Medplus Health Services - Growth Drivers Intact; Generics Scale-Up Key: HDFC Securities

HDFC Securities Institutional Equities

In its FY24 annual report, Medplus Health Services Ltd. has highlighted key levers of growth such as-

1. deeper penetration in its core markets with a focus on tier-II and beyond locations (~50% of stores in these markets) to optimise operational processes and inventory management; plans to add 600 plus stores in FY25;

2. increasing private label share by capitalising its scale and expanding its product range; looking to scale-up its own branded generics under “Medplus” brand; GMV# was at Rs 7.47 billion; represented 10.70% of pharmacy sales on a gross merchandise value basis and 8.31% on net sales in FY24;

3. expanding customer engagement by leveraging its local presence and diversified product offerings; and

4. strengthening operating efficiencies in supply chain, infrastructure enhancement (automation of warehouses), and direct procurement approach from pharma manufacturers to help gross margin improvement.

We see a gradual margin improvement, led by a better mix with steady growth in mature stores (2+ years; ~9-10% margin), an increasing share of margin-accretive private-label and Medplus-brand generics, and an efficient supply chain.

We have marginally tweaked our Ebitda for FY25/26E and retain target price to Rs 820 (17 times Q1 FY27E enterprise value/ Ebitda, which implies 28 times pre-INDAS EV/Ebitda).

Reiterate Buy, given its strategic expansion plan and a focus on profitability improvement.

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