Companies
Pharmeasy charts turnaround, turns cash flow positive Apr
Summary
In April, it eked out monthly adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) or a positive cash flow from operations in ‘double digit’ crores.
MUMBAI : Pharmacy retailer Pharmeasy is scripting a turnaround and has become operationally cash flow positive in April, in a sign that the company’s efforts at cutting expenses are beginning to bear some fruit, two people familiar with the development said.
In April, it eked out monthly adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) or a positive cash flow from operations in “double digit" crores, one of the people cited above said. This is the first time Pharmeasy has reported a positive cash flow, at least since the acquisition of Thyrocare Ltd it acquired 24 months back. However, this excludes the payment the company has to make each month to its lender Goldman Sachs and the company’s non-cash Esop expenses, the people cited above said.
In June 2021, Pharmeasy’s parent API Holdings acquired 66% stake in Thyrocare for ₹4,546 crore.
The turnaround comes as the TPG-backed group integrates the diagnostics business on its platform and the efficiencies of cross selling are beginning to kick in. “Specifically, Pharmeasy reduced its monthly operational loss from ₹86 crore in March 2022 to approximately ₹5.6 crore in March 2023," two people in the know said, to indicate that the health-tech business has been reducing its burn rate gradually over the last one year. This has come by scaling down marketing efforts and amping up its cross selling of products to improve margins.
For Pharmeasy, this could mean that it could negotiate better relief from Goldman Sachs, its chief lender, which refinanced a $300 million loan in 2022. The initial loan came from Kotak Mahindra Bank to finance Thyrocare acquisition.
As per the terms of the debt agreement, the structured debt of ₹2,280 crore from Goldman Sachs is due in 2026, but requires Pharmeasy to pay ₹25 crore interest each quarter. It also has a payment-in-kind (PIK) component—in the range of 7.25-8.25%—which is due to be paid only in 2026. A PIK component helps a company preserve cash but could allow for a delay in payment or payment through other ways including in securities.
Pharmeasy tried to raise fresh capital in FY23, but due to poor market conditions it was forced to shelve the plans.
One of the covenants of the Goldman loan required the company to raise additional equity—which Pharmeasy satisfied in October 2022 through a rights issue.
Existing investors were invited to subscribe to up to ₹750 crore through convertible notes. It counts Prosus, TPG, Temasek, B Capital, Tiger Global, Orios, and Kotak PE, among others, as its investors.
In October 2022, the company raised ₹550 crore through a rights issue from its existing investors after it called off its IPO plans in FY23 because of poor market conditions.
“The motto was to become Ebitda +ve at all costs, before hitting the market for more capital," the second person cited above added. According to him, the existing investors may put in some more money—a few hundred crores—in June or July 2023, if required.
“As the company has cut down on losses as part of the three-year turnaround plan, there may not be a need for existing investors to put in more equity," the second person added.
The company expects to post consolidated revenues of over ₹7,000 crore in FY23, according to the second person. The company’s losses for FY23 could not be ascertained, but the person cited above said it was “significantly lower" than before.
“Pharmeasy revenues will cross ₹7,000 crore accounting net revenue, and it will be the largest buyer of medicines in India, next only to the central government. Gross Merchandise Value (GMV) is over ₹10,000 crore," this person said.
The company reported consolidated net sales of ₹5,728.8 crore in FY22, according to its regulatory filings with the registrar of companies or RoC. The losses in FY22 amounted to ₹3,992.4 crore in FY22. However, the operational loss stood at around ₹850 crore in FY22, the first person said. “The gap between ₹850 crore to ₹3,992 crore was mostly non-cash expenses such as Esop charges or one-time expenses," the person added.
Pharmeasy is clearly a leader in the segment with other players such as Netmeds (acquired by Reliance Group) and 1mg (acquired by Tata Group) trailing in terms of revenues and growth. For the financial year ended 31 March 2022, Reliance backed Netmeds posted a total income of ₹111.48 crore as against ₹151.23 crore in FY21, the annual report shows. The business however made a profit of ₹10. 57 crore in FY22 against ₹1.68 crore in FY21. For 1mg, its revenue from operations grew 65.7% to ₹222.10 crore in FY22 as against ₹134.04 crore in FY21. Its net loss narrowed to ₹146.30 crore in FY22 from ₹281.41 crore in FY21, filings show.
