February 18, 2022

Dhruval Shah's Analysis of API Holding --Pharmeasy - Its CMP

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Dhruval Shah

M) 8000133721/9898150967

Share of API holdings (Pharmeasy) became available in the unlisted markets at around 100/sh around 4-5 months back. A lot of investors had invested at around 110+ levels. Since then the prices have rationalized over 30% to 75-80 Rs/sh

Many investors who had got in at these higher levels have been anxious to understand reasons behind this fall and ascertain on how low can these prices sink to. This post will help ascertain answers to these two questions. So, let’s get to it:

1. Breaking down the Valuation
At an entry price of 115/sh initial availability of shares was at a valuation of 9.35 B$, whereas the last fund raised was at roughly 70/sh and the IPO expectation being at 86/sh. A very high entry price led to a disadvantageous risk-reward ratio for investors at that point of time. Summarizing the numbers below :

Number of Shares o/s : 609.8 cr

Price per share: 115/sh

Valuation: 70,127 crores (9.35 B$)

Last Fund Raise (Oct ‘2021):

Amount Raised: $350 million (Rs 2,635.22 crore)

Valuation: $5.6 billion

Price Per share ~ 70/sh

Market Consensus IPO Valuation: $ 7 Billion

Price per Share @7 B$ Market Cap: 86/sh

2. Tech Sell Off
Shares of new-age technology startups like Paytm, PolicyBazaar, Nykaa, Zomato, CarTrade Tech and others that took the domestic stock market by storm last year with their initial public offering are now trading with 20-50 percent discount to their issue price. The drawdown in the technology companies in India has been driven by sell-off seen in technology and growth stocks in the US.

This has impacted tech companies in the Unlisted and Pre IPO space as well, MobiKwik; PharmEasy, Bira etc

 3. Troubles in launching IPO:
In a letter to the Securities and Exchange Board of India, CAIT has filed a case that the company’s business model is based on “gross illegality”. Joining forces with the South Chemist & Distributors Association, that made similar allegations in a letter dated Nov. 15, CAIT has based its allegations on the legal limbo surrounding online sales of medicines.

To be sure, SEBI has a disclosure-based regime for companies looking to raise funds through IPOs. As such, SEBI doesn’t give any explicit approvals for an IPO, but it only provides observations on the IPO prospectus filed with the regulator. However, such disruptions can delay if not derail IPO timelines for PharmEasy (API Holdings).


4. Demand & Supply:
Stock prices are a direct result of supply and demand. If more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. With the tech sell off the supply only increased in the unlisted space as well however the demand went down having a bearing on the market price


Where do we go from here?
Current Market pricing however looks to be in line with private fund raises by the company, the holding period might be slightly elongated for investors looking at a exit in the IPO. But with a timeline of 2-3 years in sight, Pharmeasy might be worthwhile addition to an investors portfolio.



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