Wellness Forever Medicare IPO- Pharmacy chain files for Rs.1600 crore IPO

The Adar Poonawalla backed pharmacy giant- Wellness Forever Medicare, filed a Draft Red Herring Prospectus with SEBI on October 1, 2021. The company plans to raise between Rs.1,500-Rs.1,600 crore. This IPO comprises of a fresh issue worth Rs.400 crore and an offer for sale of up to 16,044,709 equity shares. This Mumbai based pharmacy chain is the second pharmacy chain to file for an IPO after MedPlus, based in Hyderabad, filed its DRHP in August. The book running lead managers to this issue are IIFL Securities Ltd, Ambit Private Ltd, DAM Capital Advisors Ltd and HDFC Bank Limited.

Wellness Forever Medicare was founded in 2008 by three veterans in the pharmaceutical industry- Ashraf Biran, Gulshan Bakhtiani and Mohan Chavan. The company has 236 stores across 23 cities in Maharashtra, Karnataka and Goa. They have a registered customer base of 6.7 million customers as of June 31, 2021. They aim to increase their market penetration in the Tier 2 and Tier 3 cities and also actively participate in the e-commerce segment which has an estimated growth CAGR of 45%.

As a part of the OFS, Ashraf Biran and Gulshan Bakhtiani are offloading around 7,20,000 equity shares each, Mohan Chavan is offloading approximately 1,20,000 equity shares and an approximate 144.85 lakh shares are being offloaded by the other shareholders.

The Indian pharmacy retail sector has been growing at a very healthy rate because of the increase in healthcare expenditure and consumer base. India’s pharmaceutical industry is the third largest in the world by volume and 14^th largest by value. The market value of the Indian pharmaceutical market is Rs.150,000 crore in FY20.

Pharmacy chains have 8.5% of the total pharmacy retail market in India in FY 2021.

The company plans on utilizing the proceeds from the issue for-

• Rs. 70.20 crore as funding to set up new outlets

• Rs.100 crore to be set aside for repayment or prepayment of debt

• Rs.121.90 crore to fund working capital expenses

Wellness Forever Medicare’s revenue rose by 7% from Rs.863.25 crore in FY20 to Rs.924.02 crore in FY21. EBITDA decreased from Rs.879.16 million in FY20 to Rs.761.76 million in FY21. The EBITDA margin fell from 10.18% to 8.24% in the same period. Losses increased from Rs.53.21 million in FY20 to Rs.348.47 million in FY21. The total borrowings as per the balance sheet stand at Rs.1,023 million in FY21.

The company opened 31, 35 and 50 stores in FY19, FY20 and FY21 respectively. Out of these, 115 stores are operational as of June 30,2021. An approximate Rs.456.54 million is estimated as the cost of all the stores opened by the company in the last three fiscal years. Wellness Forever Medicare has a goal of opening 180 stores by FY24.

Strengths:

1. The company has a high inventory turnover which reduces the holding cost which in turn increases the working capital efficiency

2. Customer loyalty programs and great customer service

3. Due to vertical integration and economies of scale, they have a high gross margin

4. Discounts for customers which make the store more attractive to more people

5. E-commerce presence that provides auto refills, discounts and a wide range of products

Weaknesses:

1. They have a very limited presence, concentrated mainly in Maharashtra

2. E-commerce segment lacks in profitability to date

3. The company has difficulty in catering to the Tier 2 cities due to higher turnaround time

Opportunities:

1. The modern pharmacy retail is expected to have a growth CAGR of 25% in next 5 years, growing significantly faster than many other segments

2. The brick and mortar stores have a certain edge over e-pharmacy in adopting an omni-channel approach because they have already established network of stores which can supply the localities and act as a place to stock more inventory

Threats:

1. As the company is not very technologically advanced, there is always a chance that mismanagement of the inventory could occur which would in turn lead to a low fulfillment rate

2. High amount of competition from established e-pharmacy companies