Amid Funding Drought, PharmEasy To Raise INR 750 Cr Via Rights Issue

After shelving its initial public offering (IPO) plans, epharmacy PharmEasy has reportedly begun its rights issue to raise up to INR 750 Cr through convertible notes. The issue is expected to close by the middle of October. 

“There is commitment of INR 750 Cr from existing investors and right now they (investors) are subscribing to the rights issue pro-rata,” a source was quoted as saying by the Economic Times. 

People privy to the development said that a non-conducive market sentiment, specifically from a valuation perspective, has made the startup ‘unsure’ about a new funding round.

“As is evident, right now big-ticket fundraise is not the easiest and valuations are getting reassigned. They (PharmEasy) have been talking to multiple investors but may delay starting the process amid current market conditions,” a source was quoted as saying.

Describing the terms of the rights issue, sources said that the startup would be valued at its last valuation if it does not raise new funding by the end of March 2023. 

API Holdings, the parent company of PharmEasy, had last raised $350 Mn in a pre-initial public offering (IPO) funding round, pegging the startup at $5.6 Bn.

As per recent regulatory filings, PharmEasy’s existing investors such as Prosus Ventures, Temasek and the founders have also subscribed to the rights issue, picking up shares worth INR 200 Cr.

While Prosus has picked up convertibles totalling INR 100 Cr, Temasek has subscribed to convertibles of nearly INR 90 Cr.

Founded in 2015 by Dharmil Sheth and Dhaval Shah, PharmEasy operates in the overarching healthtech domain, offering services from medicine deliveries to sample collections for diagnostic tests.

Shelved IPO Plans

The epharmacy startup received the nod for its INR 6,250 Cr IPO from the Securities and Exchange Board of India (SEBI) in February this year. However, it decided to shelve its IPO plans due to the market volatility and negative investor sentiment. It withdrew its draft red herring prospectus (DRHP) filed with the SEBI in August this year. 

This was preceded by multiple reports saying that the startup was even willing to slash its IPO valuation just to list on stock markets. 

While the startup now claims to have deferred plans for a funding round over valuation concerns, the development comes weeks after it was reported that PharmEasy was in early stages talks with marquee investors such as General Atlantic, Canada Pension Plan Investment Board (CPPIB), and Abu Dhabi Investment Authority (ADIA) to raise $200 Mn-$300 Mn.

Prior to that, PharmEasy was also reported to be in talks with investors to nearly raise $200 Mn at a valuation of $3.8 Bn, a 30% cut from its last reported $5.6 Bn valuation. 

The inability to raise funds also comes at a time when PharmEasy continues to be bogged down by heavy cashburn and rising expenses. The startup’s losses nearly doubled to INR 640 Cr in the financial year 2020-21 (FY21), up from INR 335.2 Cr in FY20.

Recently, it also laid off 40 full-time employees from its subsidiary Docon Technologies.

PharmEasy follows a long line of new-age tech startups resorting to rights issues to raise funds and scale operations amid the ongoing funding winter. The total funding raised by Indian startups in Q2 FY23 tanked more than 82% on a yearly basis, an Inc42 analysis found. Late-stage deals also plummeted more than 91% YoY to $1.3 Bn during the same period.. 

As a result, big names are shying away from new funding rounds fearing valuation cuts and a lack of takers. 

The current year has already seen B2B ecommerce major Udaan raising more than $250 Mn through convertible debt, while startups such as edtech major BYJU’s and hospitality major OYO have availed debt through term loan B. 

As per a report, the Indian epharmacy market was pegged at around $344.78 Mn in FY21 and is projected to surge to $1.13 Bn by FY27.