More lofty narratives are built on spreadsheets than in boardrooms, townhalls, or strategy meetings these days. We saw many examples last year when a flurry of Draft Red Herring Prospectuses (DRHPs) were filed. (It seemed the length of the DRHP was directly proportional to the valuation ambition of the companies.)
One such company was PharmEasy. Valued at $5.4 billion in the pre-IPO private round, the healthtech company filed its DRHP in November but withdrew it last week. It’s opting to raise money through a rights issue starting in early September.
But before the rights issue, it has already raised a fresh debt from the Indian arm of Goldman Sachs. While media reports said this fund infusion is a mix of debt and equity,
So, it’s Rs 2,280 crore ($285 million) in fresh debt to pay off the first debt of Rs 2,000 crore ($250 million) from multiple entities, including Kotak Mahindra Bank that PharmEasy took to partially fund its largest acquisition last year—Thyrocare.
Kotak was also the lead book-running manager for the now-shelved IPO. And it had participated in the pre-IPO round and owned a 0.57% stake in API Holdings at the time of filing the DRHP.
With a highly leveraged balance sheet with interest rates of loans varying from 9%-12.5% and no path to profitability in sight, it’d be fair to assume API investors are in a bind today.
The founders are therefore touting an EBITDA-breakeven target for next year. As a confidence-building measure, all five of them are together putting in close to $1 million in the current round. That’s a chump change given that the directors, founders and select employees received Rs 333 crore ($41 million) in bonuses last September.
Before you get down to doing your math on what price such debt- and acquisition-fuelled growth comes at and what’s the endgame of such enterprises, we has deftly connected the dots.
