MedPlus Health Services, India’s second-largest pharmacy retailer, attracted strong interest from both institutional investors and non-institutional investors with its initial public offering subscribed 52.59 times.
The offer drew bids for 661.3 million shares against the IPO size of 12.5 million shares during December 13-15. Demand for shares was equivalent to Rs 52,644.83 crore compared with the public issue size of Rs 1,398.30 crore at the upper price band of Rs 796 per share. The issue included an offer for sale of shares worth Rs 798.30 crore by existing shareholders.
Qualified institutional investors bid for 111.89 times the shares allotted in their quota, the 15th-highest subscription among IPOs launched in 2021. The portion reserved for non-institutional investors was subscribed 85.33 times, the 14th-highest subscription in 2021. Demand from retail investors and employees was also strong to some extent with their quotas subscribed 5.23 times and 3.05 times, respectively.
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Experts said investors appeared to have bet on the company’s growth potential, experienced management team, healthy operating metrics, and strong brand recall.
MedPlus, based in Hyderabad, operates more than 2,000 pharmacy stores across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal and Maharashtra, getting 91 percent of its business from physical stores and the remainder from the online segment. Its store count has grown to 2,081 stores in FY21 from 1,653 in FY19.
“We are not surprised to see heavy demand from QIBs for MedPlus. The company has created scale, store-level efficiency, strong operating metrics and has a very experienced management team,” said Abhay Agarwal, founder of Piper Serica Advisors. “In India, organised pharmacy retail is at a very nascent stage and is expected to show exponential growth. It fits into the investment criterion of all institutional investors.”
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Agarwal expects strong institutional buying even after MedPlus debuts on the stock exchanges on December 23.
Geojit Financial Services said the company’s strong cluster-based approach, omnichannel presence, value pricing and discounting strategy, two-hour delivery capability and rising share of private label products differentiates it from others.
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In its report dated December 10, the brokerage assigned a ‘subscribe’ rating for the issue on a long-term basis, considering its strong growth in revenue and profit after tax, aided by strong store additions, improving margins, positive industry outlook and brand value, though the issue appeared to be aggressively priced.
MedPlus reported a more than five-fold increase in profit to Rs 63.1 crore in FY21 from Rs 11.9 crore in FY19, led by better operating performance and top line growth. Revenue from operations increased to Rs 3,069.27 crore from Rs 2,272.7 crore after opening additional stores and same-store sales growth of 8.3 percent.
Profit in the six months ended tripled to Rs 66.36 crore and revenue increased 28.5 percent to Rs 1,879.92 crore from a year earlier.
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“The EBITDA margin improved from 5.2 percent to 7.1 percent and EBITDA (earnings before interest, tax, depreciation and amortisation) grew at a compound annual growth rate of about 35 percent over FY19-FY21, led by cost efficient operations (technology-driven supply chain and distribution infrastructure developed in-house) and economies of scale,” said Geojit.
The market size of the pharmacy and wellness retail segment is expected to increase at a CAGR of 25 percent to $36 billion over FY20-25, led by an increase in life expectancy, better diagnostics, and a rise in lifestyle-related diseases.
The penetration of organised retail in the pharmacy and wellness category was 10 percent in FY20 and is expected to widen to 20 percent by FY25, “thereby providing a large headroom for organised players like MedPlus to grow,” said Geojit.
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MedPlus intends to strengthen its market position by adding stores across existing and new clusters and developing omnichannel platforms with a hyperlocal delivery model. The company plans to increase operating efficiency and enhance supply chain management to drive profitability.
“The company has a strong track record of expanding and employing physical stores in different cities, large to small, and even villages as India’s second-largest pharmacy retailer with an established brand and value proposition,” said Ashish Sarangi of Pickright. “In comparison to online pharmaceutical apps, they have a greater brand recall, higher margins and reduced advertising and logistics costs. Furthermore, a prosperous business with a long-term income stream will entice investors.”
MedPlus is backed by investors including Lavender Rose of the Warburg Pincus group and affiliates of Premji Invest.
In the grey market, its shares were available at Rs 996-1,006, a premium of Rs 200-210, or 25-26 percent, to the expected final issue price of Rs 796, as per IPO Watch and IPO Central.
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