Question
Care Ltd. is a non-listed pharmaceutical company, registered in 2015 and situated in Delhi (hereinafter, the Company ). The Company was initially a promoters run
Care Ltd. is a non-listed pharmaceutical company, registered in 2015 and situated in Delhi (hereinafter, the Company). The Company was initially a promoters run company. It specializes in making medical equipment. During the COVID-19 crisis, it has identified a market for respiratory masks and PPE (personal protection equipment)in India. The company has received a report by its research wing that it can sell about 1,80,000 respiratory masks each month for four (4) years, in India at a price of INR 600 each. On the strength of the above report, the Company has raised money from Black Stone L.L.P, an institutional investors registered in US and a few other accredited investors a sum of INR 2.8 crores for 18% equity stake through private funding mode. The hurdle rate for the investors was 12% but the Company was able to earn profit of 42% during the first two quarters itself of the financial year and declared an interim dividend of 22%.
The Companys board of directors has met recently to increase to syringe manufacturing capacity of the Company from its current production capacity of 1,200 to 8,000 per day. The decision was taken due to the media report that additional capacity of over 350 million syringes per month in order to meet the entire demand for mass COVID-19 vaccination in India. Satisfied with its experience of enhancing the production in the COVID19 time, the Company wishes to go for another round of funding as soon as possible. The Company requires INR 1.5 crores and has many options including equity, debt and foreign funding. The Company is in an advanced stage of discussion with a couple of funds/ institutional investors/ accredited investors. However, the Company wishes to go for debt funding and not for equity funding as it may provide the outside investors negative voting shares. Another reason is that most of the funds are asking for at least 9% of equity stake for INR 1.5 crores. Negotiation is still on. Hybrid funding is also an option. The hurdle rate for the Company has come down to 9% and assume that the average bank interest rate for term loan is 13.5%. Advice the Company of its choices and what methods would work best and the related repercussions, considering different scenarios.
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