Should you be investing in Medplus Health IPO?
India’s second-largest retail pharmacy chain Medplus Health Services Limited IPO is set to open on Dec 13th. The company has fixed a price band of ₹780-796 a share for its ₹1,398 crores initial share sale.
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Founded in 2006, Medplus Health Services Limited is the second-largest pharmacy retailer in India in terms of revenue and number of stores. Medplus offers a wide range of products, that can broadly be categories under:
- Pharmaceutical and wellness products like medicines, vitamins, medical devices
- Fast-moving consumer goods such as home and personal care products like toiletries, baby care products, soaps, and detergents, and sanitizers
The company has a strong pharmacy retail network of 2,326 stores mostly in the southern states of India, of which ~45% are in tier 2 and tier 3 locations. 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% respectively. Their warehouses are located in Bengaluru, Chennai, Hyderabad, Vijaywada, Kolkata, Pune, Bhubaneshwar, Mumbai, and Nagpur.
Currently, the share of private labels in the overall revenue of the Hyderabad-based pharmacy chain stood at 11.98% and they are focusing on increasing this sale. MedPlus was the first pharmacy retailer in India to offer an omnichannel platform and continues to scale up its retail store network.
IPO Brief
- IPO open from: Dec 13th – Dec 15th 2021
- Face value: ₹2
- Price Band: ₹780-796
- Market Lot: 18 shares
- Minimum Investment– ₹14,328
- Listing on: BSE and NSE
- Fresh Equity Issue: up to ₹600 crores
- Offer for sale: up to ₹798 crores
- Total issue: up to ₹1,398 crores
- Promoters: Gangadi Madhukar Reddy, Lone Furrow Investments Pvt Ltd, and Agilemed Investments Pvt Ltd
- Book running lead managers: Axis Capital Limited, Credit Suisse Securities (India) Private Limited, Edelweiss Financial Services Ltd, Nomura Financial Advisory and Securities (India) Pvt Ltd
What is an IPO and should you invest in them?
Offer Break-up
The issue includes a reservation of equity shares worth ₹5 crores for the company’s employees who will receive those shares at a discount of ₹78 per share to the final issue price.
The offer is broken up into the following investor classes:
Why is the company raising money?
Medplus Health Services Limited is looking to raise ₹1,398 crores through this IPO, part of which will go into the bank account of existing shareholders and part will be infused in the company for business growth. Here are the objects of the IPO as specified in its RHP:
- Offer for Sale (OFS) ₹798 Crores: Under this OFS, shareholders would sell their shares and company would not receive any part from IPO proceeds.
- Fresh issue: Of the remaining ₹600 crores, the company would use ₹467.17 crores for funding working capital requirements of its material subsidiary, Optival. The rest will be for general corporate purposes.
IPO Strengths
Second Largest Pharmacy retailer: Medplus Health is the second-largest pharmacy retailer in India with stores located across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal, and Maharashtra.
An established well-known brand with a value proposition to customers.
Successful Track Record of Expansion: From 48 stores in 2006, the company now operates 2,326 stores across the southern part. This growth has been attributed to its distinct cluster-based and replicable store unit expansion approach.
Well Qualified & Experienced Management Team: The business of the company is led by an experienced and capable management team, who come from diverse backgrounds of medicine, finance, business, and technology.
Driven by technology: The company operates on a lean cost structure and its operations are driven by technology that makes management, growth and understanding customer requirements easier.
Key Risks
Highly competitive markets: Company operates in an industry that is highly competitive, and any inability to compete with competitors may adversely affect the business.
Outstanding legal proceedings: Medplus and its Subsidiaries, Promoters, and Directors are involved in certain legal proceedings which are pending at different levels and such proceedings could divert management’s time, attention and consume financial resources.
Promoters Pledged share: One of its Promoters, Lone Furrow Investments Private Limited, has pledged a portion of its shareholding. Any exercise of such a pledge could adversely affect their business and future prospects.
Highly regulated business: Medplus engaged in a highly regulated industry that required certain approvals from relevant regulatory and health authorities. Any delay or failure to obtain such approvals may negatively impact the business.
Required to meet customer expectations: The success of the pharmacy retail business depends on its ability to fulfill the requirements of the customers, deliver a superior and more convenient shopping experience.
Financials
The company has had strong revenue growth in the last 3.5 years. Its revenues grew from ₹2,285 crores in FY19 to ₹3,091 crores in FY21. The company’s margins are also witnessing growth over the years.
| (₹ in crores) | 6M Ended 30-Sep-21 | Year Ended 31-Mar-21 | Year Ended 31-Mar-20 | Year Ended 31-Mar-19 |
| Total Assets | 1,745 | 1,566 | 1,349 | 959 |
| Total Revenue | 1,891 | 3,091 | 2,888 | 2,285 |
| Profit After Tax | 66.36 | 63.11 | 1.79 | 11.92 |
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