InvestorQ : With PharmEasy putting off its IPO, how will it raise funds. Has it put off fund raising plans also?
vaishnavi mhatre made post

With PharmEasy putting off its IPO, how will it raise funds. Has it put off fund raising plans also?

vidhya Laxmi answered.
2 months ago

One of the most sought after IPOs of digital pharmaceutical marketplace, PharmEasy, has been called off. This was confirmed by API Holdings Ltd, the holding company of PharmEasy platform in a statement on 20th August 2022. The highly ambitious Rs6,250 crore IPO plan has been officially withdrawn by the company citing unfavourable market conditions. PharmEasy had filed its draft red herring prospectus (DRHP) 09th November 2021 and the SEBI approval has already come in. To an extent, this was triggered by the digital downturn.

The reasons are not far to seek. At one point, PharmEasy was anticipating top notch valuations as it was already a unicorn many times over. Things changed drastically in the last one year. A string of big ticket IPOs which include formidable names like Zomato, Paytm, Policybazaar and CarTrade listed and then into deep discounts over IPO price. For instance, Paytm and CarTrade are still about one-third the IPO price. Delhivery and Nykaa were relative better but they have also faced selling pressure at higher levels.

PharmEasy smelt problems when investors starting posing some very pragmatic questions about cash flows, cash burn, operating profits etc. Most of the digital companies with deep loss making models had now answer to these questions. After all, the retail and portfolio investors have neither the patience nor the staying power like venture funds and PE fund. That is what led PharmEasy to cancel the IPO plans for now. However, it is not giving up on its expansion plans and they will now be funded through a rights issue.

Shareholders of PharmEasy will soon receive the letter of offer inviting them to participate in the rights issue. The rights issue will be open for a period of 30 days; starting the first half of September 2022 and the terms of the rights offer are expected to be communicated to the shareholders in the next few days. However, the markets reports are that the rights issue will be at a rather steep discount to the valuations sought in the IPO. After all, there is going to be some pragmatism this time around.

Out of its fresh issue of Rs6,250 crore, PharmEasy had planned to spend Rs1,929 crore on debt repayment, Rs1,259 crore for organic growth and Rs1,500 crore for inorganic growth. With valuations likely to be lowered, PharmEasy is likely to reduce its allocation to these three applications proportionately. Reuters had suggested that PharmEasy may raise $200 million or approximately Rs1,600 crore via rights. The net result of this churn will be that issuers would become more pragmatic and investors more interested.