INDIA — PharmEasy, a prominent pharmacy retailer, is experiencing a remarkable turnaround as it achieves operational cash flow positivity in April.

This achievement signifies that the company’s cost-cutting efforts are starting to yield positive results.

According to the Economic Times, PharmEasy recorded monthly adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) or positive cash flow from operations in the “double-digit” crores range.

This is the first time PharmEasy has reported a positive cash flow since its acquisition of Thyrocare Ltd 24 months ago.

However, it’s important to note that these figures exclude the monthly payment the company needs to make to its lender, Goldman Sachs, as well as the company’s non-cash Employee stock ownership program (Esop) expenses.

PharmEasy’s parent company, API Holdings, acquired a 66% stake in Thyrocare for ₹4,546 crore (US$0.55 billion) in June 2021.

PharmEasy’s turnaround can be attributed to the integration of the diagnostics business on its platform and the effectiveness of cross-selling strategies.

Over the past year, the health-tech company has gradually reduced its monthly operational loss from ₹86 crore (US$10.4 million) in March 2022 to approximately ₹5.6 crore (US$676,626) in March 2023.

This has been achieved through scaling down marketing efforts and focusing on cross-selling products to improve profit margins.

The positive developments in PharmEasy’s financial performance may lead to improved negotiations with Goldman Sachs, its primary lender.

In 2022, Goldman Sachs refinanced a US$300 million loan, originally provided by Kotak Mahindra Bank for the Thyrocare acquisition.

The debt agreement stipulates that the structured debt of ₹2,280 crore from Goldman Sachs is due in 2026, with quarterly interest payments of ₹25 crore (US$3.02 million).

Additionally, a payment-in-kind (PIK) component, ranging from 7.25% to 8.25%, is scheduled for payment in 2026. The PIK component allows for payment flexibility, including the option to pay in securities.

Although PharmEasy attempted to raise fresh capital in FY23, it had to shelve those plans due to unfavorable market conditions.

To fulfill the covenants of the Goldman loan, PharmEasy conducted a rights issue in October 2022, raising ₹550 crore (US$66.4 million) from existing investors.

Notable investors in PharmEasy include Prosus, TPG, Temasek, B Capital, Tiger Global, Orios, and Kotak PE.

The company’s focus has been on achieving positive EBITDA before seeking additional capital from investors.

PharmEasy anticipates consolidated revenues of over ₹7,000 crore (US$845.8 million) for FY23, with significantly lower losses compared to previous years.

The company aims to become the largest buyer of medicines in India, second only to the central government. The gross merchandise value (GMV) is projected to exceed ₹10,000 crore (US$120.8 million).

In FY22, PharmEasy reported consolidated net sales of ₹5,728.8 crore (US$0.7 billion) and losses of ₹3,992.4 crore (US$482.5 million), according to regulatory filings.

However, the operational loss stood at around ₹850 crore (US$102.8 million) in FY22. The difference between ₹850 crore and ₹3,992 crore (US$482.7 million) mainly consists of non-cash expenses, such as Esop charges or one-time expenses.

PharmEasy stands as a leader in its segment, with competitors like Netmeds (acquired by Reliance Group) and 1mg (acquired by Tata Group) trailing behind in terms of revenues and growth.

For FY22, Reliance-backed Netmeds reported a total income of ₹111.48 crore (US$13.5 million), with a profit of ₹10.57 crore (US$1.3 million).

Meanwhile, 1mg saw its revenue from operations grow by 65.7% to ₹222.10 crore (US$26.8 million), and its net loss narrowed to ₹146.30 crore (US$17.7 million) in FY22.

PharmEasy’s current trajectory showcases its commitment to financial recovery and solidifies its position as a prominent player in India’s pharmacy retail industry.

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