Buy Sell Medplus Health part
Medplus Health will continue to add stores at a rapid pace, even as the margins of India’s second largest organized pharma retailer deteriorate as a result. In an interview with CNBC-TV18The chief executive of the company, Gangadi Madhukar Reddy, said that the April-June period of every year is a weak quarter for the company and the September quarter would turn out to be a better quarter.
However, Reddy sees no significant improvement in the company’s margins. An important factor behind this is the company’s rapid store expansion and Reddy sees no slowdown in that area. Medplus added 252 stores in the past quarter and Reddy is confident to add a similar number of stores, if not more, in the current quarter.
Founded in 2006, Medplus is the second largest pharmacy chain after Apollo in India. It has a network of nearly 3,000 pharmacies as of Q1 FY23. The company currently operates in 374 cities in seven states, representing 44 percent of the total Indian pharmaceutical market and 42 percent of the total population.
The threat of e-pharmacy discounts
Medplus reported single-digit revenue growth in Q1 FY23, but Reddy is confident the company will grow 20 percent this year. While he acknowledges that growth has been dampened by competition from e-pharmacy players, he doesn’t see it as a long-term problem.
“As long as these discounts are there, at least in the major cities we will see some slowdown in growth, but I don’t expect it to stay that way because that’s not a number where businesses are viable,” he said. “We will continue to be the highest value supplier to each customer under normal circumstances, not below a promotional level.”
Other key points from the interview:
Nomura sees 25 percent upside
Brokerage firm Nomura has launched coverage of organized pharmaceutical retailer Medplus Health Services with a “buy” recommendation and a price target of Rs 925 each. The target implies a potential gain of 25 percent from Friday’s closing levels.
“Vertically integrated operations supported by technology, omnichannel presence and an intensification of store expansion will see Medplus gain market share within the organized retail industry in the short to medium term,” Nomura’s Saion Mukherjee wrote in his note. Medplus currently has a 21 percent market share of organized pharmaceutical retailing in the country, following 41 percent of Apollo Pharmacy.
Nomura expects Medplus to open 6,400 stores between FY22-FY30, supporting the company’s sales growth to 30+ percent in FY24.
Key risks to Nomura’s target price:
Other major takeaways:
Shares of Medplus initially opened higher but have given up on gains to currently trade 1.6 percent lower at Rs 724.15. The stock is currently trading below the IPO price.