MedplusHealth Services is the second largest pharmacy retailer in India,
in terms of (1) revenue from operations for the financial year 2021, and (2)
number of stores as of March 31, 2021.Company offers a wide range of products,
including (1) pharmaceutical and wellness products, including medicines,
vitamins, medical devices, and test kits, and (2) fast-moving consumer goods,
such as home and personal care products, including toiletries, baby care
products, soaps and detergents, and sanitizers.
Company was founded in 2006 by Gangadi Madhukar Reddy, its Managing
Director and Chief Executive Officer, with the vision to set up a trusted
pharmacy retail brand that offers genuine medicines and delivers better value
to the customer by reducing inefficiencies in the supply chain using
technology.
Company has grown from
operating initial 48 stores in Hyderabad to over 2,000 stores distributed
across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal,
and Maharashtra.As of September 30, 2021, company operated 546 stores in
Karnataka, 475 stores in Tamil Nadu, 474 stores in Telangana, 297 stores in
Andhra Pradesh, 224 stores in West Bengal, 221 stores in Maharashtra and 89
stores in Odisha.
For FY2021, revenue
from operations, in Chennai, Bangalore, Hyderabad and Kolkata stood at
approximately 30%, 29%, 30% and 22% of total revenue respectively.
For the financial year
2021, company’s average revenue per store was approximately Rs 1.59 crore, as
compared to the average revenue per store in the domestic pharmacy retail
industry of approximately Rs 0.23 crore.Further as of September 30, 2021,
Mature Stores had a median payback period of less than 3 years and demonstrated
a compounded average same store sales growth of 8.30% on maximum retail price
(MRP) from financial year 2019 to financial year 2021.
Company is the first
pharmacy retailer in India to offer an omni-channel platform. Through this
omni-channel model, company seeks to (1) deepen and extend its customer reach
for each of its stores, (2) enhance “convenience” as a core customer value
proposition, and (3) retain customers.
Company’s revenue from
online sales channel has steadily increased. For the financial year 2021, 2020
and the six months ended September 30, 2021, online sales accounted for 8.98%, 6.99%
and 8.44% of total revenue from operations, respectively.
As of September 30,
2021, Company has a primary warehouse, in each of Bangalore, Chennai,
Hyderabad, Vijayawada, Kolkata, Pune, Bhubaneshwar, Mumbai and Nagpur. These
warehouses are supported by smaller warehouses in cities where it has higher
store density.
Company intends to
capitalize on the shift from unorganized to organized retail of pharmaceutical
products in India, taking advantage of the low base of organized pharmacy
retail penetration. Company plans to strengthen its market position by (1)
increasing store penetration and customer reach in existing clusters and (2)
developing new clusters in other states and cities.
Company also intends to
enter one to two new states every year. To establish its presence in new
geographies, company intends to use cluster-based approach and replicable store
roll-out process, as well as concurrently develop the required supply chain and
distribution infrastructure, including establishing primary warehouses in these
states to serve as distribution hubs, building fleets of delivery vehicles and
hiring delivery personnel.
Offer and its objects
The IPO comprises fresh issue of equity shares worth
up to Rs 600 crore and an offer for sale of Rs 798.30 crore by existing
shareholders.
Price band for the IPO is Rs 780 to Rs 796 per
equity share of face value Rs2 each.
Objectives for the fresh issue areFunding working
capital requirements of Material Subsidiary, Optival for Rs 467.17 Crore of and
remaining amount to be used for general corporate purposes.
Promoters of the CompanyareGangadi Madhukar Reddy,
Agilemed Investments Private Limited and Lone Furrow Investments Private
Limited.Promoters hold an aggregate of 48,233,135 equity Shares, aggregating to
43.16% of the pre-Offer issued and paid-up Equity Share capital.The post-IPO
shareholding for the same is expected to be around 40.43%.
The
issue, through the book-building process, will open on 13 December 2021 and
will close on 15 December 2021.
Strengths
Company has a track record of
delivering strong financial performance. Between financial year 2019 and
financial year 2021, its total revenue from operations grew at a compound
annual growth rate (CAGR) of 16.21% from Rs 2272.73 crore to Rs 3069.26 crore,
as opposed to the Indian pharmacy retail industry, which grew at a CAGR of 7.3%
for the same period.
Company is second largest pharmacy retailer
in India, in terms of (1) revenue from operations for the financial year 2021,
and (2) number of stores as of March 31, 2021. For FY 2021, its total revenue
from operations represented approximately 15% share of the organized pharmacy
retail market in India.
Company has extended its leadership
position from offline sales of pharmaceutical products to online sales of
pharmaceutical products. For FY 2021 and the six months ended September 30,
2021, company derived Rs 275.74 crore and Rs 158.63 crore of revenue from its
online sales channel, respectively.
Company offers value proposition to a
wide range of customers, including (1) Value Pricing: involves cutting
inefficiencies in the supply chain using technology to deliver better value to
the customers (2) Convenience and Fulfilment: offering wide range of products
available across offline and online channels and (3) Engagement: stores are
operated by trained staff, aided by real time data of customer analysis.
Company can deliver its customers’
online purchases within two hours of purchase in select cities. These services
were started in FY 2021, and recent pilots conducted in July 2021 showed
promising results where 93% of online delivery purchases were delivered within
two hours in select micro-markets of Hyderabad.Company expects to expand its
ability to deliver online purchases within two hours of purchase in Mumbai by
December 31, 2021.
India’s e-commerce pharmacy retail
market is expected to grow at a CAGR of approximately 42% between FY 2021 to FY
2025, from Rs 5625 crore to Rs 23,000 crore. Company is well-positioned to
benefit from a fast-growing India e-commerce pharmacy retail market, especially
given its significant existing online operations, pricingand last mile delivery
capabilities.
Company
followslean cost structure which helps in cost efficient procurement.It has
alsodeveloped strong relationships with its suppliers over time, which has
enabled it to procure products at more favorable rates than competitors.
Company
has a Successful Track Record of Expansion Using a Distinct Cluster-based and
Replicable Store Unit Expansion Approach. Company has grown from operating
initial 48 stores in Hyderabad at the conception of business in 2006 to
operating India’s second largest pharmacy retail network of over 2,000 stores,
distributed across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha,
West Bengal, and Maharashtra, as of March 31, 2021.
Company
intends to increase the range of private label products, as it generally derives
higher gross margins from sales. By offering wide range of private label
products can potentially increase its customer wallet share and increase gross
margins.
Company’s
large scale of operations and dense store network allows higher efficiency in
product distribution to its stores and can enjoy significant economies of scale
by leveraging cost efficient procurement, warehouses, vehicles, and delivery
personnel.
Weaknesses
For each of FYs 2019, 2020, 2021 and
the six months ended September 30, 2021, more than 75% of revenue from retail
sales was attributed to sales of branded pharmaceutical products, manufacturing,
and sale of which is tightly regulated by various laws and regulations. Any
changes to such legislation could have a material adverse impact on its
business, sales, and profitability.
One of company’s Corporate Promoters,
Lone Furrow had pledged 1,676,418 Series B2 CCPS held by it in favor of Zash
Traders aggregating to 7.64% of the pre-Offer equity share capital of Company,
on a fully diluted basis which have since been converted into 8,543,340 Equity
Shares (Pledged Shares). Any exercise or enforcement of such pledge could
dilute the shareholding of Lone Furrow Investments Private Limited, which may
adversely affect business.
There have been instances of negative
cash flows in the past. Cash flow from operations was negative Rs 6.59 crore in
FY2020.
Company has issued a corporate
guarantee to lenders on account of a loan of Rs 185 crore availed by Optival,
for funding Optival’s working capital requirements. Certain covenants in these
agreements impose restrictive conditions.
Company’s operations are subject to
extensive regulation governing the drug and dispensary markets. Any non-compliance
with and changes in drug and dispensary laws and other applicable regulation
may adversely impact business.
Company has applied additional
trademarks, under various classes with the Controller General of Patents,
Design and Trademarks, Government of India, of which, some of these
applications are currently pending approval. Until such registrations are
granted, company may not be able to prevent unauthorized use of such trademarks
by third parties, which may lead to the dilution of goodwill.
The profitability of pharmacy retail
business depends, for a large part, on the utilization of prescription drugs.
Utilization trends are affected by introduction of new and successful
prescription drugs as well as lower-priced generic alternatives to existing
brand name drugs generallydue to higher gross margins on the sale of generic
alternatives. Inflation in the price of drugs can also adversely affect utilization.
Company has previously delayed in
complying with certain provisions of FEMA (Foreign Exchange Management Act).
Consequently, it may be subject to regulatory actions and penalties for any
past or future non-compliance.
Valuation
For FY 2021, consolidated sales were up by 6.92% to Rs
3069.27 crore compared to FY 2020. OPM increased by 240 bps to 7.06% which led
to 62.09% increase in operating profit to Rs 216.67 crore. Other income increased
24.65% to Rs 21.55 crore, while interest cost rose 17.20% to Rs 54.85 crore and
depreciation increased 18% to Rs 88.27 crore.PBTafter EOincreased 223.97% to Rs
95.10crore.Tax expenses for FY2021 was of Rs 31.99 crore compared to tax
expense of Rs 27.57 crore in FY2020. Net profit rose 2836.05% to Rs 63.86
crore.
For H1FY2021, consolidated sales were up by 28.54% to Rs
1879.92 crore compared to H1 FY2020. OPM increased by 173 bps to 8.44% which
led to 61.65% increase in operating profit to Rs 158.65 crore. Other income increased
30.60% to Rs 10.99 crore, while interest cost rose 15.66% to Rs 31.32 crore and
depreciation increased 29.73% to Rs 54.76 crore.PBT after EO increased 124.19%
to Rs 83.56crore.Tax expenses for H1 FY2021 was of Rs 17.19 crore compared to
tax expense of Rs 15.01 crore in H1 FY2020. Net profit rose 196.15% to Rs 66.91
crore.
The TTM
EPS(excluding extraordinary items and relevant tax) on post-issue equity works
out to Rs 9.07. On the upper price band of Rs 796, P/E works out to 87.76.There
are no listed companies in India that engage in similar business.
At the
higher price band of Rs 796, the offer is made at Post-issue EV/ TTM Sales of 2.71times,
on a post-issue equity share capital of Rs 23.85 crore of face value of Rs 2each.
Medplus Health Services: Issue
highlights
|
For
Fresh Issue Offer size (in no of shares )
|
|
-
On lower price band
|
7692307
|
-
On upper price band
|
7537688
|
Offer
size (in Rs crore)
|
600
|
For
Offer for Sale Offer size (in no of shares)
|
|
-
On lower price band
|
10234551
|
-
On upper price band
|
10028831
|
Offer
size (in Rs crore )
|
798.29
|
Price
band (Rs)
|
780-796
|
Minimum
Bid Lot (in no. of shares )
|
18
|
Post
issue capital (Rs crore)
|
|
-
On lower price band
|
23.89
|
-
On upper price band
|
23.85
|
Post-issue
promoter & Group shareholding (%)
|
40.43
|
Issue
open date
|
13/12/2021
|
Issue
closed date
|
15/12/2021
|
Listing
|
BSE,
NSE
|
Rating
|
47/100
|
Medplus Health services:
Consolidated Financials
|
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2009 (6)
|
2109 (6)
|
Sales
|
2,272.74
|
2,870.60
|
3,069.27
|
1,462.56
|
1,879.92
|
OPM (%)
|
5.24%
|
4.66%
|
7.06%
|
6.71%
|
8.44%
|
OP
|
119.17
|
133.67
|
216.67
|
98.15
|
158.65
|
Other inc.
|
12.20
|
17.28
|
21.55
|
8.41
|
10.99
|
PBIDT
|
131.37
|
150.96
|
238.21
|
106.56
|
169.64
|
Interest
|
50.03
|
46.80
|
54.85
|
27.08
|
31.32
|
PBDT
|
81.34
|
104.16
|
183.37
|
79.48
|
138.32
|
Dep.
|
58.59
|
74.81
|
88.27
|
42.21
|
54.76
|
PBT
|
22.75
|
29.35
|
95.10
|
37.27
|
83.56
|
Share of
Profit/(Loss) from Associates/JV
|
-
|
-
|
-
|
-
|
-
|
PBT before EO
|
22.75
|
29.35
|
95.10
|
37.27
|
83.56
|
Exceptional
items
|
-
|
-
|
-
|
-
|
-
|
PBT after EO
|
22.75
|
29.35
|
95.10
|
37.27
|
83.56
|
Taxation
|
10.83
|
27.57
|
31.99
|
15.01
|
17.19
|
PAT
|
11.92
|
1.79
|
63.11
|
22.27
|
66.37
|
Minority
Interest
|
0.00
|
(0.39)
|
(0.75)
|
(0.33)
|
(0.53)
|
Net Profit
|
11.92
|
2.18
|
63.86
|
22.59
|
66.91
|
EPS (Rs)*
|
1.00
|
0.18
|
5.36
|
#
|
#
|
* EPS is
annualized on post issue equity capital of Rs 23.85 crore of face value of Rs
2 each
|
|
|
# EPS is not annualized
due to seasonality of business
|
|
|
|
|
EO:
Extraordinary items. EPS is calculated after excluding EO and relevant tax
|
|
|
|
Figures in Rs
crore
|
|
|
|
|
|
Source: Capitaline
Corporate Database
|
|
|
|
|
|
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