Medplus Health

about 7 months ago
Medplus Health

IPO Size: Rs. 1,398 cr 

  • Rs. 798 cr offer for sale (OFS) mainly by Premji Invest (22% stake to drop to 14%) 
  • Rs. 600 cr fresh issue for working capital

Price band: Rs. 780-796 per share

Mcap: Rs. 9,500 cr, implying 15% dilution

IPO Date: Mon 13th Dec to Wed 15th Dec 2021, Listing Thu 23rd Dec 2021

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

 

India’s 2nd Largest Pharmacy Retailer, based on store count and revenue:

2,328 stores in South and East India, commanding 8% market share in key markets of Chennai, Bengaluru, Hyderabad, Kolkata. Revenue grew 26% YoY to Rs. 2,871 cr in FY20, before slowing down to 7% growth in FY21 to Rs. 3,069 cr due to lockdown, and returned to 28% YoY growth in H1FY22 to Rs. 1,880 cr revenue.

 

Strengths:

  1. Private Label drives Margin: As share of private label increased from 4.5% of revenue in FY19 to 13.5% in H1FY22, EBITDA margin nearly doubled from 2.9% to 5.7% respectively. Thus, FY19’s PAT of Rs. 12 cr rose to Rs. 66 cr in H1FY22, translating into net margin of 3.5%.
  2. Large Growing Opportunity: Pharma retailing industry of Rs. 2 lakh cr is projected to grow at 9% CAGR over the next 4 years. Of this, organized retailing is expected to grow faster at 25% on conversion from unorganized to organized, acting as a strong tailwind for the company.

 

Concerns:

  1. Low Share of Online Sale: Company’s share of online sale has been stagnant at 8-9% of revenue, despite online pharma retailing growing at 40%+ and company’s omni-channel presence. Medplus may remain a marginal player in online pharma, where bulk of the price-sensitive chronic medicine consumption is moving to.
  2. Competitive Market: Deep-pocketed players like RIL, Amazon, Tata, well-known for their deep discounting and disruptive strategies, are increasing focus on pharma retailing. 

 

Valuation Benchmarking:

  • Medplus’ share of private label is higher than Apollo Pharmacy with average revenue per store is nearly 2x, and EBITDA margin also marginally higher. However, Apollo Pharmacy is not separately listed,
  • Medplus appears better placed than Pharmeasy/API Holdings (awaiting nod for IPO), as the latter is heavily loss-making with net margin of negative 25%. Based on last reported private fund raise  value, Pharmeasy’s historic revenue multiple is about 7x against Medplus’ less than 3x. 
  • Annualizing Medplus’ H1FY22 EPS of Rs. 6, PE multiple for current year comes to about 66x, which is broadly in line with other category growing retail companies.
  • Premji Invest is selling a third of its stake, having cost of Rs. 158 per share, at 83% CAGR returns in less than 3 years. This return, although eye-popping, is backed by approximately 94% CAGR in company’s PBT since FY19, implying current pricing is supported by historic financial growth.

 

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