Stock To Buy: Company That Benefits From Growing Retail Pharmacy Operations

Sharekhan is betting on the stock of Medplus Health Services for at least 22% returns. The company is India's second-largest pharmacy retailer engaged in the distribution and retailing of Pharmaceuticals as well as FMCG products.

Strong presence in key Indian cities

According to Sharekhan, in key cities like Chennai, Bangalore, Hyderabad and Kolkata, it owns sizeable market shares of 30%, 29%, 30% and 22%, respectively.

"Focus on strengthening its market position by doubling store count over 3-4 years, increasing the store penetration in densely populated area, efforts to develop the omnichannel presence would be the key drivers. Further, a thrust to increase the share of lucrative private label business and higher revenue per store & plans to tap the healthcare / diagnostics space are the key positives. This would be well-complimented by the experienced management and likely shift in preference towards organised retail pharmacy," the brokerage has said.

Increase share of private labels & improved per store efficiency

According to Sharekhan, Medplus is also present in private labels space and is looking to further fortify its presence in private labels by offering / introducing new products especially in the chronic and sub chronic space.

"The share of private labels in store revenues has increased from 4.5% in FY19 to 13.5% in H1FY22 and the management intends to further increase this as every 1% increase in the private label share increases gross margins by 0.5%," the brokerage has said.

Valuations and view on Medplus

According to Sharekhan, strong growth potential, initiate coverage with positive view and expect 22% upside: Medplus is the second largest pharmacy retailer in India and is in a sweet spot given expectations of a 10% growth in the overall pharmacy retail market, with the organised sector set to stage a much higher growth.

"Plans to double store count in 3-4 years, established capabilities, higher revenues and efficiencies per store, an eye on tapping the adjacent health care space leveraging the strong network are the key positives. Medplus' revenues and earnings are expected to stage a 15% and 33% CAGR over FY22E-FY24E. At current market price, the stock is trading at 105x/78.9x/59.7x its FY22E/FY23E/FY24E EPS. Based on the above positives, we initiate viewpoint coverage on Medplus with a positive view and expect a 22% upside," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.