INDIA – Online pharmacy startup PharmEasy has kicked off its rights issue to raise up to US$91 million (Rs 750 crore) through convertible notes and the issue will be closed by mid-October.

Prosus Ventures and Temasek – its existing investors, as well as its founders, have subscribed to the issue for shares worth about US$24.3 million (Rs 200 crore), recent regulatory documents sourced from business intelligence platform Tofler showed.

Prosus Ventures and Temasek have subscribed to convertibles worth nearly US$12.1 million (Rs 100 crore) and US$10.9 million (90 crore), respectively.

Share subscription through convertible notes means PharmEasy’s valuation has not been priced in yet.

On the terms of the rights issue, the company will be valued at its last valuation if it doesn’t raise new capital by March 31, 2023.

PharmEasy parent API Holdings was last valued at US$5.6 billion during a pre-IPO (initial public offering) round.

The current year has already seen B2B e-commerce major Udaan raising more than US$225 million through convertible debt, while startups such as edtech major BYJU’s and hospitality major OYO Hotels and Homes have availed debt through term loan B.

As per a report, the Indian online pharmacy market was pegged at around US$344.78 million in FY21 and is projected to surge to US$1.13 billion by FY27.

Data from Venture Intelligence showed that startups saw US$2.7 billion of investment in the quarter ended September compared to US$11.9 billion during the same period last year.

Overall, in the first nine months of 2022, US$20.8 billion of capital has come into startups as against close to US$25 billion during the same period last year.

ADQ already owns a minority stake in PharmEasy and invested in a US$350-million pre-IPO round in October last year. Morgan Stanley and Bank of America were the advisors for the fundraise.

Shelved IPO plans

API Holdings had plans to raise US$759.5 million (Rs 6,250 crore) through an initial public offering of shares and use US$234.4 million (Rs 1,929 crore) of that for paying off debt.

A part of the debt payment was due by August 2022. However, the IPO plans were kept on hold due to weak market conditions and tech valuations facing a global meltdown.

API Holdings’ annual losses surged to around US$182.3 million (Rs 1,500 crore) in the year ended March 2021. And the company continues to be in the red, according to Bernstein’s February 2022 estimates.

While the startup now claims to have postponed plans for a funding round due to valuation concerns, the news comes just weeks after it was revealed that PharmEasy was in early-stage talks with marquee investors such as General Atlantic, Canada Pension Plan Investment Board (CPPIB), and Abu Dhabi Investment Authority (ADIA) to raise US$200 million to US$300 million.

Prior to that, PharmEasy was reported to be in talks with investors to raise nearly US$200 million at a valuation of US$3.8 billion, a 30% decrease from its previously reported US$5.6 billion valuation.

The inability to raise funds comes at a time when PharmEasy is still plagued by high cash burn and rising expenses.

In the fiscal year 2020-21 (FY21), the startup’s losses nearly doubled to US$77.8 million (Rs 640 Crore), up from US$40.8 million (Rs 335.2 Crore) in FY20.

PharmEasy’s estimates for unaudited results peg its FY22 revenue at around US$778 million (Rs 6,400 crore) – a jump of 50% compared to the previous financial year.

During this period, it made multiple acquisitions which are also adding to its top line.

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