Medplus Health
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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.
· 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
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.
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.
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.
Particular (Rs.
Mn) |
H122 |
FY21 |
FY20 |
FY19 |
Revenue from
Operations |
18,799.21 |
30,692.69 |
28,706.03 |
22,727.37 |
EBITDA |
1,696.40 |
2,382.13 |
1,509.62 |
1,313.47 |
EBITDA Margin (%) |
9.02% |
7.76% |
5.26% |
5.78% |
PAT |
663.67 |
631.11 |
17.94 |
119.22 |
Net Worth |
8,009.94 |
7,311.04 |
5,291.02 |
2,913.53 |
Net Cash Flows from
operating activities |
1,565.28 |
28.91 |
(65.89) |
1,466.84 |
Net Debt to Equity |
0.0 |
0.0 |
-0.1 |
0.2 |
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.
·
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
·
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.
Ratio |
MedPlus |
Apollo Pharmacy |
Wellness Forever |
API Holdings |
Tata 1 mg |
Netmeds |
Total Store Count
(as of Mar 21) |
2081 |
4118 |
223 |
NA |
NA |
NA |
Average Revenue per
Store (FY 2021) (in Crs) |
1.59 |
1.42 |
4.68 |
NA |
NA |
NA |
Revenue CAGR (FY
2019-2021) |
16.2% |
20.2% |
16.8% |
NA |
23.7% |
NA |
Average Operating
Margin per Store |
10.4% |
10% |
2% |
NA |
NA |
NA |
EBITDA Margin |
7.76% |
7.50% |
8.82% |
-23.29% |
-94.90% |
NA |
ROE |
10.1% |
NA |
-16.0% |
-33.5% |
NA |
NA |
ROCE |
23.8% |
NA |
-6.4% |
-28.3% |
-257.1% |
NA |
Inventory Turnover |
3.5 |
NA |
4.7 |
8.3 |
14.1 |
NA |
Net Debt to Equity |
0.0 |
NA |
0.1 |
0.1 |
-1.1 |
NA |
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.