Manipal Group likely to inject Rs 1,000 cr into PharmEasy for 18% stake

Omnichannel pharmacy chain in talks to raise ~2,400 cr: if successful, will be first fundraise by a unicorn at a discount

Manipal Group is expected to invest Rs. 1,000 crore for an 18 per cent stake in online pharmacy major PharmEasy for the latter to repay its debt, informed sources on Wednesday

The online pharmacy and diagnostic player is in advanced talks with investors to raise Rs. 2,400 crore as it looks to retire debt raised from Goldman Sachs.

While the founders of the company did not comment on the minutiae of the fundraise, sources in the know said: “The company has been in talks with shareholders and investors to raise money. It is well known that it has to raise funds. Permutations and combinations are being worked upon.”

Existing shareholders TPG and Temasek are leading the fundraise attempt. Sources said Manipal Group might also participate in the fundraise.

TPG and  Temasek declined to comment.  Manipal officials did not comment.

The founders of PharmEasy declined to comment on the issue.

“The founders have reached out to Manipal’s Ranjan Pai and have had extensive talks. But what is of significance is that this will be the first fund raised by a unicorn with a major markdown,” said another investor in the know of the issue.

According to UnlistedZone, PharmEasy’s shares are trading at Rs. 20 per share. This is below the Rs. 56 per share when it raised funds in 2021 from private equity investors.

According to UnlistedZone, the shares of the omnichannel pharmacy chain were traded in the unlisted market at about Rs. 140 per share in November 2021 when the market was exuberant and start-ups commanded high valuations. 

In the last fundraise in 2021, PharmEasy was valued at $5.6 billion. However, the latest data from Tracxn shows that the firm’s valuation is $4.4 billion.

Prosus, TPG, Temasek, and B Capital Group are some of the investors in the company.

In 2022, PharmEasy raised a debt of $285 million (roughly Rs. 2,280 crore) from Goldman Sachs to pay off an earlier debt it raised for the acquisition of diagnostic firm Thyrocare. The loan is due in 2026. However, one of the loan covenants was to raise $120 million or equity linked to its burn rate. Due to weak market conditions, the company could not raise the stated amount.

“Goldman Sachs is going very hard on PharmEasy. PharmEasy has to pay up immediately or the loan will have to be written off, which Goldman Sachs does not want. Besides, shareholders have also said that paying off the debt makes sense,” said another source in the know.

After Byju’s, PharmEasy is the second unicorn to be facing issues due to debt raised from mergers and acquisitions (M&As). The debt raised by PharmEasy is also a Term Loan B like Byju’s.

“I think start-ups should realise that raising money through equity for M&As makes more sense than raising debt. Debt for working capital needs is fine but not for long-term strategic play,” said a venture capital founder.

PharmEasy has come a long way from the time it had planned an initial public offering worth Rs. 6,250 crore. The company deferred its plans for a public listing last year as market conditions worsened.

According to the Registrar of Companies filings, the company’s losses for 2021-22 (FY22) surged to Rs. 3,992 crore, from a loss of Rs. 641 crore in 2020-21 (FY21). However, its revenue was up 145 per cent at Rs. 5,792 crore in FY22, compared with Rs. 2,335 crore in FY21.

Rescue Mode

• This is the first fundraise by a unicorn with a major markdown
• Existing shareholders TPG and Temasek lead the fundraise 
• Firm raised debt of $285 mn from Goldman Sachs in 2022 to pay off an earlier debt 
• Firm’s valuation has declined from $5.6 bn in 2021 to $4.4 bn, according to latest data