Medplus Health Services Limited IPO (Medplus Health IPO) Details

About the company:

The IPO crowd is piling up on the Dalal Street and this week MedPlus, an omni-channel pharmacy is launching its IPO. Medplus is the first pharmacy retailer in India to offer an omni-channel platform. The IPO has an issue size of Rs 1,398.3 crore which comprises Rs 600 crore of fresh issue and Rs 798.3 crore of an offer for sale.

Issue Details:

·         Dates: December 13, 2021 to December 15, 2021

·         Price Band: Rs. 780 to Rs. 796 per share

·         Minimum Lot: 18 shares

·         Minimum Application Amount at the Upper Band: Rs. 14,328

Objects of the Issue

The proceeds of the fresh issue are expected to be utilized towards:

·         Investment into the company’s material subsidiary, Optival for funding working capital requirements of Optival; and

·         General corporate purposes.

 Company Overview

MedPlus is the second-largest pharmacy retailer in India, in terms of revenue from operations and number of stores as of FY21. It is the first pharmacy retailer in India to offer an omni-channel platform. The company was founded in 2006 by Gangadi Madhukar Reddy, MD & CEO of MedPlus, 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.
They offer a wide range of products, including pharmaceutical and wellness products, and fast-moving consumer goods, such as home and personal care products. The company has maintained a strong focus on scaling up our store network, having grown from operating initial 48 stores to over 2,000 stores distributed across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal and Maharashtra, as of March 21. Its share the organized pharmacy retail market, based on revenue from operations, in Chennai, Bangalore, Hyderabad and Kolkata stood at approximately 30%, 29%, 30% and 22%, respectively.

MedPlus’s entire business value chain including last-mile delivery is supported by integrated technology infrastructure, which they have developed in-house. The company uses a data analytics-driven cluster-based approach which enables them to (i) create brand visibility within the operating cities, through the focused implementation of marketing advertising initiatives, (ii) increase market share in the operating cities, (iii) replicate the growth model in adjacent underserved cities and towns, and (iv) generate cost efficiencies due to operating leverage achieved in supply chain and inventory management.

Industry Overview

The retail market in India was valued at USD 796 billion in FY20, and is expected to grow at a CAGR of 6.23%, and be valued at USD 1,077 billion by FY25. Penetration of organized retail (which includes organized Brick and Mortar stores & E-commerce) in pharmacy and wellness category was approximately 10% in FY20, and expected to increase to approximately 20% by FY25, implying a CAGR of 25% over the same period.
Per capita healthcare expenditure is predominantly higher in developed countries ($10,624 in 2018 for USA) than in developing ($73 in 2018 in India) or under-developed countries. Hence, considering the development and increase in the penetration of health insurance, these expenses are expected to increase in India as well.

 Financials

The company has posted decent growth rate and improved its financials over the years. The CAGR of the revenue, EBITDA and PAT was 16.2%, 34.7%, 130% respectively over FY19-FY21.

Key Strengths

·           India’s Second largest pharmacy retailer in terms of revenue and number of stores as of FY21 with 21% market share in the organized sector

·           Successful track record of expansion using a Distinct Cluster-based and Replicable Store Unit Expansion Approach

·           Improving operational metrics with Store level operating EBITDA margin and store level

operating ROCE of Mature Stores was 11.0%, and over 60% respectively.

·           High-Density store network enhancing Omni-channel proposition whereby it offers i) purchasing products at stores, (ii) placing orders through telephone calls (iii) placing an order online and (iv) “Click and Pick”, by placing an order online & picking the purchased products directly from one of its stores

·           Lean cost structure and technology-driven operations

·           Well Qualified, Experienced and Entrepreneurial Board and Senior Management Team

Key Risks

·           Inability to effectively implement the business and growth strategy and efficiently operate, optimize or expand the storage and distribution network or pharmacy retail network, may lead adverse impact on the company’s results of operations and financial conditions

·           Increase in competitive intensity from e-commerce and other players in the industry.

·           7.64% of the pre-offer equity shares have been pledged by one of the promoters.

Peer Comparison

Conclusion

The company has a prominent market share in the organized retailer, 21% which is the second largest. It has been able to improve its financials over a period of time. EBITDA margin have improved over 2019 to 2021. The capital structure also is healthy as there is minimal risk of the financial leverage (net debt is close to zero). When compared to peers, Medplus is at an almost similar level to Apollo Pharmacy (the largest player in this segment) on many financial metrics. Further on the valuation front, while there are no listed players, it appears that the company is demanding a premium valuation. The TTM Price/Sales is 2.7x and EV/EBITDA is 35.3x. Lastly, the increasing intensity of the competition in the market is a key risk.

To conclude, the long term prospects of the company seem promising considering the high growth addressable market, its scalable business model, improving financials, healthy store level operating metrics and an unique Omni-channel presence. Therefore, we recommend the investors to ‘Subscribe for Long-Term’ to this issue.