PharmEasy’s founders told the Board earlier this month that they will not sell its diagnostic business Thyrocare, people familiar with the matter told ET.
The move comes amid the e-pharmacy’s struggles to raise fresh funds because of a broader tech downturn.
PharmEasy’s parent API Holdings has also delayed internal plans for a potential initial public offering (IPO) to 2025, the people privy to the goings-on at the company said on condition of anonymity.
Investors and the company have prioritised hitting operating profit by September this year.
PharmEasy’s cash runway has shrunk to about a year, based on its December burn rate, people aware of its financials said.
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.
It is on a Rs 5,200 crore revenue as of December 2022, with a cash burn of Rs 30 crore per month, sources briefed on its numbers told ET.
In January, its cash burn narrowed to Rs 15 crore, indicating its intent to cut that metric.
Siddharth Shah, chief executive of PharmEasy, made it clear at the board meeting that they are not looking to sell Thyrocare even as there has been speculation about it since last year, a person aware of the matter said.
The online pharmacy platform, which has picked up a loan from Goldman Sachs, has a debt repayment obligation of Rs 30 crore per quarter.
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 founders don’t want to go out and raise money right now as valuations will take a severe hit amid softening valuations. Investors are very keen on seeing Ebitda level profits before writing a cheque in highly valued startups. Internally, they are even aiming to hit this by June quarter of the new financial year, but it remains to be seen if that plays out as per the plan,” one of the people said.
Multiple sources told ET that PharmEasy explored a capital raising plan last year, but those came with a 40-50% cut in its current $5.6 billion valuation.
As reported by ET first in October about its internal funding, the company has now closed its Rs 650-crore rights issue from existing investors Prosus Ventures, Temasek and others.
A spokesperson for PharmEasy declined to comment.
Targeting operating profit
The Mumbai-based firm is projecting annual sales growth of about 10-15% annually.
“If the January burn numbers are replicated in the coming months, the cash runway increases and the company will snag more time to figure out a fundraise. That’s the sole focus in the firm now,” another person said.
Sources said the company was not burning any more capital on the Thyrocare business but is spending money in its business-to-business (B2B) vertical as well as the main PharmEasy brand for e-pharmacy.
“Rivals like Tata-owned 1mg are scaling up the diagnostic play with aggressive discounts but PharmEasy is now settling for moderate growth across businesses. They can’t have a burn like peak of 2021 anymore,” one of the sources added.
Reliance’s Netmeds is another rival, besides Apollo and the ecommerce horizontals like Flipkart and Amazon.
Grey market slide
The value of PharmEasy’s secondary stock in the grey market has slipped to below Rs 30 per share indicating a significant drop in its valuation.
Sources added that PharmEasy’s secondary shares are available at around Rs 25 for bulk purchases.
“People have bought the stock at Rs 100 and even at Rs 130. Now, you can buy at around Rs 25 per share for bulk trades,” a person familiar with the grey market said.
PharmEasy, which raised over $1 billion including venture debt in 2021, saw its valuation grow manifold to $5.6 billion, up from a $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.
A report from Bernstein Research said the key theme among Indian internet firms is to showcase profitability after record fundraises in 2021.
Last year was one of ‘The Great Reset’ with markets shifting expectations from ‘growth’ to ‘profitability’, the report said.
“Valuations (are) compressed as companies tried to strike a balance with India Internet stocks declining 50-60%. Focus on Profitability has become core with companies on path of breakeven,” it said.