IPO note: Medplus Health Services Limited (Medplus) - “SUBSCRIBE for listing gains” Dec. 13, 2021
 
Issue date Dec. 13 - Dec. 15, 2021
 

Impressive background and business model.. 
Medplus Health Services Limited (“Medplus”) was incorporated on November  Listing date Dec.23, 2021
Price Band ₹780 - ₹796 (Face value:₹ 2 )
30,  2006.  The  Company  was  founded  by  Gangadi  Madhukar  Reddy,  the 
Employee discount ₹ 78 per share
Managing  Director  and  Chief  Executive  Officer,  with  the  vision  to  set  up  a 
Bid lot 18 equity shares and in multiple thereof
trusted  pharmacy  retail  brand  that  offers  genuine  medicines  and  delivers 
Issue size and type Fresh issue: ₹600 Crore
better  value  to  the  customer  by  reducing  inefficiencies  in  the  supply  chain 
Offer for sale of upto: ₹798.30 Crore
using  technology.  The  Company's  operations  are  primarily  distributed 
Issue structure QIB - 50%, NIB - 15%, Retail -35%
between the Issuer and Subsidiaries.  
  Post issue shares 11.93 Crore equity shares
Medplus is the 2nd largest pharmacy retailer in India, in terms of (i) revenue  Promoters Pre IPO: 43.16%|Post IPO: 40.43 %
from  operations  for  the  financial  year  2021,  and  (ii)  number  of  stores  as  of  Public - Selling Pre IPO: 25.61%|Post IPO: 15.59%
March  31,  2021.  Medplus  offers  a  wide  range  of  products,  including  (i)  shareholder
pharmaceutical and wellness products, including medicines, vitamins, medical  Public - other selling Pre IPO: 30.85 %|43.62%
shareholder
devices and test kits, and (ii) fast‐moving consumer goods, such as home and 
Employee trust Pre IPO: 0.38%|0.36%
personal  care  products,  including  toiletries,  baby  care  products,  soaps  and 
Post issue market cap ₹9,497 Crore
detergents, and sanitizers. 
  BRLMs Axis Capital, Credit Suisse Securities,
Medplus started actively focussing on online sales in the financial year 2020.  Edelweiss Financial, Nomura Financial
As  part  of  their  focus  on  “speed”  and  “convenience”  as  a  customer  value  Registrar to the issue KFin Technologies Pvt Ltd

proposition  for  customers  who  place  an  order  online  to  receive  delivery  of 
Particulars 6MFY22 FY21 FY20 FY19
their purchased products, the Company offers delivery for online purchases in  (₹ Crore)
the  cities  in  which  it  has  stores.  The  Company  is  now  able  to  deliver  their  Topline 1,880 3,069 2,871 2,273
customers’  online  purchases  within  2  hours  of  purchase  in  select  cities  of  EBITDA 170 238 151 131
Hyderabad,  Bangalore,  Kolkata,  Pune  and  Nagpur.  Medplus  employs  a  data  EBITDA (%) 9.02 7.76 5.26 5.78
analytics  driven  cluster‐based  approach  to  their  store  network  expansion.  Profit after tax 66 63 *1.79 11.92
Their  cluster‐based  approach  to  store  network  expansion  is  also  driven  by  Equity share cap. 6.44 0.45 0.19 0.19
their  understanding  of  the  catchment  demographics,  market  dynamics,  and  Networth 801 731 528 291
their ability to support store expansion with back‐end infrastructure, such as  Short Term Debt 58 135 105 104
warehouses and distribution centres.  Book value (₹) 72 66 49 31
 

Company stores  Post issue EPS (₹) 11.06^ 5.28 0.15 0.99

The company has maintained a strong focus on scaling up their store network,  P/E (x) 72 151 445 67
having  grown  from  operating  their  initial  48  stores  in  Hyderabad  at  the  RoNW (%) 8.35 8.74 0.41 4.09
conception of their business to operating India’s 2nd largest pharmacy retail  Source: RHP, ^6MFY22 annualised EPS, *FY20 profitability was impacted led by Net 
loss on fair value changes ‐ Rs. 32 Crore 
network  of  over  2,326  stores  (through  its  subsidiaries)  in  261  cities    as  of 
products, the discounts are varied at a product level.  
September  30,  2021,  across  the  states  of  Telangana,  Andhra  Pradesh, 
Marquee investors 
Karnataka,  Tamil  Nadu,  West  Bengal,  Maharashtra  and  Odisha,  with  an 
The  Company’s  shareholders  include  marquee  investors,  including 
aggregate  retail  space  of  approximately  1.36  million  square  feet  (‘msf’).  The 
Lavender  Rose,  belonging  to  the  Warburg  Pincus  group,  and  affiliates  of 
Company's store network is spread across urban and rural areas, with stores 
Premji Invest. 
located  in  corporate  campuses,  retail  parks,  malls,  high  streets  and  corner 
Investment recommendation and rationale
stores. Over 95 percent of its stores are operated and managed exclusively by 
At the upper end of the price band of ₹796, the Company's IPO is valued 
them, with the rest through a franchisee‐network. 
  at  P/E  of  72x  at  H1FY22  annualised  EPS  and  P/E  of  151x  on  FY21  EPS 
Focus on growing and achieving leadership in the key cities  which  looks  expensive  but  will  enjoy  scarcity  premium.  However,  in 
Stemming from its  focus on growing and achieving leadership in the key cities  terms  of  Market  Capitalization/Sales  the  issue  looks  attractive  at 
where  it  operates,  for  the  financial  year  2021,  their  share  of  the  organized  multiple  of  3.0x  at  FY21  sales  and  2.53x  at  H1FY22  annualised  Sales. 
pharmacy  retail  market,  based  on  revenue  from  operations,  in  Chennai,  Investors with higher risk appetite may "SUBSCRIBE for listing gains" due 
Bangalore, Hyderabad and Kolkata stood at approximately 30%, 29%, 30% and  to the following factors : a) Big opportunity in the India organized retail 
22%, respectively. Their number of stores has grown since the conception of  pharmacy  market  as  the  penetration  of  the  organised  space  is  low  as 
their  business  and,  as  of  September  30,  2021,  they  operated  546  stores  in  compared to developed economies like US and China,  b) India’s second 
Karnataka,  475  stores  in  Tamil  Nadu,  474  stores  in  Telangana,  297  stores  in  largest pharmacy retailer, c) established brand and value proposition to 
Andhra Pradesh, 224 stores in West Bengal, 221 stores in Maharashtra and 89  customers,  d)  successful  track  record  of  expansion  using  a  distinct 
stores in Odisha.  dluster‐based  and  replicable  store  unit  expansion  approach,  e)  high 
 

Pricing  density store network enhancing omni‐channel proposition, f)  lean cost 
Medplus offers one of the highest discounts that are unmatched by any online  structure  and  technology  driven  operations,  g)  well  qualified, 
or  offline  pharmacy  retailer  in  India.  Further,  its  strategy  allows  them  to  experienced  and  entrepreneurial  board  and  senior  management  team, 
effectively  segment  the  market  by  offering  higher  discount  to  the   h)  investors  fancy  for  Companies  having  unique  and  differentiated 
pricesensitive chronic customers who typically purchase medication for a  business  model  with  strong  moat,  i)  the  Company  raised  Rs.  418  Crore 
longer duration and thereby have a higher average order value.  At the same  from  anchor  investors.  However,  the  sustainability  of  performance 
time,    the  Company  offers  lower  discounts  to  other  customers    who  value  which  was  witnessed  in  H1FY22  and  FY21  during  pandemic  has  to  be 
convenience. For products other than branded pharmaceutical and         FMCG   seen going forward.  
     

Research report written by - Akash Jain, MBA (Financial Markets), Vice – President Research
Objects of the issue

The objects of the Offer are as follows: 
 
Fresh issue: Rs. 600 Crore 
 
Proposed utilisation of Net Proceeds from fresh issue 
a) Investment into its Material Subsidiary, Optival for funding working capital requirements of Optival ‐ Rs. 467.17 Crore 
b) General corporate purposes 
 
Offer for sale: Rs. 798.3 Crore ‐ Offer for sale by investors and Promoters 

Offer for sale   
PI Opportunities Fund – I ‐ The Investor Selling Shareholder  ₹623 Crore 
SS Pharma LLC   ₹107 Crore
Shore Pharma LLC  ₹32 Crore
Natco Pharma ₹10 Crore
Time Cap Pharma Labs  ₹10 Crore 
A. Raghava Reddy  ₹7.12 Crore 
K. Prakurthi  ₹4.22 Crore 
Navdeep Patyal  ₹2.16 Crore 
Sangeeta Raju  ₹1.47 Crore 
and R. Venkat Reddy, T.K. Kurien, Nithya Venkataramani, Atul Gupta, Manoj Jaiswal, Rahul Garg, Kollengode Ramanathan Lakshminarayana and Bijou 
Kurien also participating in OFS (very small amount).

Source: RHP

On December 8, in a pre‐offering period, Medplus' largest shareholder and investor Lavender Rose Investments sold a 6.18 percent stake in the company 
ahead of its initial public offering and anchor book openings. 
 
Lavender  mobilised  Rs.  550  crore  by  selling  69,09,548  equity  shares  to  SBI  Mutual  Fund,  Motilal  Oswal  Mutual  Fund  and  Malabar  Mutual  Fund  on 
December 8, at an upper price band of Rs 796 per share, as per the company's addendum (notice to investors) published in newspaper on December 10. 

Competitive strengths

India’s second largest pharmacy retailer 
Medplus is the 2 nd largest pharmacy retailer in India, in terms of revenue from operations for the financial year 2021, and number of stores as of March 
31, 2021. The Company expects that its well‐established brand, genuine and good quality pharmaceutical products offering, wide product offering, ability 
to  achieve  high  fulfilment  rates,  offering  of  neighbourhood  convenience  with  large  store  footprint,  and  ability  to  offer  competitive  pricing  to  their 
customers, will continue to drive their gains in market share. Company’s large scale of operations, value proposition to customers, business model and 
cost efficient operations, has driven their growth and has allowed them to be profitable, despite their pricing and discounting strategy. 
 
Established brand and value proposition to customers 
The  “MedPlus”  brand  has  a  history  and  track  record  of  over  15  years,  and  it  has  become  a  well‐established  brand  that  it  has  positioned  to  stand  for 
genuine  and  good  quality  pharmaceutical  products  that  are  offered  at  affordable  prices.  Medplus  offers  a  strong  value  proposition  to  a  wide  range  of 
customers, including: 
 
Value Pricing: Over a period of time, as they have built scale, they have continued to further reduce their costs that have allowed them to deliver more 
value to customer in the form of discounts. They offer lower discounts to customers with time‐sensitive acute therapeutic needs and lower order value, as 
compared to higher discounts for price sensitive customers with chronic therapeutic needs and larger order value.  
 
Convenience and Fulfilment: Medplus focuses on offering convenience to their customers by making a wide range of products available across their 
offline and online channels. This has helped the company to stock the appropriate selection and amount of products at their stores and also make helpful 
product suggestions to their customers, to target high fill rates.  
 
2‐hour delivery capability: With their wholly‐managed and operated last‐mile delivery infrastructure from their stores, Medplus was able to deliver their 
customers’ online purchases within 2‐hours of purchase, in select cities.  
 
Engagement: Company’s stores present a consistent and uniform customer experience of offering genuine and good quality pharmaceutical products and 
fast‐moving consumer goods at affordable prices. Their stores are operated by trained staff. 
Research report written by - Akash Jain, MBA (Financial Markets), Vice – President Research
 
Successful Track Record of Expansion Using a Distinct Cluster‐based and Replicable Store Unit Expansion Approach 
Medplus  has  grown  from  operating  their  initial  48  stores  in  Hyderabad  at  the  conception  of  their  business  in  2006  to  operating  India’s  2nd  largest 
pharmacy retail network of over 2,000 stores. The Company's focus on extending and maintaining an efficient supply chain and distribution network to 
support  the  growth  of  established  and  new  clusters.  Leveraging  their  cluster  based  expansion  approach;  they  have  experienced  substantial  growth  in 
terms  of  their  number  of  stores.  At  the  same  time,  their  streamlined  and  methodical  store  opening  process,  and  focus  on  the  sustainability  and 
profitability of each store, has allowed them to maintain healthy store level economics.  
 
Between the April 1, 2018 and the September 30, 2021, the Company opened an aggregate of 1,158 new stores and as of March 31, 2021, over 60 percent 
and  75  percent  of  their  new  stores  achieved  a  positive  Store  Level  Operating  EBITDA  within  the  first  3  months  and  first  6  months  of  operations, 
respectively. Further, as of September 30, 2021, their Mature Stores had a median payback period of less than 3 years and demonstrated a compounded 
average same store sales growth of 8.3 percent on MRP from financial year 2019 to financial year 2021. 
 
High  density store network enhancing omni‐channel proposition 
The omni‐channel proposition to its customers leverages their existing store networks and supply chain and distribution network to offer a differentiated 
offering  to  their  customers.  The  omni‐channel  proposition  allows  them  to  (i)  deepen  and  extend  their  customer  reach  from,  and  expand  the  total 
addressable market for, each of their stores, (ii) further enhance “convenience” as one of their core customer value propositions, (iii) lower incremental 
cost  of  operations  for  online  deliveries  (as  their  stores  act  as  branding  sites  and  lower  cost  of  online  customer  acquisition),  and  (iv)  retain  offline  and 
online customers within their customer ecosystem. Medplus is well‐positioned to benefit from a fast‐growing India e‐commerce pharmacy retail market, 
especially  given  their  significant  existing  online  operations,  their  pricing  and  discounting  strategy,  and  their  last  mile  delivery  capabilities.  Company’s 
business  model,  large  scale  of  operations  and  cost‐efficient  operations  allow  them  to  be  profitable,  as  compared  to  many  of  the  major  e‐pharmacy 
players, despite their pricing and discounting strategy. 
 
Lean cost structure and technology driven opertions 
The  Company’s  scale  of  operations,  wholly‐managed  and  operated  supply  chain  and  distribution  infrastructure,  strong  and  integrated  technology 
backbone, and focus on maintaining cost efficient operations gives them an advantage over their competitors. 
 
Key attributes of their cost structure and technology driving their operations includes: 
 
a) Cost efficient procurement; 
b) Efficient management and operation of infrastructure; 
c) Technology driven operations;  
d) Large scale of operations leading to economies of scale. 

Key concerns
 
1) It  has  to  be  gauged  whether  there  would  be  sustainability  of  earnings  performance  witnessed  in  in  H1FY22  and  FY21  during  COVID‐19 
pandemic.  The performance in FY20 was subdued led by store network expansion, depreciation charge and increase in finance costs. 
 
2) The Company's business is working capital intensive and it funds the majority of its working capital requirements in the ordinary course of its 
business from its internal accruals, equity and financing from banks by way of working capital facilities. Cash flow from operating activities 
was affected in FY20 and FY21 owing to working capital changes. 
 
3) Competition from Online Pharmacy players, players like Apollo Pharmacy, Wellness Forever, Emami Frank Ross and Thulasi Pharmacy may 
affect its pricing power and market share. However, it may be noted that the Company enjoys highest share from private labels and operating 
profitability is also good.  

Background

Company and Directors 
The company was incorporated as ‘MedPlus Health Services Private Limited’ at Hyderabad on November 30, 2006. Gangadi Madhukar Reddy, Agilemed 
Investments  Pvt  Ltd;  and  Lone  Furrow  Investments  Pvt  Ltd  are  the  promoters  of  the  company,  Currently,  the  Promoters  cumulatively  hold  48,233,135 
Equity Shares constituting 43.16% of the issued, subscribed and paid‐up pre‐Offer Equity Share capital of the company. 
 
Brief Biographies of Directors  
 
Gangadi Madhukar Reddy  is the Managing Director and Chief Executive Officer of the company. He is one of the Promoters of the company and has 
been a Director of the company since incorporation on November 30, 2006. 
 
Anish  Kumar  Saraf is  the  Non‐Executive  Director  of  the  company.  He  is  the  managing  director  of  Warburg  Pincus  India  Pvt  Ltd  and  has  been  in  the 
employment of the company for 15 years. 
 
Atul Gupta is the Non‐Executive Director of the company. He has over 13 years of experience in the investment industry. 
Research report written by - Akash Jain, MBA (Financial Markets), Vice – President Research
 
Murali Sivaraman is the Non‐Executive Independent Director of the company. He was previously associated with Philips Lighting. 
 
Madhavan Ganesan is the Non‐Executive Independent Director of the company. He has over 34 years of experience in various companies in the retail, 
technology and the industrial sectors. 
 
Hiroo Mirchandani is the Non‐Executive Independent Director of the company. Her business career has primarily been in the healthcare and consumer 
goods sectors. 
 
Key Managerial Personnel 
 
Cherukupalli Bhaskar Reddy is the Chief Operating Officer – outlet operations of the company. He joined the company on March 1, 2007. He has over 14 
years of experience in the pharmaceutical industry. 
 
Surendranath Mantena is the Chief Operating Officer – MedPlus Mart of the company. He joined the company on October 1, 2010. 
 
Hemanth Kundavaram is the CFO of the company. He joined the company on January 2, 2021. He has over 15 years of experience in corporate finance 
and accounting in various industries. 
 
Parag Jain is the Company Secretary and Compliance Officer of the company. He joined the company on March 10, 2014. He has 14 years of experience 
as a company secretary. 

Research report written by - Akash Jain, MBA (Financial Markets), Vice – President Research
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Research report written by - Akash Jain, MBA (Financial Markets), Vice – President Research
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own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding
the publication of the research report.

Ajcon Global Services Limited may have issued other reports that are inconsistent with and reach different conclusion from
the information presented in this report. Neither the Research Analysts nor Ajcon Global Services Limited have been
engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on Ajcon Global Services Limited by any Regulatory Authority
impacting Equity Research Analysis activities.

Analyst Certification

I, Akash Jain MBA (Financial Markets), research analyst, author and the names subscribed to this report, hereby certify that
all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. I also
certify that no part of compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or
view (s) in this report.

For research related queries contact: Digitally signed by AKASH AJAY JAIN
DN: c=IN, o=Personal,

AKASH
2.5.4.20=b226ee7c5ed3d1a9b0882e3a6df5
17cd0afe94a43222207631a6f495c5b8eb24,
postalCode=400055, st=MAHARASHTRA,
Mr. Akash Jain – Vice President (Research) at [email protected], [email protected] serialNumber=2175639688e828dc21788bcf

AJAY JAIN
87dda9f4e184adfc49b352c194a519495cc1ff
d3, cn=AKASH AJAY JAIN, l=MUMBAI,
pseudonym=ebf7c9d498e64a22b52ca3049
CIN: L74140MH1986PLC041941 0ebe8f6,
[email protected]
Date: 2021.12.13 15:49:31 +05'30'

SEBI registration Number: INH000001170 as per SEBI (Research Analysts) Regulations, 2014.

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Research report written by - Akash Jain, MBA (Financial Markets), Vice – President Research