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Medplus Health IPO  Fundamental Analysis

Key Business Highlights

  • Incorporated in the year 2006, Medplus offers a wide range of products, including (i) pharmaceutical and wellness products, including medicines, vitamins, medical devices and test kits, and (ii) fast-moving consumer goods, such as home and personal care products, including toiletries, baby care products, soaps and detergents, and sanitizers. The company has 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.
  • The company has grown from operating initial 48 stores in Hyderabad to operating India’s second largest pharmacy retail network of over 2,326 stores distributed across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal and Maharashtra as of September 30, 2021. In FY21, share of the organized pharmacy retail market Chennai, Bangalore, Hyderabad and Kolkata contributed 30%, 29%, 30% and 22%, of revenue from operations.
  • As at the end of H1FY22 the Issuer 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.
  • As at the end of H1FY22, Medplus has a primary warehouse, in Bangalore, Chennai, Hyderabad, Vijayawada, Kolkata, Pune, Bhubaneshwar, Mumbai and Nagpur. These warehouses are supported by smaller warehouses in cities where we have higher store density.
  • Omnichannel Sales Contribution; Commencing in 2015, the customers could either visit stores or access offerings online, through website and mobile application of Medplus. Through omni-channel model, The Issuer strives to
    1. Deepen and extend customer reach for each of the stores,
    2. Enhance convenience as a core customer value proposition, and
    3. Retain customers within the ecosystem.
  • The Issuer has started actively focussing on online sales in the financial year 2020. Over the last two years, revenue from our online sales channel has steadily increased and for the financial years 2020 and 2021 and the six months ended September 30, 2021 accounted for 6.99%, 8.98%, and 8.44% of our total revenue from operations, respectively.
  • Customers can (a) purchase products at stores, place an order through a telephone call to receive delivery of their purchased products, or (c) place an order online to receive delivery of their purchased products, or (d) Click and Pick by placing an order online and picking up their purchased products.

Financial Review of Medplus Health Services

Medplus posted total revenues of Rs 1890.90 crore for H1 FY22 and PAT of Rs 66.37 crore during the same period. The Issuer’s revenues increased by 7% to Rs 3090.81 crore in FY21 from Rs 2887.89 crore in FY20. PAT increased to whooping Rs 63.11 crore in FY21 from Rs 1.79 crore in FY20. This was due to the lower PAT in FY20 driven by non recurring net loss on fair value changes of Rs 32.30 crore. If it’s not considered, the adjusted PAT would be Rs 34.08 crore. Also, Medplus had a higher deferred tax of Rs 10.28 crore in FY20. The profitability margins have been showing an increasing trend as can be seen from the table.

Debt to equity is 0.82 as at the end of H1FY22. Return on net worth is 8.29%, 8.64%, 6.46% and 4.09% for H1FY22, FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title H1FY22 FY2021 FY2020 FY2019
Total Revenue 1890.90 3090.81 2887.89 2284.94
PAT 66.37 63.11 34.09 11.92
EBITDA 169.64 238.22 183.27 131.34
Total Assets 1746.49 1565.66 1348.70 958.71
Cash generated from operations 156.53 2.89 -6.59 146.68
EBITDA Margin 8.97% 7.71% 6.35% 5.75%
Net Margin 3.51% 2.04% 1.18% 0.52%

Valuation and Peer Comparison

The Issue is priced at 64.61x with annualised EPS of 12.32 as at the end of H1FY22 calculated at the upper price band of Rs 796 per share. With earnings of FY21 of 5.99, the Issue is valued at P/E of 132.89 times. P/BV is 11.11 at NAV of 71.67 as at the end of H1FY22. There are no listed pers as per the RHP. However, Apollo pharmacy, Wellness forever, Netmeds, Tata 1 mg among others are the unlisted peers of the Issuer.

The Issue Snapshot

Medplus IPO opens on 13th Dec with an IPO size of 1398 crore (fresh issue Rs 600 crore) with price band of Rs 780-796 per shares. Retail quota is 35% and minimum application amount is Rs 14328. Proceeds from the Issue would be used to fund working capital requirements of its subsidiary, Optival (Rs 467.17 crore). The Issue closes on 15th Dec and is expected to list on 23rd Dec 2021. The issue includes a reservation of equity shares worth Rs 5 crore for the company's employees who will receive those shares at a discount of Rs 78 per share to its issue price.

Sector Outlook

Pharmacy retail comprises primarily of pharmaceutical products, which include OTC and prescription drugs. However, in addition to selling pharmaceutical products and related services, pharmacy retail stores also sell various FMCG products, wellness products, consumables and medical devices. FMCG products play an important role in the overall profitability of a pharmacy retail store, with the sales contribution in a traditional standalone pharmacy store (also referred to as “unorganized retail”) in the range of 15-20%, and in case of a modern organized pharmacy store, it can be as high as 30%.

FMCG products essentially contribute to pharmacy stores earning a higher return on capital employed and help drive customer loyalty by providing customers with a wider array of products to choose from.

There has been a rise in sales through the e-commerce channel with several players such as NetMeds, Tata 1mg and PharmEasy operating in this segment through an online only model (e-pharmacy) alongside omnichannel platforms of B&M (brick mortar)retailers such as Apollo Pharmacy, MedPlus.

In FY21, the penetration of the organised pharmacy retail market at a pan-India level was estimated to be 11% as compared to 30-60% in developed countries. Hence there exists headroom for growth in the sector but over quite a longer time.

Conclusion and Investment Strategy

MedPlus brand has a track record of over 15 years, and it has become a well-established brand that is known for genuine and good quality pharmaceutical products offered at affordable prices. The Issuer has expanded its operations using a cluster-based approach and would continue to grow in new geographies and plans to further grow through its omnichannel presence.

The Issuer has a reasonable financial performance with decent profitability margins. The factor of concern is the unlimited competition that the Issuer faces from unorganized market players and new age e-commerce players like Netmeds and Pharmeasy. Another concern is the sustainability of margins post covid. Hence considering all these factors, one may apply for the short term taking into account the market conditions and other IPO options sailing in the primary market.

Reviewer recommends May Apply to the issue.

Review By CA Priyanka Choudhary on 6th Dec 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.


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