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Medplus Health Services Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤4th Feb 26

Summary : MedPlus reported strong Q3 FY'26 results driven by store expansion, private label growth, and improved SSSG from strategic incentive changes, while actively managing inventory and exploring new categories.

Management Perspective positive : Management expressed confidence in SSSG growth drivers, private label expansion, and margin improvement. They highlighted 'stellar numbers' and 'excellent execution'.

Concall Report Analysis & Insights

Business Overview

  1. MedPlus added 182 net stores in Q3 FY'26, reaching 5,112 stores with 2.6 million sq ft.
  2. Consolidated revenue for the quarter was 18,061 million, with pharmacy revenue growing 15.6% year-on-year.
  3. Operating EBITDA was 96.8 crores (5.4%) after a one-off charge; pharmacy EBITDA was 925 million (5.2%).
  4. Diagnostics revenue grew to 326.7 million in Q3 FY'26, with an operating EBITDA margin of 15.5%.
  5. Private label sales constitute 22.2% of total revenues, with pharma at 11.6% and FMCG at 10.6%.

Future Growth Prospects

  1. Company targets adding 600 new stores in FY'26, with 400 net additions achieved year-to-date.
  2. Expansion into non-pharma categories like food and wellness is showing good traction.
  3. Management is bullish on non-pharma private label growth, expecting it to improve profitability.
  4. Ongoing franchisee initiative is being explored for overall strategy fit and expansion.
  5. Consciously improving serviceability and offerings in the online pharma space.

Management Insights

  1. SSSG growth of 10%+ is attributed to tweaked incentive structures and improved availability from new warehouses.
  2. The incentive structure now includes total store sales growth, benefiting both branded and private label sales.
  3. Gross margins are expected to remain stable, with private label mix driving future improvements.
  4. Working capital days improved due to the franchisee model and better inventory management.
  5. Employee retention schemes in three cities are showing improved attrition rates, with ongoing monitoring.

Signs of Skepticism

  1. Management declined to provide specific guidance for FY'27 SSSG or margin targets, citing internal processes.
  2. Details on the quantitative number of franchisees were not disclosed, to be provided after the full year.

Risk Factors

  1. A one-off non-recurring charge of 70.59 million was incurred due to new Labour Code implementation.
  2. Inventory deterioration provision is maintained at 0.9-1% of private label sales.
  3. New Labour Code rules are not yet final, requiring close monitoring for future impact.

Good To Know

  1. Net working capital for Q3 was 53 days, with warehouse inventory at 34 days.
  2. Stores older than 12 months contribute 96% of pharmacy revenues with a 12.4% store-level EBITDA margin.
  3. MedPlus has 4.6-4.7 million pharma members, with a 90% repeat business rate every three months.
  4. The company covers top five therapeutic areas, with 55% chronic and 40-45% acute range.
  5. Non-pharma private label offers 1,300+ SKUs across daily needs and wellness categories.

Key Drivers

  1. Incentive structure drives SSSG.
  2. Private label sales boost margins.
  3. Non-pharma categories expand offerings.
  4. New warehouses improve availability.

Key Analyst Discussions

Financial Highlights

  1. Analysts inquired about the sustainability of 10%+ SSSG and future gross margin trends.
  2. Questions were raised regarding the impact of private label mix on overall gross margins.
  3. Clarification was sought on the one-off nature of the 70 million non-recurring expense.
  4. Analysts asked about the reduction in working capital days and its sustainability.
  5. Queries on the revenue contribution from stores greater than 12 months.

Product Composition

  1. Analysts asked about the drivers of private label pharma and non-pharma sales growth.
  2. Questions on the margin profile across branded pharma, non-pharma, and private label categories.
  3. Inquiries about the new categories being added to the non-pharma segment.
  4. Discussion on the mix change between branded and unbranded sales for the top line.

Strategic Considerations

  1. Questions on the future store expansion strategy, including new geographies and densification.
  2. Inquiries about the progress and models for the ongoing franchisee initiative.
  3. Analysts asked about the effectiveness of the employee retention scheme in improving attrition.
  4. Questions on the company's strategy for improving online pharma serviceability.