IPO Analysis: Medplus Health Services Ltd

IPO Rating: Invest for long-term 

About the issue: 

Medplus Health Services is engaged in the pharmacy retail business. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 2 per equity share. The maiden offer comprises of fresh issue of Rs 600 crore and an offer for the sale of shares worth Rs 798.30 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 780 to Rs 796 per equity share. The IPO opening date is December 13, 2021, while it will be closing on December 15, 2021. The issue will be listed on the exchange on December 23, 2021. The IPO market lot size is 18 shares. A retail-individual investor can apply up to a maximum of 13 lots (234 shares or Rs 186,264). The objects of the offer are to fund the working capital requirement of subsidiary, Optival and general corporate purposes. 

Medplus Health Services IPO Details: 

About the company: 

Incorporated in 2006, Medplus Health Services is India's second-largest pharmacy retailer in terms of the number of stores and revenue. The company offers pharmaceutical and wellness products i.e. medicines, vitamins, medical devices, test kits, and fast-moving consumer goods i.e. home and personal care products, baby care products, sanitisers, soaps, and detergents, etc. It is also the first pharmacy retailer in India to offer an omnichannel platform wherein customers can purchase products through stores, place orders over the telephone, online orders, and a Click and Pick facility. 

As of June 31, 2021, the company has a strong pharmacy retail network of 2,165 stores across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal, and Maharashtra. In fiscal 2021, its share of the organized pharmacy retail based on revenue from operations in Chennai, Bangalore, Hyderabad, and Kolkata reported at 30, 29, 30, and 22 per cent, respectively. It follows a cluster-based approach for store network expansion wherein it first opens high store density in a populated residential area within a target market. The company's warehouses are located in Bengaluru, Chennai, Hyderabad, Vijaywada, Kolkata, Pune, Bhubaneshwar, Mumbai, and Nagpur. 

Competitive strengths: 

Second largest pharmacy retailer company in India. 

Strong brand name and customer value proposition. 

Pharmacy retail outlet network of 2000+ stores in Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal, and Maharashtra. 

First pharmacy retailer to provide Omni-channel platform to customers. 

Highly qualified, experienced, and professional management team. 

Company financials: 

Between the financial year 2019 and financial year 2021, its total revenue from operations grew at a compound annual growth rate (“CAGR”) of 16.21 per cent as opposed to the Indian pharmacy retail industry, which grew at a CAGR of 7.3 per cent for the same period, according to the Technopak Report. Its adjusted EBITDA grew at a CAGR of 43.98 per cent from FY19 to FY21. The PAT has exploded with a CAGR of 130 per cent in last couple of years.  

Recommendation: 

Being an essential service, pharmacy retail in India has performed better than most other sectors over the last 18 months. The domestic market has recovered from initial loss of business at the onset of lockdowns to achieve growth in financial year 2021. As a whole. the COVID-19 pandemic is driving growth in the market segments such as preventive healthcare and personal hygiene with consumers increasingly likely to purchase preventive healthcare products such as multivitamins and ayurvedic supplements to boost immunity. Personal hygiene products have also gained prominence. One store that has never been shut in the strictest of lockdowns has been the pharmacy retail store. The medicine availability 24x7 has made the retail business more attractive. 

It is the first pharmacy retailer in India to offer an omni-channel platform, according to the Technopak Report. Commencing in 2015, its customers could either visit its stores or access its offerings online, through its website and mobile application. A key driver in the growth of its revenue from operations has been the expansion of its store network and the increase in its number of stores. It intends to (i) increase the penetration of its private label pharmaceutical products by introducing private label products for more therapeutic areas, in particular for sub-chronic and chronic ailments and (ii) introduce new private label products for FMCG, in particular, in the consumer categories of nutrition and wellness. 

The company financials appear strong. It has been able to beat the industry growth. Its operating ROCE for the financial years 2021 and 2020 was 26.08 per cent and 19.87 per cent, respectively. We recommend to invest in the IPO for long-term.