PharmEasy, India’s largest online drugstore chain, owned by API Holdings Pvt Ltd, is considering an IPO, Initial Public Offering, which can raise as much as 1 billion USD, says recent media reports citing sources.
The company, backed by Temasek and TPG, is working with advisers on a potential offering that can take place by December 2021 or March 2022. Reportedly, PharmEasy is planning to file a draft prospectus before the end of October.
The Mumbai-based company was founded in 2015 by Dhaval Shah and Dharmil Sheth. And since its foundation, PharmEasy has delivered over 15 million orders from diagnostic kits to medicines and other healthcare products, serving more than five million families, as per PharmEasy official website (1).
Notably, in June, the company also bought a majority stake in Thyrocare Technologies, an Indian diagnostic, and preventive care laboratories chain, for 611 million USD. Also, during the same period, API Holdings had secured about 420 million USD in a Series F funding round, pushing the company’s valuation at over 4.1 billion USD, as per a Bloomberg report(2).
The media reports also suggest that IPO deliberations are still at an early stage, and details could still change. There have been no comments from API Holdings regarding the same (3).
So, today, let’s talk about the growth of PharmEasy, the growth potential of the Indian E-Pharma sector, and whether you should invest in the said IPO or not.
PharmEasy’s Plan to Go Public
The media reports suggest that PharmEasy has planned to file its DRHP, Draft Red Herring Prospectus with SEBI, Securities and Exchange Board of India, from August to September this year, and a possible launching by the end of the year or between January and March next year.
There are also speculations that the company had previously harbored plans for a SPAC, Special Purpose Acquisition Vehicle, for an overseas listing but later decided for an Indian IPO (4).
According to a Mint report published in May 2021 (5), PharmEasy has hired two investment banks for its Indian IPO. It has appointed Kotak Investment Banking and JM Financial for its DRHP preparations. However, the sources also told the media outlet that the company could also hire a foreign bank.
The source also added that PharmEasy is considering an indirect listing of the US market via a merger with SPAC, a route several Indian companies have taken recently.
Notably, in FY 2020, PharmEasy had doubled its revenue from 240 crore INR reported in FY 2019 to 6377 crore INR. However, the company had also doubled its losses before tax from 50 crore INR to 100.7 crore INR during the same period, as per its unaudited financial statements (6).
Nonetheless, PharmEasy can give way out to its early investors while attracting long-term retail investors with an IPO. It is worth highlighting that one of PharmEasy’s rivals, MedPlus, has also hired investment banks for its IPO launch. The size would be close to 2000 crore INR (7). In addition, there are speculations that both IPOs would hit Dalal Street at the same time. That would be quite an interesting battle to watch!
PharmEasy is currently India’s one of most prominent healthcare e-commerce platforms. As per recent reports, the company works in conjunction with more than 150 different vendors and delivers drugs to over 710 different cities.
One of the core missions of PharmEasy is to avail everything related to healthcare at people’s doorstep and make them a lot more accessible pan India. Today, it delivers medicines and related products to nearly 98% of pin codes across the nation.
PharmEasy is a key player and forefront of India’s healthcare industry’s digitalization. It has contributed to the digitization of every healthcare step, from scheduling doctor appointments to delivering medical reports, diagnostic tests, supplements, personal care products, daily amenities, and prescribed medications.
We are all aware that there’s no such thing as a shortcut on the path to becoming successful, and PharmEasy works as an excellent case study to demonstrate it. The company, previously an unknown startup struggling with numerous challenges, has now emerged as an established brand by conquering various challenges on its path.
The company’s initial challenge was delivering medicines without a valid prescription, as several people were unwilling to upload their prescriptions on PharmEasy’s app because of privacy concerns. Another challenge was tracking the location of its delivery agents. In addition, there were multiple regulatory obstacles related to e-pharmacy. These challenges had initially slowed down customer acquisitions for the company.
However, the company slowly overcame these difficulties, and today, acquiring new users is no longer an issue for PharmEasy. As a matter of fact, its strong user-retention degree and customer satisfaction have led to the company’s staggering growth.
PharmEasy has achieved great success despite the fact that it is not the only player in the sector. There are several other major online pharmacies in India, including big names such as MedPlus, 1mg, Netmeds, Amazon Pharmacies, etc. There was another niche competitor Medlife, which PharmEasy acquired to increase its revenue and customer base (8).
Now, with the acquisition of Thyrocare, a publicly listed company, and Medlife, PharmEasy has put itself ahead of the competitors and became the largest in the industry (9).
If PharmEasy’s efforts are any indication, the digital healthcare industry is booming.
Talking about the digital healthcare industry, it has excellent forecasted potential in the upcoming future (10). According to RedSeer, the Indian online healthcare sector would have 16 billion USD worth of opportunity by FY 2025, growing from the present 1.2 billion USD, with a 68% CAGR. Considering the valuation, several big companies worldwide are joining India’s run for digital pharma business. The major players include Reliance, TATA Group, and Amazon.
Over the previous few months, Tata Group acquired a stake in 1mg; Reliance acquired Netmeds, and Amazon has started its Amazon Pharmacies with Cloudtail for prescribed drug medicine supply.
It is a clear picture of the Indian pharma industry’s potential, further boosted by the coronavirus crisis and increased smartphone penetration. Consequently, the e-pharma industry has become an integral part of the Indian startup community and economy.
“Key stakeholders in the healthcare industry are raising their interest in adopting various e-pharmacy and teleconsultation platforms. With the present adaptation levels of patients and doctors with emerging ecosystems and technologies, India is well poised to witness growth in its digital healthcare industry,” stated a recent EY report (11).
Where Should PharmEasy List?
One of the burning questions Indian tech unicorns face today is where they should bring an IPO; India, the US, or somewhere else. IPO news is coming from all corners of the country; take a look at Flipkart, Ola, Freshworks, Pepperfry, Nykaa, Delhivery; they are all at various stages of going public.
Suppose PharmEasy decides to go for an IPO in the Indian market. In that case, it can benefit from brand building and paybacks because of its understanding of the regulations, local market, and linearity. At the same time, an international listing can offer it a better valuation and boost its international ambitions.
However, listing overseas would only make sense for companies with an international presence. For instance, companies like Wipro and Infosys have been listed in the USA because most customers are in the US. It also makes sense for these companies to do so.
And since PharmEasy is still increasing its foothold in the domestic market, we believe it would be better for the company to list in the Indian market. Atma Nirbhar Bharat sentiments are also at play here, as listing in the domestic market would help grow the Indian startup ecosystem.
“IPOs of tech companies can improve India’s market capitalization and improve the free float as most of these companies have 90% of their cap as investors, which would attract more funds towards the country,” stated Atul Mehra, the Managing Director of JM Financial, in an interview with the Economics Times India (12).
Should You Invest in PharmEasy IPO?
After a temporary break because of the COVID-19 second back, the IPO rain is back, getting much bigger this time. So, why is there a rush? According to experts, there is a record rise in the number of retail investors.
As per reports, more than one crore demat accounts were opened over the last year (13). In addition, the current bull run of the equity space has made the perfect setting. Notably, Sensex, an Indian equity market, has risen to about 100% from its March 2020 levels to over 54,400 as of writing this story (14).
For investors, there is a positive return on IPOs. As per the RBI’s annual report, FY 2020 has turned out to be an excellent year for IPOs, with 21 of 29 making positive returns for investors on the listing. At the same time, IPOs offer lucrative opportunities for retailers with a low interest rate and high premiums in the grey market.
However, investing in IPOs doesn’t guarantee a return. It has its own set of risks, and there are times investors have incurred huge losses. Often IPOs are overhyped, and it isn’t easy to access a private company’s balance sheet.
So, should you invest in PharmEasy IPO?
Retail investors have to make one big decision while investing in IPOs: exit early or stay long term since IPOs are significant wealth creators for long-term and short-term retail investors.
People can frame their exit strategy according to the opening of the IPO, the outlook of the company, risk appetite, and investment horizon (15).
Now, if you look at IPOs like MTAR Technologies and Indigo Paints, there are 90 to 100% listing gains; on the other hand, Easy Trip Planner and Nureca have delivered over 100% returns for the long-term investors.
Are Valuations of Tech Startups Justifiable and Sustainable?
Let’s take a look at Zomato. The food tech giant, a household name, got a massive boost amid the pandemic. However, it is still making losses. Until FY 2020, it lost an average of 31 INR per order.
Big competition, big opportunity, cash burn, price wars, and a long road to growth is the business model of many new-age companies that are planning IPOs.
Consider Paytm. The government’s demonetization made it an overnight phenomenon. However, the space is highly competitive with Phone Pe, Google Pay, WhatsApp Pay, and rising UPI transactions. It is too witnessing a revenue drop and a staggering loss (16).
Paytm is also planning to secure over 218 billion INR via IPO, implying a valuation of at least 1.2 to 1.8 trillion INR, making it bigger than many public companies with proven business models.
When it comes to new-age tech startups in India, there is no clarity on profit, and the risk-reward ratio is highly unfavorable.
Concurrently, we can also argue in favor of these companies. After all, they are new-age business models and scale matters. There is an optimism that profits will follow; why else would the savvy investors pour their money on them?
There is also an example of Amazon, which started off as a loss-making company. Missing these tech companies would be a big opportunity loss.
And all of it brings us back to the same question, should you subscribe to PharmEasy. Well, there are favorable forecasts about the Indian digital healthcare sector. And, the success of IPOs of companies like Zomato indicates that the market is matured enough to understand these new-age technology startups.
And as we mentioned, PharmEasy is expanding its revenue, acquiring rivals and companies with the same high customer retention rate, and more likely to witness a healthy subscription. Moreover, PharmEasy also has the first-mover advantage and has a better understanding of the industry at the cusp of evolution than its counterparts like Reliance and Amazon.
At the same time, even though PharmEasy is consistently gaining market share, predicting its growth trajectory can be a little tricky. Yet, we believe that it can be a good bet from a long-term perspective.
We at TimesNext believe that there are high chances the stock would be overpriced. Simultaneously, we can’t deny the risks with the PharmEasy business or the entire digital healthcare industry, as a matter of fact.
The online pharmacy industry has faced several scrutinies, with protests to ban e-pharmacies, regulations, guidelines, and other hurdles. Despite all that, the investors were never unfazed. As per multiple forecasts, the sector has high growth potential, and there is no doubt that the PharmEasy brand is solid. Nevertheless, it is still pretty early to say whether it would be a good buy or not.
Would PharmEasy win the Indian e-pharmacy sector with the IPO? Only time will tell. Anyway, investing in any IPO or stock is risky, and investors must do their own due diligence before investing in any company.
The story is for information purposes only and should not be used as a base to make any investment.