Medplus Health Services IPO - Information Note

5paisa Research Team 5paisa Research Team 10th December 2022 - 11:45 am

Medplus Health Services is the second largest pharmacy chain in India in terms of revenues and store network. Its product offering includes medicines, wellness products, vitamins, test kits, medical devices, FMCG products, sanitary products, baby care products as well as detergents and sanitizers.

It has a network of 2,326 stores which is predominantly spread across the states of Telangana, Andhra Pradesh, Tamil Nadu, Karnataka, Odisha, West Bengal and Maharashtra.

The average pharmacy store in the Indian pharmacy retail business earns Rs.23 lakhs per store while the average revenue per store for Medplus is closer to Rs.1.59 crore. More than 75% of their stores have achieved positive store level operating EBITDA within 6 months of setting up.

This has been largely driven by the company’s data analytics driven cluster-based approach to new store openings.

Key terms of the IPO issue of Medplus Health Services

Key IPO Details	Particulars	Key IPO Dates	Particulars
Nature of issue	Book Building	Issue Opens on	13-Dec-2021
Face value of share	Rs.2 per share	Issue Closes on	15-Dec-2021
IPO Price Band	Rs.780 - Rs.796	Basis of Allotment date	20-Dec-2021
Market Lot	18 shares	Refund Initiation date	21-Dec-2021
Retail Investment limit	13 Lots (234 shares)	Credit to Demat	22-Dec-2021
Retail limit - Value	Rs.186,264	IPO Listing date	23-Dec-2021
Fresh Issue Size	Rs.600.00 crore	Pre issue promoter stake	43.16%
Offer for Sale Size	Rs.798.30 crore	Post issue promoters	40.43%
Total IPO Size	Rs.1,398.30 crore	Indicative valuation	Rs.9,497 crore
Listing on	BSE, NSE	HNI Quota	15%
QIB Quota	50%	Retail Quota	35%

_{Data Source: IPO Filings}

Here are some of the key aspects of the Medplus Health Services business model

A) The stores are predominantly in Southern metros like Bengaluru, Hyderabad and Chennai which are some of the fastest growing markets for pharmacies.

B) Its average revenue per store at Rs.1.59 crore is more than 6 times what the average pharmacy store in India is able to earn.

C) The pharmacy store network has grown from 635 stores in 2010 to the current level of 2,326 stores as of September 2021.

D) Medplus is currently working towards a comprehensive omnichannel model where customers can get a quality experience across locations as well as offline and online.

E) Medplus owns and operates nearly 95% of its store network with just about 5% of the network under franchise arrangement, giving them much better process control.

Check - Medplus Health Services IPO - 7 Things to Know

How is the Medplus Health Services IPO structured?

The IPO of Medplus Health Services is a combination of fresh issue and offer for sale.

a) Assuming the upper end of the price band of Rs.796, the fresh issue will be for 75,44,511 shares aggregating to Rs.600 crore. The fresh issue component will be largely applied to meet the working capital requirements of its subsidiary, Optival.

b) The OFS component will comprise the issue of 1,00,28,831 shares and at the upper price band of Rs.796, OFS value works out to Rs.798.30 crore. That takes the total size of the Medplus IPO to Rs.1,398.30 crore.

c) Out of the OFS of 100.29 lakh shares, promoters are not selling any take. Among early investors, PI Opportunities Fund will sell the bulk of 78.30 lakh shares, SS Pharma LLC will sell 13.44 lakh share and Shore Pharma LLC will sell 4.02 lakh shares in the OFS.

d) While promoters are not selling in the OFS, due to the impact of the fresh issue, the promoter stake will come down from 43.16% to 40.43%. Public shareholding overall will go up to 59.21% post issue.

Key Financial parameters of Medplus Health Services

Financial Parameters	Fiscal 2020-21	Fiscal 2019-20	Fiscal 2018-19
Sales Revenues	Rs.3,069.27 cr	Rs.2,870.60 cr	Rs.2,272.74 cr
EBITDA	Rs.238.21 cr	Rs.150.96 cr	Rs.131.35 cr
Net Profit / (Loss)	Rs.63.11 cr	Rs.1.79 cr	Rs.11.92 cr
EBITDA Margins	7.76%	5.26%	5.78%
Return on Equity (ROE)	8.74%	0.41%	4.09%

_{Data Source: Company RHP}

Despite the pandemic, the company saw limited dent on profitability or on its top line. Growth figures may be tad misleading as the company is in the midst of aggressive growth. However, retail pharmacy is a high volume low margin business with peak case net margins in the vicinity of 1.5% to 2%.

Medplus Health Services is expected to have a listing market cap of Rs.9,497 crore assigning a P/E ratio of 150 times earnings. That is a rather steep valuation for a business that earns net margins of just about 2% and pre-diluted ROE of 8.7%.

Investment Perspective for Medplus Health Services IPO

Here is what investors must consider before investing in the Medplus Health Services IPO.

1) With over 2,326 stores in all, Medplus has the second largest store network in India after Apollo Pharmacy.

2) The omnichannel bet of the company is likely to drive the future of the pharmacy retail business, and it would make the business more asset light.

3) The area of concern would be the low net margins in the pharmacy retail business at around 2%, which makes the 150X valuation metrics starker.

4) Medplus has a warehousing infrastructure across 18 centers in 9 cities giving them the ability to delivery speed and quality.

5) Data based store expansion strategy has ensured much higher revenue per store in the pharmacy retail business.

The one area that investors must watch out for is the rich valuations at around 150 times earnings despite net margins at around 2%. That needs to be understood better before taking an investment call.

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