PharmEasy Board Okays Plan To Raise Additional Capital, Ball In Investors’ Court

Caught in the middle of multiple financial troubles, epharmacy giant PharmEasy has set in motion the process to raise additional capital from investors. 

The board of API Holdings, the startup’s parent company, has reportedly approved a resolution to increase the company’s authorised share capital. A share capital increase is undertaken when a company wants to raise funds from new investors. 

The proposal is now pending before PharmEasy’s equity investors who will now vote on the proposal. The voting, which starts on July 8, will conclude on August 5.

As per The Economic Times, the company plans to increase its authorised share capital to INR 3,500 Cr (nearly $423 Mn). This will be divided into 3,000 Cr equity shares of INR 1 each and 500 Cr preference shares of INR 1 each. 

This comes close on the heels of the reports that the healthtech startup PharmEasy was looking to raise nearly INR 2,400 Cr through a rights issue at a 90% discount. The issue was reportedly initiated to repay the debt it took from Goldman Sachs after PharmEasy breached its loan covenants. 

Led by existing investors TPG and Temasek, the rights issue of API Holding is expected to be undertaken at a price of INR 5 per share. In contrast, the startup last raised capital at INR 50 apiece back in 2021. The new rights issue will peg the startup at $500-600 Mn, down from a record high of $5.6 Bn two years ago.

If the deal goes through, PharmEasy could very well become one of the first new-age tech companies to undergo a down round, emblematic of the valuation correction that has been the norm lately.

Founded in 2015 by Dharmil Sheth, Dhaval Shah, Harsh Parekh, Siddharth Shah, and Hardik Dedhia, PharmEasy sells medicines online and also offers diagnostic tests through its multiple subsidiaries. 

The startup has so far raised more than $1.5 Bn across multiple rounds. 

However, the startup has been mired in multiple troubles in the recent past, including ballooning losses, a debt crisis, shelved IPO plans and a funding drought. The company reported losses to the tune of INR 2,731 Cr in FY22, up from INR 641 Cr in FY21.

However, the trouble started when it breached the loan covenant terms of its Term Loan B (TLB) agreement with Goldman Sachs after it failed to raise an equity round of around INR 1,000 Cr despite trying for a year. The startup is especially concerned about wrapping up the debt as it has pledged the shares of its cash cow Thyrocare as collateral for the loan.

It has also faced valuation cuts in the books of many of its investors such as Janus Henderson and Neuberger Berman. Making matters worse have been reports that PharmEasy could be forced to compensate the founder of Thyrocare, Arokiaswamy Velumani, who had secured anti-dilution rights way back in 2021. 

With much at stake, it remains to be seen what next course of action the startup undertakes. As of now, the company is at crossroads as the future seems uncertain and full of challenges.