Medplus Health Services Limited - IPO Note

Pharmaceuticals & Drugs

Medplus Health Services Limited - IPO Note

Pharmaceuticals & Drugs

Price range
Rs. 780 – 796
Issue Period:
Dec 13, 2021
Dec 15, 2021
December 10, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 1,398.30 cr.
Public Issue
1.756 cr. shares
Market cap post IPO
9,318 – 9,497 cr.
Equity Pre - IPO
11.176 cr.
Equity Post - IPO
11.931 cr.
Issue type
Fresh Issue and Offer for Sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Key Strengths and Strategies

India’s Second Largest Pharma Retailer
Medplus is the second largest pharmacy retailer in India in revenue terms as of FY21 as well as number of stores as of March, 2021. The company’s market share (in revenue terms) in the organized pharmacy retail market in India stood at ~15% in FY21. Apart from being India’s second largest pharmacy retailer, it endeavours to achieve the market leadership position in key cities where it operates. The company has also extended leadership position from offline sales to online. The company expects that its brand, quality product offering, wide offerings, ability to achieve high fulfilment rates, large store footprint, and competitive pricing will continue to drive gains in market share.

Established Brand and Value Proposition to Customers
According to the company the Brand – MedPlus – has a track record of 15+ years and has become a well-established brand that stands for genuine and good quality products at affordable prices. Medplus offers value proposition to a wide range of customers, including:

  • Value Pricing: Over a period, the company has reduced costs that allowed it to deliver value to customer through discounts. Its transparent pricing with discounts allows it to address the needs of different segments. It offers lower discounts to time-sensitive acute therapeutic needs and lower order value, as compared to higher discounts for price sensitive customers with chronic therapeutic needs and larger order value.
  • Convenience and Fulfilment: The company focuses on offering convenience by making a wide range of products available across offline and online channels.
  • Two Hour Delivery: With its wholly-managed and operated last-mile delivery infrastructure from stores, Medplus can deliver online orders within two hours, in select cities.

Successful Track Record of Expansion
The company has grown from operating 48 stores in Hyderabad in initial stages of the business to operating India’s second largest pharmacy retail network of 2,300+ stores across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal, and Maharashtra. For store network expansion, the company uses a data-analytics-driven cluster-based approach, in which it first achieves high store density in a densely-populated residential area within a target city before expanding store network in the surrounding areas of that city, followed by expansion into adjacent cities. Leveraging this cluster-based expansion approach, it has experienced substantial growth in number of stores.

State Number of Stores
Mar-10 Mar-15 Mar-20 Mar-21 Sep-21
Telangana 181 288 352 435 474
Andhra Pradesh 125 152 213 263 297
Karnataka 166 340 457 514 546
Tamil Nadu 101 231 348 447 475
West Bengal 22 105 139 183 224
Maharashtra 40 65 93 166 221
Odisha - 18 51 73 89
Total 635 1,199 1,653 2,081 2,326

Source: Company RHP

Lean Cost Structure and Technology Driven Operations
The management believes that factors such as operating scale, supply chain and distribution infrastructure, technology, and cost-efficient operations gives the company an edge over its competitors. Some of the key attributes of cost structure and technology include:

  • Cost Efficient Procurement
  • Efficient Management and Operation of Infrastructure.
  • Technology Driven Approach.
  • Large Scale of Operations Leading to Economies of Scale.

Increase Share of Private Labels and Enhance Mix of Stock Keeping Units
Generally, Medplus generates higher gross margins from sale of its private label products. The management intends to increase the penetration of private label pharma products by introducing private label products for more therapeutic areas, for sub-chronic and chronic ailments and introduce new private label products for FMCG in the consumer categories of nutrition and wellness. Along with focus on private label products, the company intends to enhance the SKUs.

Further Develop the Omni-channel Platform with a Hyper-local Delivery Model
The company plans to expand its omni-channel platform in order to boost online revenue contribution to total revenue. It plans to take advantage of its expanding store network by focusing on deliveries via an increasing number of larger format locations. It aims to boost customer stickiness and retention by leveraging its ability to offer competitive prices and high rates of online delivery orders within 2 hours, as well as its online sales channel as a strategic avenue to expand the scale of business while optimising profit margins.


Working Capital Intensive: The business is working capital intensive; large inventory of products needs to be maintained.

Negative Cash Flow: Due to working capital intensive nature of the business, majority of the cash is used to build higher inventory. Due to higher inventory in FY20, the company has posted negative cash flow from operations.

Inventory Risk: The company is subject to risks associated with consumer demand and changes in medical prescriptions.

Highly Competitive Industry: The company faces stiff competition from other drugstore chains, online retailers, independent pharmacies, pharmacies attached to the hospitals and medical groups. The company’s key competitors include Apollo Pharmacy, Wellness Forever, Pharm Easy, Tata 1mg and NetMeds.

Share Pledge: One of the promoters has pledged a portion of its shareholding (7.64% of the pre-offer equity share capital) with certain lenders under various loan and security agreements.

Geographical Concentration: The company’s stores are geographically concentrated in South Indian cities compared to peers which have Pan India presence.

Company Description

Incorporated in 2006, Medplus Health Services Limited (Medplus) is the second largest pharmacy retailer in revenue terms as of FY21 as well as number of stores as of March, 2021. The company offers wide range of products such as pharmaceutical and wellness products (medicines, vitamins, medical devices, and test kits) and FMCG products in home and personal care (toiletries, baby care products, soaps and detergents, and sanitizers). Medplus is strongly focused on growing retail stores from 48 stores in Hyderabad in initial stages of the business to operating India’s 2nd largest pharmacy retail network of 2,300+ stores (546 in Karnataka, 475 in Tamil Nadu, 474 in Telangana, 297 in Andhra Pradesh, 224 in West Bengal, 221 in Maharashtra and 89 in Odisha). Its market share (based on revenue) of the organised pharmacy retail market in Chennai, Bangalore, Hyderabad, and Kolkata stood at approximately 30%, 29%, 30% and 22%, respectively.

Medplus is the first pharmacy retailer in India to offer an omni-channel platform. Customers of Medplus can either visit stores or access offerings online, through its website and mobile application. The company is now able to deliver online orders within two hours in Hyderabad, Bangalore, Kolkata, Pune, and Nagpur. Further, the company expects to expand its ability to deliver online orders within two hours in Mumbai by December, 2021.

The company’s business operations across the value chain are backward integrated and wholly-managed and operated. Its operations are supported by technology-driven supply chain and distribution infrastructure, organised in a hub-and-spoke model. As of September, 2021, Medplus has a primary warehouse in Bangalore, Chennai, Hyderabad, Vijayawada, Kolkata, Pune, Bhubaneshwar, Mumbai, and Nagpur; these warehouses are supported by smaller warehouses in cities where it has higher store density. It manages its fleet of vehicles and delivery personnel to facilitate the transportation of inventory between warehouses and stores.


Medplus, being India’s second-largest pharmacy retailer after Apollo Pharamcy, has a successful track record to expand its stores in South India. Its revenue per store is higher than Apollo Pharmacy and stood at Rs. 1.67 crores vs. Rs. 1.42 crores of Apollo Pharmacy. The company enjoys established brand name and endeavours to grow its online revenue offering discounts and convenience of two-hour delivery. It is also planning to improve gross margins by focusing more on private label products. Despite intense competition, the company has been able to grow its top line and bottom line. Its store level operating EBITDA margin has improved from 8.4% in FY19 to 10.26% during H1FY22. On Valuation front, at the upper price band of Rs. 796, the issue is priced at ~40x of FY21 EV/EBITDA. We advise to SUBSCRIBE the issue.

Peer Comparison

Particulars (Rs. in Crores) Apollo Pharmacy MedPlus
Revenue CAGR FY19-FY21 20.2% 16.2%
Revenue Per Store FY21 1.4 1.6
Revenue Per Store CAGR FY19-FY21 8.7% 4.9%
% Of Total Store in South India 67% 80%
Approx. No. of Stores in South India 2,760 1,665
Share of Private Label Sales FY21 10.0% 10.4%
EBITDA FY21 368.0 238.2
EBITDA CAGR FY19-FY21 33.3% 63.2%
EBITDA FY21 Margin 7.5% 7.8%
Avg. EBITDA/Store CAGR FY19-FY21 20.6% 47.3%

Source: Company RHP, Business Standard, StockAxis Research

Key Information

Use of Proceeds:
The total issue size is Rs. 1,398.3 crores, of which Rs. 600 crores is fresh issue and balance (Rs. 798.3 crores) is OFS. The company will utilise the net proceeds from the fresh issue to invest in its material subsidiary, Optival, for funding its working capital requirements.

Book running lead managers:
Axis Capital Limited, Credit Suisse Securities (India) Private Limited, Edelweiss Financial Services Limited, and Nomura Financial Advisory and Securities (India) Private Limited.

Gangadi Madhukar Reddy (Managing Director and CEO), Cherukupalli Bhaskar Reddy (COO – outlet operations), Surendranath Mantena (COO – MedPlus Mart), Hemanth Kundavaram (CFO), and Parag Jain (company secretary and compliance officer)

Financial Statement

Profit & Loss Statement:- (Consolidated)

Year End March (Rs. in Crores) 2018 2019 2020 2021
Net Sales 2131.79 2272.74 2870.60 3069.27
Growth % 6.61% 6.61% 26.31% 6.92%
Material Cost 1733.77 1844.03 2336.54 2424.19
Employee Cost 189.97 211.37 272.40 338.65
Other Expenses 149.41 160.53 127.99 89.76
EBITDA 58.64 56.80 133.68 216.67
Growth % -3.13% -3.13% 135.34% 62.08%
EBITDA Margin 2.75% 2.50% 4.66% 7.06%
Depreciation & Amortization 12.47 13.96 74.81 88.27
EBIT 46.16 42.84 58.87 128.40
EBIT Margin % 2.17% 1.89% 2.05% 4.18%
Other Income 7.22 9.83 17.28 21.55
Interest & Finance Charges 27.74 16.13 46.80 54.85
Profit Before Tax - Before Exceptional 25.64 36.55 29.36 95.10
Profit Before Tax 25.64 36.55 29.36 95.10
Tax Expense -16.71 15.65 27.57 31.99
Effective Tax rate -65.18% 42.82% 93.89% 33.64%
Consolidated Net Profit 42.35 20.90 1.79 63.11
Net Profit Margin 1.99% 0.92% 0.06% 2.06%