IPO Note - Medplus Health Service Ltd By Nirmal Bang
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BACKGROUND
Company Overview
Medplus Health Service Ltd. (Medplus) is the second largest pharmacy retailer in India, in terms of +(i) revenue from operations for the FY21, and (ii) number of stores as of March 31, 2021. The company offers a wide range of products, including (i) pharmaceutical and wellness products, 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 was founded in 2006 by Gangadi Madhukar Reddy to reduce the problem of fake medicines in the system.
Medplus has maintained a strong focus on scaling up its store network, having grown from operating the initial 48 stores in Hyderabad at the conception of the business 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.
Objects of the Issue
The issue of Rs 1398 cr includes offer for sale of Rs 793 cr and Rs 600 cr fresh issue which would be utilized for investment into its material subsidiary, Optival for funding working capital requirements
Investment Rationale
* Established Brand and Value Proposition to Customers
* Omni-Channel Model
* Cluster Based Expansion
* Increased share of Private Labels
* Continued Improvement in Operational Efficiency
Valuation and Recommendation
The company has been opening stores at CAGR of 12% since FY10 which has skewed towards the end of the decade at 17.2% between FY20- 1HFY22. However, due to increased leverage on account of omni-channel and higher share of private label sales, profitability has grown at much higher rate. Gross margins have grown at a CAGR of 22.7% between FY19 to FY21 and EBITDA at 63.2% during the same period. The cluster-based strategy gives higher penetration in the selected regions. We believe that Medplus is a well-established brand among its clusters and has positioned itself as a genuine and good quality pharmaceutical products supplier through its omni-channels, which will continue to drive its gains in market share. We recommend “Subscribe for Long Term”
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