The company’s board is contemplating cancelling the management stock options that were due to the founders at the end of June, expecting Medikabazaar to not meet its revenue and operational earnings targets for 2023-24, according to three people familiar with the deliberations.
The medical-technology company had to correct its revenue for 2023-24 after a forensic audit commission by its board unearthed evidence that the company had inflated its revenue by 60-65%, two of them said.
The audit had followed a whistleblower complaint to Medikabazaar’s board last year alleging round-tripping of accounts resulting in inflated revenues and other irregularities such as unreported related-party transactions.
Medikabazaar’s board of directors, led by a nominee of private equity firm Creaegis, the largest shareholder in the company, then commissioned an undisclosed firm for the audit.
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Medikabazaar joins a growing list of Indian startups that have faced governance issues. Companies such as Trell, BharatPe, Byju’s, and GoMechanic have faced audits from jittery investors over the past two years.
A spokesperson for Medikabazaar said “there has been no change in the shareholding of Medikabazaar” and that “Vivek Tiwari continues to serve as the CEO of Medikabazaar”.
Tiwari and Creaegis did not respond to Mint’s queries.
A clawback in the works
Tiwari and Malkan were due to receive 5-8% equity as part of their management stock options, which was set up in 2021 and due at the end of June this year depending on the company’s performance, said one of the people mentioned earlier.
Inclusive of these management earnouts, the founders would have held rights to about 24% of the company. These earnouts are awarded to a company’s founders and management on achieving specified targets.
Medikabazaar, founded in 2015, was last valued at about $700 million.
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Medikabazaar’s board may also look for ways to claw back the founders’ balance equity as it awaits the audited financial results for 2023-24, said two of the people familiar with the deliberations.
“It (the equity stake) could possibly go down to zero depending on what emerges from the financial audit,” said one of them. “Lawyers are on it,” said another person.
Medikabazaar is yet to file its audited financials for 2023-24. For 2022-23, the company had reported a surge in operational revenue—from ₹564 crore in the year before to ₹1,552 crore—but swung to a loss of ₹20.8 crore after being profitable in previous years, show data from VCCEdge.
It was unclear if the 2022-23 financials were also under forensic review.
Not a punishment, maybe
Tiwari and Malkan founded Medikabazaar as a digital platform supplying medical devices and diagnostic kits to hospitals, nursing homes and clinics. The company says it covers more than 20,000 pin codes in India.
“The investors don’t want the founders and the management to go unpunished,” said one of the persons cited above.
Another person, however, insisted that the cancellation of management stock options was “not a punishment” but a reflection of the company’s inability to meet its targets. There remains a possibility for at least one of the founders to catch up on their stake in the subsequent years.
Medikabazaar’s management struggled to keep up with “internal controls” as the company expanded, and this is now being corrected, this person added.
The company appointed finance veteran Raman Chawla as chief financial officer last year, and Ravishankar Gopalakrishnan as chief operating officer in April this year. While Tiwari continues to serve as CEO, Medikabazaar may bring on board additional executives to bolster its management strength, according to a third person.
A sound business
Medikabazzar has raised a total of $165 million (about ₹1,380 crore) via debt and equity financing. The company was reportedly in talks to raise another $150-200 million earlier this year, but that did not materialise after the forensic audit was conducted.
Among its investors are Creaegis, the World Bank’s International Finance Corporation, Lighthouse India Fund, HealthQuad, Ackermans & van Haaren, and CDC Group.
“The business continues to be sound and hence the investors are now trying to revive it with a change in management,” said the third person mentioned above, adding that Medikabazaar still had about ₹300 crore in the bank.
This person added that since the whistleblower had sent a copy of the complaint to the ministry of commerce, the board has to submit the audited report to the ministry once the enquiry is complete.
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