PharmEasy ‘s founders informed the Board earlier this month that they will not sell Thyrocare, the company’s diagnostic division.
The move comes as the e-pharmacy struggles to raise new funds as a result of the broader tech downturn.
PharmEasy’s parent company, API Holdings, has also delayed internal plans for a potential initial public offering (IPO) to 2025, according to people familiar with the company’s inner workings who spoke on the condition of anonymity.
Investors and the company have made it a priority to achieve operating profit by September of this year. According to people familiar with PharmEasy’s financials, the company’s cash runway has shrunk to about a year based on its December burn rate.
Cash burn is typically used for privately held unprofitable startups and indicates the rate at which it uses capital to run day-to-day operations.
PharmEasy is targeting a Rs 5,200 crore revenue by December 2022, with a cash burn of Rs 30 crore per month. In January, its cash burn was reduced to Rs 15 crore, indicating a desire to reduce that metric.
Siddharth Shah, CEO of PharmEasy, stated at the board meeting that the company is not looking to sell Thyrocare, despite speculation about it since last year, according to a person familiar with the situation. The online pharmacy platform, which received a loan from Goldman Sachs, has a quarterly debt repayment obligation of Rs 30 crore.
PharmEasy’s $300 million debt from Goldman was picked up to refinance an earlier loan from Kotak Mahindra Bank for financing the Thyrocare acquisition in 2021
PharmEasy’s founders do not want to raise funds right now because valuations will suffer as a result of softening valuations. Before investing in highly valued startups, investors want to see Ebitda-level profits. Internally, they are even aiming to achieve this by the June quarter of the new fiscal year, but it remains to be seen if that happens,” one of the people said.
According to multiple sources, PharmEasy considered a capital raising strategy last year. However, these came with a 40-50% reduction in its current $5.6 billion valuation.
Targeting Operating Profit
The Mumbai-based company anticipates annual sales growth of about 10-15%.
“If the January burn rates are replicated in the coming months, the cash runway expands and the company gains more time to plan a fundraise.” “That is the firm’s sole focus right now,” another person stated.
According to sources, the company is not spending any more money on the Thyrocare business but is investing in its business-to-business (B2B) vertical as well as the main PharmEasy brand for e-pharmacy.
Rivals such as Tata-owned 1mg are aggressively discounting diagnostics, but PharmEasy is now settling for moderate growth across businesses. They can’t have a burn like the 2021 peak anymore,” one of the sources added.
Reliance’s Netmeds is another rival, besides Apollo and the ecommerce horizontals like Flipkart and Amazon
Grey Market Decline
The grey market value of PharmEasy’s secondary stock has fallen below Rs 30 per share, indicating a significant drop in its valuation.
According to sources, PharmEasy’s secondary shares are available for bulk purchases at around Rs 25.
“People have bought the stock at Rs 100 and even Rs 130. Now, for bulk trades, you can buy at around Rs 25 per share,” a person familiar with the grey market said.
PharmEasy, which raised more than $1 billion in venture debt in 2021, saw its valuation skyrocket to $56 billion, up from $1.5 billion in April 2021.
However, the mood has changed since then and startups across stages are cutting costs and laying off scores of employees, realising new capital will be hard to raise without showing profits or a path to profitability
According to a Bernstein Research report, the key theme among Indian internet firms is to demonstrate profitability following record fundraises in 2021.
According to the report, last year was one of “The Great Reset,” with markets shifting expectations from growth to profitability.
“Values have been compressed as companies attempted to strike a balance, with India Internet stocks falling by 50-60%. Profitability has become a priority for companies on the path to breakeven “it stated
Also Read: All you need to know about PharmEasy Pre-IPO shares