By AltG Research On Behalf Of Poornima Vardhan and Taponeel Mukherjee
First Byjus and now The PharmEasy Saga. The last two weeks have seen a dramatic climax for the biggest unicorns in the country. The media has been abuzz with the news of a 90% down round of API Holdings Limited - the holding company for Pharmeasy - India's largest online pharmacy. PharmEasy plans to raise around Rs 2,400 crore through a rights issue at a 90% discount to its peak stock price to repay its loan from Goldman Sachs. As per Industry sources, Billionaire Ranjan Pai's family office is offering to buy 18% for INR 1000 crores along with other private equity firms TPG and Temasek.
However, The silver lining of being India's largest healthcare pharmacy is still true. The key trends of increasing per capita income, digitisation and a significant increase in chronic and lifestyle diseases in India all add up to the high growth of the healthcare industry. As per Pharmeasys's DRHP, The Target Addressable Market (TAM) is expected to be ~₹ 7.5 trillion (~US$100 billion) in 2025, which includes the pharma, diagnostics, OTC, consultation and hospital supplies segments of the Indian healthcare market growing at 14% CAGR.
Warren Buffett once said it is wise for investors to be "fearful when others are greedy, and greedy when others are fearful." And this cannot be more true for PharmEasy today. As we delve into the details, it is essential to acknowledge the massive under-valuation at the rumoured Rs 6,000 Crore valuation. PharmEasy represents an extraordinary investment opportunity at this price, with its "Sum of Parts" far exceeding the current valuation. This situation can be aptly described as "Thyrocare For Nothing, And The Rest Of PharmEasy For Free."
One can't value Thyrocare using its lowest share price. From a "Scarcity Of Assets" perspective, one needs to realise that Thyrocare is 1 of only 3 available diagnostic assets catering to 1.5 Billion people. Even if we conservatively assume zero valuation for cash-bleeding Threpsi Solutions Private Limited and the 19.99% stake in Aarman Solutions Private Limited, the company's implied valuation stands at approximately INR 8673 Crores or $1.06 Billion. This alone presents a substantial upside from the current valuation. To better comprehend the true value of PharmEasy, let us conduct a quick overview of its various business components:
Thyrocare Technology Limited: PharmEasy currently owns a 71.22% stake in Thyrocare. While the stake's current value based on Thyrocare's market capitalisation stands at Rs 2045 Crores, selling this stake at historic lows in the stock price significantly undervalues this business. It has experienced a 62.5% drop from its highs in June 2021. However, when compared to its public peers, such as Dr Lal PathLabs (whose shares have increased by 155% in the last 5 years) and Metropolis Healthcare (whose shares have risen by 51% in the last 5 years), Thyrocare shares have experienced an 8% decline. Given Thyrocare's current undervaluation, its remarkably low share price compared to peers, its substantial growth potential, PharmEasy's controlling stake, and the infinite potential of India's Diagnostic market, we firmly believe that PharmEasy's stake in Thyrocare deserves at least a 150% to 250% premium on its current valuation.
Aknamed: India's largest hospital-focused supply chain platform, combined with the pharma business of Novogene, offers tremendous growth and value creation opportunities. By examining the public comparables of global companies such as Mckesson and Cardinal Health, which have seen an average stock increase of approximately 140% in the last 5 years, we can extrapolate the potential for Aknamed. India's healthcare sector's growth potential for the next 10 years and the tectonic shifts in consolidation and digital supply chain solutions imply a revenue multiple of 1.5-2.5x. This suggests a valuation range of INR 1165 Crores to INR 1942.5 Crores for Aknamed, indicating a significant upside in the near future.
Medlife International Retail: When assessing Medlife International, the closest public comparables in the Indian market are MedPlus and Apollo Pharmacy, both omnichannel pharmaceutical retail companies providing pharmacy services, diagnostics, and e-consultations. Based on these comparables, we can infer a conservative revenue multiple of 2-5x. Therefore, the valuation range for Medlife International would be INR 810 Crores to INR 1620 Crores, showcasing the significant potential for growth in the near future.
The Bottomline: Underneath the web of subsidiaries lie some extremely valuable and currently extremely cheap assets. This is similar to the $5Bn Apollo - Verizon Media deal where Apollo is selling the company by parts and expecting to collect their bounty. Thus, the Pharmeasy opportunity at the current valuation is an incredibly attractive opportunity for the brave who understand the financial complexity and the underlying value of the different parts of the business and the future of healthcare in India.