India’s second largest pharmacy by the reach, Medplus Health Services Ltd (Medplus), plans to hit the primary market to mop up Rs 1,398.29 crore with its first public offering on December 13. The issue closes on Wednesday.
Incorporated in 2006, Medplus offers a wide range of products, which includes pharmaceutical and wellness products and fast-moving consumer goods (home and personal care products, including toiletries, baby care products, soaps and detergents, and sanitisers).
From 48 outlets in Hyderabad, the company has expanded its network to 2,000 stores across seven states. Medplus was the first pharmacy retailer in India to offer an omni-channel platform in 2015, where customers could either visit stores or access offerings online through their website and mobile application.
Features of the IPO
The public issue consists of a fresh issuance of shares worth Rs 600 crore and an offer-for-sale of shares worth Rs 798.29 crore by selling shareholders in a price band of Rs 780–796 per equity share of face value Rs 2 each.
The offer includes a reservation of shares worth Rs 5 crore for Medplus employees. Eligible employees will get shares at a discount of Rs 78 per share to the final offer price.
The fresh issue proceeds will get utilised by the company for working capital requirements of material subsidiary Optival Health Solutions.
The allotment of shares will get finalised by December 20 and successful investors will get shares in their demat accounts by December 22. The shares will list on the BSE and the NSE on December 23.
Brokerage Recommendations
Most of the brokerages have a positive view about this public issue and assign a ‘subscribe’ rating due to the fact that there is a huge opportunity of growth for the company as the organised retail pharmacy accounts for only 10 percent of the total retail pharmacy and there is a gradual shift taking place from unorganised to organised pharmacy. Also, it has a strong omni-channel proposition, which is enhanced by high-density store network and hyper local delivery model.
“At the issue price, Medplus will trade at 3.1x FY21 P/S and 40x FY21 EV/EBITDA,” said Aditya Birla Capital in its report. Additionally, given the blue ocean opportunity in Medplus’ business verticals and the gradual shift from unorganised to organised sector, in the near term, Medplus would be valued more on its longer-term growth potential and less on current financials, the report stated.
The brokerage highlighted that a portion of promoter shareholding is pledged and it faces risk from government regulations on price caps of a large portion of therapeutics. It advises “investors with high-risk appetite can subscribe to the IPO”.
Brokerage firm Prabhudas Liladhar, identifies the key risks of increase in competitive intensity from online players and delay in EBITDA break-even at new stores.
“Medplus is a compelling play in growing the omni-channel model. Given its fully integrated offerings, the company is profitable, despite higher discounts across omni-channel deliveries,” the brokerage said.
“At the upper end of band, Medplus will trade at 2.4x EV/sales and 44x EV/EBITDA (adjusted for pre-IND AS) on annualising H1FY22 numbers. We ascribe 35x EV/EBIDTA /3x EV/ sales to Apollo’s offline pharmacy business on one year forward basis,” Liladhar said.
It assigns a ‘subscribe’ rating to the issue as it believes that Medplus will gain scale and profitability, given (1) faster pace of store expansion (60-70 new stores/month), (2) benefits of economic of scale and (3) faster break-even with increasing contribution of private labels over medium term.
“Medplus’ operations are subject to high working capital requirements and any changes in product mix can impact the margins,” said ICIC Securities in its report, highlighting the risks associated with the business.
Medplus with its clustered store presence is well suited to leverage on an omni-channel platform with a hyperlocal delivery model and is available at a decent valuation, it added, while assigning a ‘subscribe’ rating to the IPO.
“Given that the company has a very strong asset turnover with an eye on improving its profitability further and that the IPO valuation appears cheaper, compared to its peers set, we recommend subscribe to the IPO,” said brokerage KR Choksey in its report.
Manoj Dalmia, Founder and Director, Proficient Equities Limited, said that “the issue price is overvalued and one may subscribe only if the issue is oversubscribed by the final day”.
Anchor Portion
The company on December 10 mopped up Rs 418 crore from 36 anchor investors by allocating 52,51,111 equity shares at the upper end of the price band of Rs 796 per share.
Marquee investors like Abu Dhabi Investment Authority, Blackrock Global Funds, Nomura, Fidelity Investment Trust, Goldman Sachs, Morgan Stanley, Wasatch International Opportunities Fund, Carmignac Portfolio, and CI Asian Tiger Fund were allocated funds through this process.
HDFC Trustee, Aditya Birla Sun Life, SBI Mutual Fund, Nippon Life, Kotak Mutual Fund, Motilal Oswal Mutual Fund, HDFC Life Insurance, ICICI Prudential Life Insurance, SBI Life Insurance, and Edelweiss amongst domestic investors also invested in the company.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
