PharmEasy puts off IPO plans, may settle for lower valuations

Just a few months back, PharmEasy was one of the most sought after digital pharmacy portals in India. However, a lot has changed in the digital ecosystem in the last few months. Not only have digital IPOs had a rough time in the bourses, but even the global enthusiasm to fund such start-ups has been waning. Under these circumstances, PharmEasy has decided to put off its IPO plans for now and instead secure the new funds at a valuation of 15% to 20% lower than what it had anticipated in the previous year. 

PharmEasy counts among its core investors such marquee names like Prosus, TPG and Temasek. PharmEasy offers online medicine deliveries and diagnostic test services, apart from online doctor consultations for patients based on a time tested templated model. Now, PharmEasy is even willing to accept a valuation that is 25% lower than its previous valuation targets, provided it can access the funds quickly and without hassles. In short, the indicative valuations would now fall from around $5.5 billion to $3.8 billion for PharmEasy.

The scepticism of PharmEasy is not hard to fathom. In the last few months, Indian start-ups have been severely jolted by uncertain global and domestic stock markets, apart from the growing scepticism of institutional investors over sky-high valuations. This would have made it pretty tough for PharmEasy to even consider raising funds at the erstwhile valuation. The only answer for PharmEasy would be to settle for a private issue and for lower valuations. Apparently, PharmEasy has ready commitments to the tune of $115 million from investors.

Things have changed drastically for start-ups in the last one year. In the previous year, Indian start-ups managed to raise a record amount of $35 billion in private funding and many internet companies even went public in the uncharted Indian IPO market. PharmEasy has also leveraged this funding book and raised $1.90 billion since 2015, with bulk of the funding coming in last 2 years. It had also filed for a $1 billion IPO and had secured SEBI approval but it did not announce the IPO dates due to unfavourable market conditions.

Currently, Bank of America Securities and Morgan Stanley are working on a deal with PharmEasy to ensure that they get the requisite funding ,even if it be at a lower valuations. This would give some breathing room for PharmEasy. Unlike NetMeds that is backed by Reliance Group and 1MG that is backed by the Tata Group, PharmEasy does not have any such deep pocket backing by a large business group. Hence raising funds at short notice becomes a priority for PharmEasy at this point, even if means settling for lower valuations.

It may be recollected that API Holdings (the holding company of PharmEasy) had filed to raise $782 million via an IPO. Now that plan has bene put off, although there is no official confirmation from PharmEasy on this subject. It has been facing continuing cash burn and mounting losses and that makes the fund raising urgent for PharmEasy. For FY22, PharmEasy reported total income of $714 million but expenses were $1,060 million, so capital is burning fast from its balance sheet. Lower valuations is still a good choice.

On the IPO front, PharmEasy has adopted a more cautious mode and will only consider a fresh issue and a bourse listing sometime in 2023. In fact, inside sources only expect the IPO to fructify by the end of 2023. That would mean that API Holdings, the parent, will have to re-file papers for the IPO, but that is a risk worth taking. In a sense, the challenge for these digital players began with the sharp crash in Paytm and others like Policybazaar and Zomato only exacerbated the crisis. PharmEasy is clearly paying a steep price for that.