Introduction:

PharmEasy, a prominent online pharmacy platform, has recently announced its partnership with Avendus Capital to raise equity funding. This move comes as PharmEasy aims to secure additional funds to meet a crucial covenant in the loan it received from Goldman Sachs. The company's existing investors, including Prosus Ventures, Temasek Holdings, CDPQ, and TPG, have expressed interest in investing up to INR 250 Cr in PharmEasy. Avendus Capital is also expected to explore opportunities to attract external investors for this fundraising endeavor. Let's delve deeper into the details and implications of this development.

PharmEasy's Equity Funding Plans:

In its current funding round, PharmEasy is aiming to raise up to $100 Mn (INR 824.64 Cr), which will supplement the INR 550 Cr it raised through a rights issue in 2022. The primary objective of this funding is to fulfill a key covenant in the loan agreement with Goldman Sachs. To achieve this, PharmEasy intends to raise INR 250 Cr to meet the loan covenant and allocate the remaining funds towards fulfilling its working capital requirements.

Avendus Capital's Role:

Avendus Capital, a trusted financial services firm, has been appointed as the advisor for PharmEasy's equity funding drive. Notably, Avendus Capital also served as the advisor during PharmEasy's successful Series C funding round in September 2018, which raised $50 Mn. Avendus Capital's involvement in both fundraising efforts underscores the confidence and strategic value they bring to PharmEasy's growth trajectory.

Operational Profitability and Loan Obligations:

PharmEasy's operational EBITDA profitability, excluding ESOP costs, has been instrumental in negotiating a smaller equity raise compared to the initial INR 1,000 Cr sought by the lender. The company's ability to demonstrate profitability has enabled it to secure a funding goal of INR 250 Cr to meet the loan covenant. The remaining funds will be utilized to support the company's working capital needs, ensuring its continued expansion and service excellence.

PharmEasy's Acquisition and Subsidiary:

PharmEasy borrowed INR 2,280 Cr ($285 Mn) from Goldman Sachs in August 2022 to settle a previous debt incurred from Kotak Mahindra Bank related to the acquisition of Thyrocare, a subsidiary of PharmEasy. Despite interest from potential acquirers, PharmEasy's founders are resisting the sale of Thyrocare, recognizing its strategic significance within the company. In June 2021, PharmEasy's parent company, API Holdings, acquired a 66% stake in Thyrocare for INR 4,546 Cr, which necessitated the debt raised from Kotak Mahindra Bank and subsequently Goldman Sachs.

Financial Performance and Valuation:

For the fiscal year ending on March 31, 2022, PharmEasy witnessed a substantial increase in revenue from operations, reaching INR 5,729 Cr compared to INR 2,235 Cr in the previous fiscal year. However, the company's losses also grew from INR 641 Cr in FY21 to INR 2,731 Cr in FY22. Recently, investors Neuberger Berman and Janus Hendersen marked down PharmEasy's valuation to $2.8 Bn, highlighting the need for continued financial investments to drive profitability and investor confidence.

Conclusion:

PharmEasy's collaboration with Avendus Capital to raise equity funding reflects the company's commitment to secure the necessary resources to meet its loan obligations and support its growth initiatives. With the backing of existing investors and potential external investors, PharmEasy aims to raise up to INR 250 Cr in this funding.