Key highlights from MedPlus Health Services Ltd (MEDPLUS) Q3 FY22 Earnings Concall
Management Update:
- The company opened over 537 stores in the last 12 months, out of which 183 stores were opened in 3Q22, the largest quarterly store opening in the company’s history. Highest store additions were in Maharashtra and Tamil Nadu of 43 and 36 stores respectively.
Q&A Highlights:
- Prakash Agarwal from Axis Capital asked if the same store level growth of 4.2% is in line with the company expectation. Gangadi Madhukar CEO said it’s slightly muted.
- Prakash Agarwal from Axis Capital asked about store opening momentum sustainability and outlook for next year. Gangadi Madhukar CEO replied that QonQ, except for one whole quarter, the company has been increasing the number of stores quarterly. MEDPLUS added this acceleration will continue and it’s going to be a much larger number.
- Prakash Agarwal from Axis Capital enquired about organized pharmacy retail growth of 25% and the expenses being higher than the sales growth. Gangadi Madhukar CEO replied that organized sales of 25% will be compounded over several quarters. On expenses, the company added that it has gone up because of new addition of stores.
- Prakash Agarwal from Axis Capital asked about near to medium term outlook on the trend of higher cost versus revenue. Gangadi Madhukar CEO answered that the company continues to expand the overall private label share and that will continue to increase the overall gross margin. Gandadi added that while the near to mid-term could be flattish, but in the long term all these stores will become super profitable.
- Anubhav Aggarwal with Credit Suisse asked about inventory and with newer stores is there a trend that the company is keeping less inventory at the warehouse and more at the store level. Gangadi Madhukar CEO said it’s not really like that. It’s a COVID related situation where things have started going out of stock for lot of products. And it is not something the company plans on doing going forward.
- Anubhav Aggarwal with Credit Suisse asked when does the company expect the 84 days inventory to come down to 70-75 days. Gangadi Madhukar CEO replied that the company will start seeing the decrease in inventory going forward.
- Anubhav Aggarwal with Credit Suisse asked about company’s pathology testing services assets going up from INR30 crore to INR66 crore in one quarter. Atul Kumar Agarwal, CFO said there was an increase of close to INR27 crores as it’s starting to increase its diagnostic stuff. Mainly in the last 9 months the company has incurred about INR18 crores in that line and that’s the increase seen in the pathology business.
- Anubhav Aggarwal with Credit Suisse asked that with the investment of INR60-70 crores if the pathology business can be a INR250-300 crore business in 3-4 years. Gangadi Madhukar CEO said there are two parts. One is the company leveraging the network which it has, converting a portion of them to become collections centers. Second is the overall piloting of the diagnostics. So it’s hard to asses the numbers at this point in time
- Nikhil Mathur of HDFC asked about some guidance on where the online sales share will settle in 2-4 year’s timeframe from current 7-8% levels. Gangadi Madhukar CEO said that the company expects something like 10-15%.
- Nikhil Mathur of HDFC asked that with scale growing, would the company be in a better position to get some bonus units or some discounting from the distribution channel. Gangadi Madhukar CEO replied that of all the things, that leverage will be the least. While MEDPLUS continue to get better sourcing margins, it will be hardest to extract any extra.
- Anuj Suneja with ICICI asked about how is the ESOP expense going forward. Gangadi Madhukar CEO said that MEDPLUS expects a quarterly non-cash expenditure of about INR6.5 crores and this is based on the allotment made before IPO. And don’t expect this to be significant.
- Anuj Suneja with ICICI also asked about the employee cost going up what would be the apt level of balance. Gangadi Madhukar CEO replied that on cost of employees, it remains steady in the 4-5% stores which are 1-2 years older. For new stores, the overall expenditure is 19% overall in which the cost of employees is around 10-11%, double of what it should be. Typically, MEDPLUS expects the costs in the store to be around 9-10%.
- Anuj Suneja with ICICI asked about the EBITDA margin of a mature store and outlook on that. Gangadi Madhukar CEO said the EBITDA margin of a mature store at the store level is always going to be around 10% and more. For MEDPLUS, it needs to grow by 4-4.5% every year, given that typically employee costs go up by 10% every year and rents by 5% and the overall margin is 20%. And sales is on a base of around INR1.6-1.7 crores a year.