PharmEasy logs first ebitda profit of Rs 14 crore in April, restarts funding talks

On the back of hitting operating profitability, the Mumbai-based epharmacy platform’s parent API Holdings is engaging with existing investor Canada’s CDPQ as well as Abu Dhabi’s ADQ for a new round of funding. Estimated at a potential $50-100 million, it may take place through convertible notes, people aware of the discussions told ET. The company had told the board it was aiming for positive cash flow by September this year.

PharmEasy founder and CEO Siddharth Shah recently held a town hall with his staff and updated them on the company’s financial performance but numbers weren’t disclosed at the time. Shah is said to have told employees about the company’s plans to cross-sell more services on the platform in the ongoing financial year including its diagnostic services through Thyrocare, which now contributes about 13% of its revenue as against around 3% earlier.

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“They were at around minus Rs 80 crore of ebitda during the same month last year. The company, which has been under pressure to cut costs, has been aggressively consolidating operating costs as well as streamlining its acquisitions which has led to April numbers,” a person aware of the matter told ET. Based on its April numbers, it is now on a Rs 7,200 crore net revenue run-rate. In February, ET reported on the firm’s board meeting citing its December burn number of around Rs 30 crore a month. The firm had also clarified to the board that it is not looking to sell Thyrocare, as reported by ET.

PharmEasy’s Shah declined to comment while emails sent to CDPQ and ADQ did not elicit any response till press time Sunday.

New funding?

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Sources said while PharmEasy has a Goldman Sachs debt service obligation of around Rs 25-30 crore a quarter, it is now hoping to get better terms for a funding deal after showing better unit economics, even as the funding market continues to be tough, people aware of the firm’s thinking said.

“They are in talks with sovereign wealth funds as Goldman has also been nudging the founders to raise capital and use that for growth and corporate purposes. Shah has been briefing these potential investors on financial updates regularly,” said one of the people cited above.

PharmEasy borrowed $300 million from Goldman Sachs to refinance an earlier loan from Kotak Mahindra Bank for funding the Thyrocare acquisition in 2021.

While the company has shown better numbers and cut down on burn, raising a new round at its previous valuation will still be challenging. It was last valued at $5.6 billion and recently faced a markdown of about 21% by funds managed by one of its investors–New York-based investment management firm Neuberger Berman, as reported by ET.

According to regulatory filings with the US Securities and Exchange Commission (SEC), the startup has also been marked down by funds managed by global asset management company Janus Henderson by half, which would translate approximately to a valuation of about $2.8 billion as of December 31, 2022.

“The ongoing conversations are still at a discount only to the last round but the company is pitching its April financials and promise to maintain this streak for better pricing. That’s where the talks are now also including the possibility of convertible notes,” said the person cited above.

In raising funding through convertible notes, the company can avoid declaring valuation. Typically, these investors will get a premium or discount during the next round of funding or a public offering. ET has reported on startups such as Udaan, Dunzo and others tapping these funding instruments to avoid significant dilution in their valuation while the funding winter continues to chill the startup ecosystem on the liquidity front.

Industry sources cautioned that it may still be challenging for PharmEasy to optimise a valuation if it goes for an equity funding round.

Integrations, readjusting growth

PharmEasy’s average order value (AoV) in April had increased to a range of Rs 1,300 to 1,900 in the medicine delivery business, which sources said, helped the firm in turning around its finances.

“The staff was briefed to cross-sell more products and services. Its private label products–over the counter items–are on a Rs 150 crore annualised revenue run rate. The idea is to sell more of these as they have better margins,” said one of them.

According to people ET spoke to, PharmEasy has been consolidating warehouses to optimise operating costs. “That’s down by about 40%. For example, PharmEasy had about 16 warehouses in Chennai and that’s now two. Besides these changes, new initiatives have been slowed down and focus is to grow between 15-25% instead of earlier plans of more than 50%,” said another person aware of the changes.

ET has reported that virtually all consumer internet firms in India have readjusted their growth plans amid a capital crunch, which has also led to job cuts.

At the time of its February board meeting, the company had a cash runway of about a year. As reported by ET in October, the company had closed a Rs 650 crore rights issue from existing investors like Prosus Ventures, Temasek and others.