Everything has not been so good for PharmEasy after it decided to reschedule the IPO to the coming year and focus on the EBITDA target breakeven. The e-pharmacy giant was planning to reduce the cash burn rate and rely on secondary ways to generate funds, which includes its existing shareholders.
However, things didn’t exactly go according to plan. PharmEasy disappointed its shareholders and potential investors when it failed to do justice to its loan covenant terms with Goldman Sachs. PharmEasy’s delayed IPO and performance in the last year raise some critical questions.
- Why did PharmEasy postpone its IPO, and what was the new plan?
- How successful has PharmEasy been in living up to its new plans when it postponed the IPO?
- Why did PharmEasy fail to honour the terms of a loan from Goldman Sachs?
- What are the reasons for the disappointing performance of PharmEasy from an investor’s perspective?
- What is PharmEasy doing to rectify the shortcoming, and what are its plans?
Today’s situation is of impending market uncertainties and the reduced performance of PharmEasy and various companies in the post-pandemic war-ridden inflation era. Therefore, an investor wants to know the reasons for the various shortcomings and if they can rely on the company’s corrective measures and hope for better returns and performance from the companies. In this blog, we dig into the current performance and PharmEasy share price to find the answer to the above-listed questions.
Part 1: PharmEasy Postponed Its IPO – Why & What Was The Plan Ahead?
PharmEasy, following the suite of companies like Zomato, Policy Bazaar and Nykaa, was preparing for a successful listing last year. However, the company released a letter stating it officially withdrew its Draft Red Herring Prospectus for the IPO in August 2022. PharmEasy quoted adverse “market conditions” and “strategic considerations” as the reasons.
The sources confirmed that the company had plans to generate funds from internal investors and was also in talks with external institutions. However, what could have been the real reason for postponing the IPO?
The post-pandemic economy’s unfavourable market conditions have significantly affected the share price and return on investments (ROI). Although, the inflation was likely as the large and small companies worldwide rushed to speed up their recovery through increasing production. However, geopolitical tensions between nations of Europe, Asia, and the US, had given rise to more complexities. The expected growth for the following year was expected to stay slow, and more companies were relying on cost-cutting measures to lower expenses. Multinational giants like Wipro and Facebook even resorted to many rounds of laying off to reduce the total headcount of employees.
PharmEasy, therefore, deemed it wise to postpone its IPO, as the company was not getting a reasonable valuation for its shares. Instead, The company planned to focus on reducing the cash burn rate and sourcing funds from existing investors.
Part 2: PharmEasy Fails To Generate Rupees 1000 Crore Equity As Per Goldman Sachs’ Covenant
PharmEasy had borrowed a sum of Rs. 2280 Crores (USD 285 million) from the US-based lender Goldman Sachs. The loan was issued to replenish the company’s earlier debt with Kotak Mahindra Bank when it bought Thyrocare.
The loan was issued on an equity share arrangement, and PharmEasy was required to generate an equity round of Rs. 1000 crore to repay the loan. Depending on the burn rate velocity, the company was supposed to raise equity of Rs. 1,000 crore, or about $120 million. However, due to the slow equity growth, the company failed to catch up on its target. This has breached the covenant of loan terms with Goldman Sachs.
According to the terms, the US-based lender can take over PharmEasy or Thyrocare to repay its loans. However, there is time before PharmEasy is defaulted on the repayment obligations. The company and Goldman Sachs are negotiating on the different possibilities. Moreover, experts suggest that the company would have to raise a lesser amount in future, as it is further reducing its burn rate.
The Future Of PharmEasy Share Price And IPO
It is yet to be discovered what are the new terms for the repayment of the Goldman Sachs loan. However, what remains certain is that a company like PharmEasy will take the necessary measures to prevent liquidation. PharmEasy has done an excellent job in minimising the cash burn rate to less than 50 percent. Moreover, as there are no likely IPO plans until 2025, the shareholders and potential investors can hope for the share prices to recover.
Investing in the unlisted shares of PharmEasy remains feasible, as the company’s valuation in the coming years is expected to grow. With it, will grow the share price and return on the investment when the company goes public. If you want to buy PharmEasy unlisted shares, Stockify is India’s most trusted stock broking platform.