PharmEasy’s annus horribilis may get worse before it gets better

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API Holdings Limited, the parent of online pharmacy PharmEasy, is having a nightmare of 2022.

The company, which was riding high following its multi-million-dollar acquisition of Thyrocare Technologies last year that propelled its valuation to a peak of $5.1 billion, is finding it hard to raise even a few million dollars.

The funding winter confronting startups this year owing to surging global interest rates, the capitulation of technology stocks and increasing investor dislike for loss-making, cash-burning companies has hit PharmEasy hard.

In August, the company shelved its plans for an Initial Public Offering (IPO), which itself was reported to be at a valuation that was 15-25 percent lower than the 2021 level, in favour of a rights issue to investors.

Fear of its inability to convince public investors to fork out $200 million, at a time when loss-making technology companies were subjects of investor derision, was blamed for the IPO being put on hold.

Competitive intensity

Rising competitive intensity in the online pharmacy space due to the rise of Apollo Healthcare, Reliance Industries’ acquisition of Netmeds and Tata Group’s buyout of 1MG have added to investor concern over profitability.

All of this has taken a toll on the company’s shares traded in the unlisted market with dealers indicating that the stock has nosedived 77 percent over the past 12 months.

“The stock was trading at Rs 135-140 a share in the unlisted market last year but now is available at Rs 30-35 a share,” said a trader on condition of anonymity.

Some High Net-worth Individuals (HNIs), who actively deal in shares in the unlisted market, said the stock price could slide to the Rs 15-16 levels before it becomes attractive for them to deal on the counter.

“No big investor wants to touch the company at this point,” said another market participant, who consults several HNI and Ultra-HNI investors in the unlisted market, said on condition anonymity.

Concern over profitability

Manan Doshi, co-founder of unlistedarena.com, which deals in unlisted shares, said PharmEasy was trading at a considerably moderate valuation after a selloff in the unlisted market.

“The topline growth post-acquisitions has been significant. However, it would be interesting to watch when it gets into the profitable zone as investors are now more inclined towards profitability and stable cash flows," Doshi said.

The firm continued to report huge losses. In 2021-22 its loss widened to Rs 3,981.89 crore from Rs 644.83 crore a year ago because of one-time expenses and charges. Revenue for the financial year rose to Rs 5,728.82 crore from Rs 2,335.27 crore in the previous year.

According to a report in the Financial Express, the firm hopes to turn profitable at the Earnings Before Interest, Tax Depreciation and Amortisation (EBITDA) level in the next 4-5 quarters.

Chief Executive Officer Siddharth Shah told this to investors at the company’s annual general meeting last week, the report said.

Any revival in investor interest and revival of the company's IPO plan will hinge on Shah delivering on his promise of operating profitability but until then, the going is likely to get tougher before it gets easier for India’s first e-pharmacy unicorn.

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