PharmEasy plans ₹3,500 cr rights issue next week

Temasek Holdings, TPG, Prosus, CDPQ, Eight Roads, LGT, Abu Dhabi sovereign wealth fund ADQ, Amansa, OrbiMed and Sunil Kant Munjal’s family office have already committed to invest as much as ₹2,000 crore, one of the people cited above said. Manipal Health Enterprises founder Ranjan Pai’s family office may invest ₹1,200 crore.

“Some of the small investors, including B Capital, Everstone Capital and JM Financial, will confirm their participation once the rights issue opens next week," the person said.

The issue is priced at a pre-money valuation of around $500 million, sharply lower from its peak valuation of $5.6 billion, the people said on condition of anonymity. This is the second rights issue in 12 months for the company, operated by API Holdings Ltd.

Goldman Sachs, which will receive repayment of some of its loan, will also convert almost $40 million of its debt to equity as part of the transaction, the second person said.

Around ₹200 crore is expected to be allocated for covering acquisitions made by API Holdings. “Each of these payments are small and amount to around ₹5 crore to ₹10 crore each," the second person added. Investors have a three-week window to subscribe, and it will be clear by the third week of September who will join the issue, the person added.

PharmEasy needs another ₹300 crore in capital (to achieve the scale) to turn profitable, a third person said. “However, the company decided to raise a large rights issue to provide itself a capital buffer for any payments it may need in future," the person added.

The company had tried to raise fresh capital in FY23 but was forced to shelve the plans due to poor market conditions. In October 2022, existing investors were invited to subscribe to up to ₹750 crore through convertible notes.

PharmEasy is now valued at a tenth of the $5.6 billion it commanded in 2021, making it the first unicorn to take a major mark-down in valuations. The reset in valuation and the subsequent recapitalization by existing and new investors will lead to a major change in the shareholding of all shareholders, with the founders’ stake falling below 1%, the second person said.

In June 2021, API Holdings acquired a 66% stake in Thyrocare for ₹4,546 crore.

Spokespeople for PharmEasy, Prosus, Temasek and Manipal Group declined to comment.

The recapitalization comes at a time the company has reduced its monthly operational loss from ₹86 crore in March 2022 to approximately ₹5.6 crore in March 2023. It reported consolidated net sales of ₹5,728.8 crore in FY22, according to regulatory filings. The losses in FY22 amounted to ₹3,992.4 crore in FY22. However, the operational loss stood at around ₹850 crore in FY22.

Though it has not announced its results for FY23, Mint reported in May that the company expects to post consolidated revenues of over ₹7,000 crore in FY23.