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Omni-channel focused established retail pharmacy…

About the Company: Medplus operates India’s 2nd largest pharmacy retail network of 2,326 stores distributed across Tamil Nadu (475), Andhra Pradesh (297), Telangana (474), Karnataka (546), Odisha (89), West Bengal (224) and Maharashtra (221).

* FY21 Revenue Breakup – Branded pharmaceutical: 76.8%, Private label pharmaceutical: 5.6%, Branded FMCG: 12.9%, Private label FMCG: 4.8%

* Average revenue per store (FY21): ₹ 1.59 crore, Store level operating EBITDA margin for mature stores (FY21): 11%, store level operating ROCE for mature stores (FY21): 60%

* Revenue attributed to Private Label in FY21:10.4%

Key triggers/Highlights:

* Strengthen the market position by increasing store penetration in existing clusters and developing new clusters

* Further develop the Omni-channel platform with a hyperlocal delivery model with the aim to increase online sales revenue contribution and at the same time optimize profit margins

* Derive higher gross margins by increasing the share of Private Labels

* Enhance revenue and increase customer wallet share through continued investment in technology infrastructure and expansion into adjacent healthcare vertical

* Continue to increase operating efficiency (increase the proportion of product procurement directly through pharmaceutical companies) and enhance supply chain management (increase automation at the warehouses) to drive profitability.

What should investors do? Medplus with its clustered store presence is well suited to leverage on Omni-channel platform with a hyper local delivery model. At the upper price band, it is valued at ~43.9x EV/EBITDA and ~3.1x EV/Sales for FY21.

* We assign SUBSCRIBE rating given its unique model and decent valuation

Key risk & concerns

* Operations are subject to high working capital requirements

* Changes in product mix can affect margins

* Failure to meet customer expectations might harm the brand

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