Good expansion plans at Medplus

One of the reasons Sharekhan has a buy on the call of Medplus stock is the massive expansion in stores. “Medplus is focusing on increasing its reach and penetration and hence has announced to set up 1000 new stores in FY23E and going ahead the company aims to maintain the new store momentum,” the firm has noted. “Medplus looks to capitalize on the shift from unorganized to organized retail of pharmaceutical products in India, taking advantage of the low base of organised pharmacy retail penetration and increasing penetration of mobile and internet usage in India.

The shares of Medplus, which hit a high of Rs 1343 are down to 877, implying a downside of nearly 35%. 

Strong presence across 7 states

The company has a strong presence in the seven states across the country, with Andhra Pradesh & Telangana, Karnataka and Tamil Nadu constituting a chunk of the total stores. In terms of no of cities, Chennai, Bangalore, Hyderabad and Kolkata are the four major cities in which Medplus has a sizeable presence. As per industry reports, the penetration of organised retail in the retail pharmacy market in Tier-I cities and Tier II cities and beyond is approximately only 7% and 6%, respectively, thus pointing at significant headroom available for expansion,” the firm has noted.

Organised pharmacy retail gradually gaining grounds

According to Sharekhan, the pharmacy retail space off late has been an evolving one with companies present across the omni channels set to materially benefit. Penetration of modern retail in pharmacy is relatively lower than most other categories except food and grocery. With the inclination towards modern pharmacy being seen on account of better customer experience, wider product range, value-added services and transparent discount, the modern pharmacy retail is expected to grow at a faster pace as compared to other categories. Further, the e-commerce and omnichannel retail are also expected to grow in strong double digits with pharmacy e-commerce expected to be one of the fastest growing segments next to food and grocery. Further, the shift from unorganized to organised pharmacy retail would be a key growth driver and the above triggers point toward a healthy growth for the Pharmacy retail companies.

Valuations and view

Medplus’ operations across the entire value chain are backwards-integrated and are managed in house by the company, which bodes well for profitability. “Collectively, Medplus’ presence in fast-growing modern pharmacy retail space, focus to strengthen omnichannel presence through efficient in house technology platform, geographic expansion and efforts to increase the share of private label business are the key positives. Q4Fy22 was a weak quarter and the results were impacted by higher operating costs. Basis this and management commentary which pointed toward cost pressures, we have revised downwards our estimates of FY23E/FY24E. At the current market price the stock is trading at 86.3x/57x its FY23E/FY24E EPS and 26.8x/21.7x its FY23E / FY24E EV/EBITDA. We retain a positive view and expect an upside of 20%,” the firm has stated.