Opening 600 New Stores And Improving Operations Will Expand Future Market Reach

Key Takeaways

• Expansion with new warehouses and 600 stores will enhance supply chain, boost revenue, and drive significant top-line growth.
  
• Increasing private label penetration and strengthening operations enhance margins, profitability, and customer loyalty through expanded product offerings.
  
• Strategic focus on profitability and private label expansion might slow revenue growth and impact net margins amidst increased competition and inventory challenges.

Catalysts

Engages in the retail trading of medicines and general items in India.

• MedPlus is strategically enhancing its operational efficiency by adding new warehouses, which will improve supply chain management, supporting faster store openings and boosting revenue growth.
  
• Expansion plans include opening 600 new stores in the next financial year, which is expected to drive significant top-line growth through increased store network and market reach.
  
• The company is focusing on increasing the penetration of its private label products, projected to rise by 1% every quarter on an MRP basis, which will improve gross margins due to higher margin contribution from these products.
  
• Increasing the range of private label products, along with growing customer acceptance, will drive higher sales volume and profitability through enhanced product offerings and customer loyalty.
  
• Strengthening back-end operations and infrastructure are expected to result in long-term scalability, reducing operational costs and potentially increasing net margins over time.

MedPlus Health Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MedPlus Health Services's revenue will grow by 16.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 3.5% in 3 years time.
• Analysts expect earnings to reach ₹3.4 billion (and earnings per share of ₹28.35) by about February 2028, up from ₹1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.2x on those 2028 earnings, down from 73.4x today. This future PE is greater than the current PE for the IN Consumer Retailing industry at 35.1x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.15%, as per the Simply Wall St company report.

MedPlus Health Services Future Earnings Per Share Growth

Risks

• The growth in the pharmacy business was muted this quarter, partially due to private label products having lower price points than branded products, which might lead to slower revenue growth compared to market expectations. (Impact: Revenue)
  
• Significant inventory levels in newer stores (88 days) compared to older stores (40 days) could indicate inefficiencies in stock management, potentially increasing costs and tying up cash in working capital. (Impact: Net Margins, Earnings)
  
• Management highlighted a focus on profitability over aggressive store additions, which could dampen revenue growth if the rate of new store openings continues to slow. (Impact: Revenue, Earnings)
  
• The company is focusing on expanding private label products, but turnover rates and customer acceptance in competitive markets may not provide the anticipated margin benefits, impacting overall gross margins. (Impact: Net Margins, Earnings)
  
• Increased competition from quick commerce offerings could force MedPlus to invest more heavily in delivery infrastructure and services, potentially eroding operating margins if delivery fees charged to consumers are insufficient to cover costs. (Impact: Net Margins, Earnings)

Valuation

• The analysts have a consensus price target of ₹964.5 for MedPlus Health Services based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1160.0, and the most bearish reporting a price target of just ₹900.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹96.0 billion, earnings will come to ₹3.4 billion, and it would be trading on a PE ratio of 48.2x, assuming you use a discount rate of 12.2%.
  
• Given the current share price of ₹811.7, the analyst price target of ₹964.5 is 15.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.