Buy this drugstore retailer stock, shares are down 35%, Sharekhan sees solid gains

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Good expansion plans at Medplus

One of the reasons Sharekhan is buying on the call for Medplus stock is the massive store expansion. “Medplus is focused on increasing its reach and penetration and has therefore announced the creation of 1000 new stores in FY23E and going forward the company aims to maintain the momentum of new stores “, noted the company. “Medplus seeks to capitalize on the shift from unorganized to organized retail of pharmaceuticals in India, taking advantage of the low penetration of organized retail in pharmacies and the growing penetration of mobile and internet usage in India.

Medplus shares, which peaked at Rs 1343, fell to 877, implying a drop of nearly 35%.

Strong presence in 7 states

Strong presence in 7 states

The company has a strong presence in all seven states of the country, with Andhra Pradesh and Telangana, Karnataka and Tamil Nadu constituting part of the total stores. In terms of number of cities, Chennai, Bangalore, Hyderabad and Kolkata are the top four cities where Medplus has a significant presence. According to industry reports, the penetration of organized retail in the retail pharmacy market in Tier I cities and Tier II cities and above is only around 7% and 6 %, respectively, indicating significant headroom available for expansion,” the company said. Noted.

Organized retail pharmacy is gradually gaining ground

Organized retail pharmacy is gradually gaining ground

According to Sharekhan, the drugstore retail space has evolved recently, with businesses on ubiquitous channels set to benefit materially. Modern pharmacy retail penetration is relatively lower than most other categories except food and groceries. With the inclination towards modern pharmacy seen due to better customer experience, wider product range, value-added services and transparent discounts, modern pharmacy retail is expected to grow at a pace faster compared to other categories. In addition, e-commerce and omnichannel retail is also expected to see strong double-digit growth, with pharmacy e-commerce expected to be one of the fastest growing segments next to food and beverage. grocery. Additionally, moving from an unorganized retail pharmacy to an organized pharmacy would be a key growth driver and the above triggers point to healthy growth for pharmacy retail businesses.

Estimates and view

Estimates and view

Medplus’ operations across the entire value chain are being retro-integrated and managed internally by the company, which bodes well for profitability. “Collectively, Medplus’ presence in the fast-growing modern pharmacy retail space, its focus on building omnichannel presence through an effective in-house technology platform, geographic expansion, and to increase the share of private label business are the main positives. Q4Fy22 was a weak quarter and results were impacted by higher operating costs. Based on this and based on management feedback that indicated cost pressures, we have revised our estimates of FY23E/FY24E downwards. At current market price, the stock is trading at 86.3x/57x its FY23E/FY24E EPS and 26.8x/21.7x its FY23E/FY24E EV/EBITDA. We maintain a positive outlook and expect a 20% upside,” the company said.

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