How PharmEasy doubled its valuation in two weeks

On June 26, when API Holdings, the parent of the e-pharmacy startup PharmEasy, announced the takeover of Thyrocare Technologies, there was jubilation.

But more than the fact that it was the first-ever acquisition of a listed company by an Indian unicorn, what brought cheer was a side deal: A. Velumani, chairman, managing director and CEO of Thyrocare, has signed a deal to acquire around 5% stake in API Holdings at a valuation of ₹30,000 crore ($4 billion). The startup, whose Mumbai-based co-founders are part of Fortune India’s 40 Under 40 list this year, has more than doubled its valuation in less than two weeks.

The sale of 66.1% stake in Thyrocare for about ₹4,546 crore was just the trailer.

The ‘other deal’ signed by co-founder Siddharth Shah, who is CEO of API Holdings, and Velumani at the latter’s residence in “monsoon-drenched Lonavala” over masala chai has pushed the startup’s valuation through the roof. Around two weeks ago, PharmEasy had raised $20 million through a secondary infusion by Facebook co-founder Eduardo Saverin’s B Capital, pegging its valuation at around $1.8 billion.

To fund the takeover of Thyrocare, the startup has just raised an additional $300 million from its existing investors.

The landmark deal with Thyrocare was struck in record time, said a company statement. It will soon make an open offer for an additional 26% stake, as per the Securities and Exchange Board of India (Sebi) rules.

According to the company’s open offer document, API Holdings intends to conduct “another funding round where it will issue securities to certain investors”. Velumani will participate in the funding round, along with other investors. He has already entered into a share subscription agreement. According to the deal, Velumani will invest (in one or more tranches) an aggregate amount of ₹1,500 crore and the company will issue 1,853,224 equity shares and 926,612 compulsorily convertible preference shares of API Holdings, aggregating to around 4.9% of its equity share capital.

When there was buzz in the market about an imminent deal, the stock price of Thyrocare was on the rise. On June 17, it sent a clarification to the stock exchanges. “The company during its normal course of business keeps exploring various opportunities to enhance shareholder value. The company is not aware of any information which is required to be disclosed under Sebi Regulations, 2015, and which has not already been disclosed to the stock exchanges,” it said.

The deal was finally struck between Thyrocare and Docon Technologies, a 100% subsidiary of API Holdings.

Shah said in a statement that his company would provide world-class customer experience in diagnostics, rivalling their pharmacy experience “by leveraging technology, and building on top of the massive scale and truly pan-India presence” of Thyrocare.

“It is our aim to deliver all outpatient healthcare products and services to every Indian within 24 hours,” he said.

He hopes that the synergy with Thyrocare will help PharmEasy strengthen its positioning in the diagnostics industry.

PharmEasy claims to have a user base of 12 million consumers and a network of 6,000 digital consultation clinics and 90,000 partner retailers across the country. It currently serves over 1 million patients for their pharmacy and diagnostics needs. On its part, Thyrocare has a network of 3,330 collection centres across 2,000 towns in India.

In 2019, four years after PharmEasy was founded by Dharmil Sheth and Dhaval Shah, it merged with its investor entity, Ascent Health, to form API Holdings, which brought in three new co-founders: Siddharth Shah, Hardik Dedhia, and Harsh Parekh.

In April 2021, the startup had become the first Indian e-pharmacy company to enter the unicorn club when it raised about $350 million in a Series E funding round from Prosus Ventures (formerly Naspers) and TPG Growth, at a valuation of $1.5 billion.

The fund-raise in April was API Holdings’ first such attempt after PharmEasy’s acquisition of rival Medlife by 2020-end. PharmEasy acquired 100% stake in Medlife and in return Medlife’s promoter got 19.95% stake in the combined entity. The deal was similar to the one it struck with Velumani—taking over the company and offering a stake back in the merged entity.

For the 62-year-old diagnostic services veteran, the deal will give a giant leap into the online pharmacy space, a fast-growing sector. During the pandemic, these companies saw an unprecedented surge in demand.

The deal with Thyrocare will help the merged entity fend off increasing competition in the space. Apart from giants such as Reliance (Netmeds), the Tata group (1mg), Flipkart, and Amazon, several other small players have also entered the e-pharmacy segment in India.

On June 10, Tata Digital, a wholly owned subsidiary of Tata Sons, announced that it was acquiring a majority stake in digital health company 1mg Technologies, which competes with PharmEasy. It hasn’t announced the cost of acquisition. The Tata group estimates the overall market at around $1 billion and expects it to grow at around 50% CAGR, driven by increased health awareness among consumers and greater convenience.

The Tata group said 1mg, which operates three diagnostics labs, has a supply chain covering over 20,000 pin codes across the country, and through its subsidiaries is also engaged in the business of B2B distribution of medicines and other healthcare products.

In August 2020, Reliance had acquired Netmeds in a deal worth around $85 million, according to reports.

The organised players will ensure there is stiff competition in the space, going forward.