Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Medplus Health Services Ltd (BOM:543427, Financial) expanded its network to 4,552 pharmacy stores across 680 cities, indicating robust growth.
- The company achieved a net addition of 108 stores in Q2, with a significant focus on tier two cities, highlighting strategic market penetration.
- Private label products now constitute 18.4% of total revenues, showing a positive reception and potential for higher margins.
- Consolidated revenue grew by 11.9% year-on-year, demonstrating strong financial performance.
- The diagnostic segment recorded a significant improvement, with revenue growing to 283.1 million and turning profitable with an operating EBITA of 21 million.
Negative Points
- There were 24 store closures in Q2, which could indicate challenges in certain locations.
- Inventory levels remain high, particularly in new stores, which could impact working capital efficiency.
- The company faces challenges in scaling its private label products due to competition and market dynamics.
- Free cash flow may be impacted by the planned addition of new stores, potentially straining financial resources.
- The tax rate has been volatile, which could affect financial predictability and planning.
Q & A Highlights
Q: As MedPlus scales its private label, what kind of working capital cycle can be expected, and is there room for improvement in inventory and payable days?
A: Chetan Dikshit, Chief Strategy Officer, explained that inventory levels are influenced by the number of new stores. As the company optimizes inventory in warehouses and stores, improvements are expected. However, maintaining adequate stock is crucial to avoid lost sales. The impact of private label on working capital will take time to materialize as the company launched it only last year.
Q: What is the expected margin improvement trajectory with increased private label contribution?
A: Private label margins are around 50%. As the contribution increases, margins are expected to improve by 0.3 to 0.35 percentage points per quarter. The company aims to grow private label sales by 1 to 1.25 percentage points each quarter.
Q: How does MedPlus plan to compete with quick commerce companies entering the pharmacy space, and what are the brand-building efforts?
A: MedPlus has been online since 2014, with 7% of its business from online sales. The company is cautious about quick commerce and is monitoring the space. Brand-building efforts focus on in-store education and targeted communication rather than large-scale advertising.
Q: What is the sustainability of the current gross margin, and how does it relate to private label growth?
A: The gross margin improvement is attributed to private label growth. The company expects the margin to be sustainable and potentially improve as private label sales increase.
Q: What are the plans for store expansion, particularly in new regions like Uttar Pradesh?
A: MedPlus is testing the market in Delhi NCR with a few stores. The company is not immediately planning large-scale expansion in Uttar Pradesh but is monitoring store performance before deciding on further expansion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
