What PharmEasy’s IPO Filing Reveals About Its Business And Market

API Holdings Ltd., owner of India’s largest online pharmacy PharmEasy, has filed for a Rs 6,250-crore initial public offering, aiming to become the nation’s first such platform to list on the bourses as the stock market rallies.

The company, backed by TPG and Temasek Holdings Pte, filed its draft red herring prospectus with the Securities and Exchange Board of India on Wednesday. It plans to use the proceeds from the IPO to prepay or repay all or a portion of outstanding borrowings, fund organic growth initiatives, pursue inorganic growth through acquisitions and other strategic initiatives and general corporate purposes.

Here’s what the draft prospectus tells about the company’s operations, and the country’s nascent and fast-growing online pharmacy market, which has been in a tug-of-war with next-door chemists.

Business

Founded in 2012, PharmEasy not just takes online orders of medicines but also offers teleconsultation, diagnostic tests and software services.

Over the last two years, the firm acquired Ascent Health & Wellness Solutions Pvt., Thyrocare Technologies Ltd. and its subsidiaries, and Akna Medical Pvt. and its arms, among others. PharmEasy’s acquisition of peer Medlife made it the largest online aggregator. Last month, it bought a 49.17% stake in Marg ERP Ltd., a business-to-business pharma, software and solutions provider, for Rs 255 crore.

API Holdings generates revenue from three segments.

Sale Of Products: Sells pharma, over-the-counter, private label medical products, surgical products and consumables sourced from pharmaceutical companies or wholesalers to retailers, chemists and institutions.

Sale Of Services: Derives revenue from sale of services from diagnostics, advertisement and lead generation for doctors by its B2B marketplace Retailio. It earns revenue from sale of Redbook software to pharmacies and licence and platform fees.

Other Operating Revenue: This includes providing last-mile delivery services to fulfilling orders on the platform, and lease of electronic medical records and practice management software and hardware to doctors.

Growth in gross merchandise value is a key driver of the company’s revenue. Its gross sales have risen more than 54% to Rs 7,865 crore by the end of FY21.

Key Numbers From PharmEasy’s Draft IPO Prospectus

• Active Pharmacies: 87,159

• Prescribing doctors: 4,617

• E-consultations conducted in FY21: 34 lakh

• Digital prescriptions generated: 1.07 crore

• Active wholesalers: 3,261

• Registered users on PharmEasy: 2.5 crore

A $100-Billion Opportunity

Based on API Holdings’ current suite of product and service offerings, the target market is expected to be $100 billion (Rs 7.5 lakh crore) by 2025, the DRHP said citing RedSeer Research. That includes pharma, diagnostics, OTC, consultation and hospital supplies segments of the Indian healthcare market.

The online health market, comprising home delivery of medicines and OTC products, online diagnostics tests and home sample collection, doubled to Rs 6,700 crore in 2019, the RedSeer data showed. The growth slowed to Rs 8,900 crore in 2020 because of the restrictions imposed to curb Covid-19.

India’s digital penetration in health is at a very nascent stage, and is considerably lower than China’s (10-15%) and the U.S.’ (30-35%).

• Online pharmacy penetration in India is at 2.3%.

• Doctor consultation via online platforms at 0.8%.

Financials

API Holdings’ consolidated revenue jumped more than threefold to Rs 2,335 crore in the financial year ended March 2021. Losses, however, have also widened to Rs 636 crore during the period.

But multiple acquisitions have strengthened the company’s balance sheet over the last one year. Its pro forma consolidated revenue touched Rs 4,363 crore for 2020-21, nearly twice the group’s consolidated revenues. Pro forma losses widened to Rs 1,549 crore in the year.

Risks

• Healthcare industry in India is subject to extensive government regulation and supervision as well as monitoring by various government authorities. Certain other laws, rules and regulations may affect the pricing, demand and distribution of pharmaceutical products such as relating to procurement, prescription and dispensing of drugs by hospitals and other medical institutions, and retail pharmacy.

• It faces intense competition across business lines, and competes against other online platforms, diagnostics companies, traditional wholesalers as well as other online and offline healthcare service providers.

• Changing regulations in India could lead to new compliance requirements that are uncertain.