Medplus Q4 Results Review - Strong Quarter; Growth, Margin Visibility Intact: HDFC Securities

HDFC Securities Institutional Equities

Medplus Health Services Ltd.'s Ebitda growth (+30% YoY) was led by +19% YoY sales growth (pharmacy was up 18% YoY and diagnostics grew 95% YoY), moderate growth in staff costs (+8% YoY), which was partly offset by flat YoY gross margin (+47 basis points QoQ) and 33% YoY rise in selling, general and administrative.

Operating Ebitda margin (pre IND-AS) came in at 3.9% (+66 basis points YoY) as pharmacy margin expanded by 44 bps YoY to 4.0% (+49 bps QoQ) and there was an Rs 11 million loss in diagnostics. Medplus Health Services expects to add 600+ stores in FY25 with a focus on expanding its presence in existing as well as new markets.

It expects to increase private label share in the overall mix and aims to reach ~20% share in the next few years, led by increasing product offerings. It expects gross margin to see pressure from a shift in product mix in its private label (old private label to own branded generics).

It expects the operating margin to see a gradual improvement in FY25. Factoring FY24 performance, we have tweaked our Ebitda for FY25/26E. Target price stays at Rs 850 (18 times FY26E earning value/ Ebitda, which implies 29 times pre-INDAS EV/E).

We reiterate 'Buy', given its strategic expansion plan with a focus on improving profitability.

We also see a gradual improvement in margin led by a better mix with growth in mature stores (2+ years; ~9-10% margin), an increasing share of margin accretive private-label and Medplus-brand generics, and an efficient supply chain.

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