1.2 billion in 16 rounds of funding and also acquired Thyrocare Technologies in 2021 - which was perhaps a sensational deal of that time.

During that period, the Indian pharmaceutical sector was projected to grow at a CAGR of 37 per cent between 2020-2025 to reach $50 billion. Since the business was doing well amidst the highly fluctuating pharmaceutical industry, PharmEasy decided to raise $350 million in April 2021 to strengthen its position through vertical integration. This step gave PharmEasy an unicorn status, valued at $1.5 billion. The company then bought a 66.1 per cent stake in a renowned testing diagnostic chain for ₹4,546 cr ($612) in June 2021. Though the company paid a premium for this deal, the diagnostic chain invested ₹1,500 cr ($202 million) and bought a 5% stake in PharmEasy.

As a result of funding and acquisitions, the total debt of API Holdings, PharmEasy’s parent company, shot from ₹262 cr in March 2021 to ₹2,256 cr in just a span of one year. Considering the worst debt-equity ratio of 0.34 and losses widened by 6x to INR 3,993 crore, PharmEasy planned to repay the debt by opting for an Initial public offering. In November 2021, the company filed Draft Red Herring Prospectus, intended to raise ₹6,250 cr (approximately $1 billion at a valuation of $9 billion).

The IPO was supposed to hit in 2022; meanwhile, the PharmEasy unlisted shares were doing absolutely well, becoming the favourite asset of every retail investor. However, the market got rough as we all witnessed the listing of Zomato and Paytm. While PharmEasy has not defaulted on any loan obligations yet, it is a sign that people still trust and invest in its shares.

The decision to opt for a rights issue has raised eyebrows and sparked curiosity among industry observers. Is this the right move to alleviate PharmEasy's debt burden? In this section, we delve deeper into the dynamics of the debt-IPO-share price triangle, shedding light on the motives behind this strategic decision.

The Rights Issue: An Inside Look

The rights issue has emerged as a potential debt solution for PharmEasy. In this section, we explore the rights issue concept, its mechanics and implications. We delve into the rationale behind the 90% discount offered to existing shareholders. Could the rights issue be the lifeline for PharmEasy to navigate through its debt challenges? Let's find out.

Defining a Right Issue

Simply put, the Right Issue is an easy way to allow existing investors to buy additional shares at a low valuation. These types of shares give the company’s securities called RIGHTS to these investors. With these rights, they get access to discounted shares of the company.

• The Right Issue is considered the most effective way for cash-strapped companies to raise funds to repay debts (making it perfect for PharmEasy).
• Existing shareholders, right to avail of this opportunity, can manifold the returns by up to 100% as the company will issue fresh shares at ₹5 per share.

The Ripple Effect: Implications and Predictions

The announcement of PharmEasy's rights issue, offering a notable 90% discount, has stirred the market. Our analysis reviews the immediate effects and investor responses while drawing parallels with similar corporate situations. We also speculate on the potential short and long-term implications. Looking forward, the company's debt situation could significantly impact the shareholders, ushering in a period of risk and reward. Predicting PharmEasy's financial trajectory allows us to consider various factors that could shape its future.

While this news is causing tension among stakeholders, PharmEasy unlisted share owners are reasonably satisfied as their investment is beyond all the volatility and fluctuations. Do you want to be on the safe side? Invest in PharmEasy Unlisted Shares Now! Connect with our brokers to learn more about the best unlisted shares in India.

Frequently Asked Questions

What Is The Price Of PharmEasy Rights Issue?

PharmEasy has decided to give away its shares at ₹5 in the Right Issue and is expected to raise ₹2,400 crores through existing shareholders.

Is the Rights Issue Profitable?

Existing shareholders are profitable as they get access to shares at discounted prices and greater returns.

What Is The Unlisted Share Price Of PharmEasy?

Well, the current price of PharmEasy unlisted shares is ₹18. You can buy PharmEasy unlisted shares at just ₹5 from Stockify.

Will Rights Issue Affect Share Price?

The impact it might have is the delusion of values and trading volume.

What Are The Benefits Of Rights Offer?

Right Issue shares allow existing shareholders to gain an advantage by purchasing shares at a low discounted rate and retaining voting rights.