India's PharmEasy plans $200 mn fund raising at lower valuation

Indian drug and medical services startup PharmEasy is in talks with investors to raise $200 million, but at a valuation that could be 15% or even 25% lower than last year's $5.1 billion, two people with direct knowledge of deal talks told Reuters.

Signalling growing stress in India's startup ecosystem, one source said PharmEasy, backed by big-name investors such as Prosus, TPG and Temasek, is in talks to secure the new funds at a valuation as much as 15% below last year's.

A second source said the company, which offers online medicine deliveries and diagnostic test services, has told its bankers to consider even a 25% reduction if needed to close the deal. That could cut PharmEasy's valuation for the new funding round to $3.8 billion, and the sources said an initial public offering (IPO) first targeted for 2022 has been delayed.

Indian startups have been jolted by uncertain global and domestic stock markets, and growing investor scepticism over what they say are sky-high valuations, making it difficult for PharmEasy to raise funds at the same or a higher valuation, sources said. They declined to be named as the talks on raising funds were private.

PharmEasy's planned fundraising is set to see participation from some existing investors, who have indicated they will commit about $115 million in the new round, said the first source involved in the talks.

API Holdings, PharmEasy's parent company which is looking to raise the funds, declined to comment. API owns other businesses including diagnostic test provider Thyrocare.

The company had seen its valuation jump in recent years in a boom moment for India's startups in general and a growth surge in its own sector, where rivals include Reliance's Netmeds, Tata's 1mg and Walmart's Flipkart.

Last year, Indian startups raised a record $35 billion in private funding and many internet companies went public. PharmEasy, too, cashed in on the boom and raised a total of $1.89 billion since 2015, with most of it coming in the last two years, data from Pitchbook shows.

Among high-profile Indian startups, a 'down round' deal by PharmEasy's - when a firm sells shares at a lower valuation than before - will be the first in recent times.

Bank of America Securities and Morgan Stanley are working on the deal, said the sources. Morgan Stanley declined comment, while Bank of America did not respond.

IPO on hold, mounting losses

Betting on higher healthcare spends and growing use of online ordering, API Holdings last year filed a prospectus to raise 62.5 billion rupees ($782 million) in an IPO, hoping to list in 2022. The sources confirmed that plan is now delayed.

One concern among investors before the market debut is mounting losses of the digital pharmacy, the sources said.

PharmEasy's parent saw its total income more than double to $714 million in the fiscal year to March 2022.

But total expenses for the period amounted to $1.06 billion, partly due to a one-time employee stock benefits outlay, according to a document viewed by Reuters that listed PharmEasy's latest unaudited financials.

The net loss for the year quadrupled to $334 million, the document stated.

PharmEasy is currently in a "wait and watch" mode and considering listing next year, the first source said. A third person with knowledge of the matter also said the IPO may only take place late in 2023, and PharmEasy's parent may be required to refile IPO regulatory papers.

The IPO delay comes as stocks of prominent Indian listings of last year, such as digital payments firm Paytm and food-delivery firm Zomato, have fallen more than 60% from their peaks.