Thread by @bharatbetpf

MedPlus Health - An overview of the Pharma retail space & the MedPlus IPO

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Organized Pharma Retail

Indian Pharma Retail is still largely unorganized - with organized share at 7.8%. A 10% growth in market along with a 350bps increase in organized share is likely to drive a 25%+ growth in organized Pharma Retail

Supply Chain

Lots of value currently lost to middlemen. The supply chain includes carry forwards agents and distributors as intermediaries - and unorganized pharma, modern pharma and hospitals as end nodes. 60K+ distributors serve 800K+ pharma retail outlets.

Unit Economics

Low average order value (<Rs500), small store size (<500sq ft), moderate inventory turns (~5x).

Thin margins - so primarily an efficiency driven business - manage working capital, store capex, SKU mix, purchasing leverage.

Margins

Organized pharma retail operates at a ~10% EBITDA vs a ~5% EBITDA for unorganized. Bulk of difference primarily driven by gross margin differences driven by scale led negotiating power.

Key Players (Stores, Store gwt, Key Geo, Revenue(cr), Rev/store, EBITDA/store(lk)

Apollo (4118, 9.6%, South, 5610, 1.42, 9.11)
MedPlus (2081, 12.2%, South, 3069, 1.59, 9.08)
Well For (223, 26.7%, West, 892, 4.52, 20.94)

Industry summary: Good industry level growth, efficiency driven business given thin margins, fragmented industry - strong incumbents, growing e-pharma competition.

PS: Wellness forever seems to have attractive operating metrics - IPO expected soon.

With that out of the way - let’s look at the MedPlus business

Medplus is the second largest pharma retailer in India with 2000+ stores and 3000cr+ revenue. It is growing with a cluster based approach and is currently South India focussed (80% of stores)

Store level: 1.59cr revenue per store, 75% stores reach positive store level EBITDA within 6 months, ~3years average payback period.8.3% SSSG on mature stores.

Value proposition: Passes on benefit of cheap procurement (81% procured directly from Pharma company) to customers (10-20% discounts), strong fulfillment (93% orders delivered within 2 hours) driven by high-density store presence.

The firm operates in an attractive but competitive end-market. The space will see growing competition from existing incumbents, as well as capital rich e-pharma players - and with little product differentiation - the only metric that can be competed on is price.

At a 9500cr Mcap and a 89x P/E, the upside of the sector looks more than adequately baked in, while the risks of competitive pressure, margin compression/stagnation not adequately accounted for.

This thread is purely for educational purposes & is NOT intended as an investment recommendation.

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