Indian pharmacy chain MedPlus Health Services reported a slight increase in second quarter profit, helped by higher demand at its retail unit and store network expansion. The company reported consolidated net profit of Rs 560.8 million for the three months ended 30 September, compared with Rs 555.01 million in the year ago period. Revenue rose 21 per cent to Rs 20.37 billion, broadly in line with Nuvama analysts’ expectations of about 20 per cent growth. The results were reported on 27 October.
The MedPlus profit rise was small in percentage terms. A move from Rs 555.01 million to Rs 560.8 million is an increase of Rs 5.79 million on the year ago figure. That size of rise, set against a 21 per cent rise in revenue, shows a quarter in which sales grew faster than profit. Sales growth can come with higher costs, because new stores, more staff and more stock all cost money before they add profit. The figures given do not break down those costs, and this article does not add a breakdown that was not provided.
MedPlus store growth in the quarter
MedPlus added a net 166 stores during the quarter. A net addition counts new stores opened minus stores closed in the same period, so the figure shows growth in the network after closures. Store growth is the main way a pharmacy chain reaches more customers in person, because a pharmacy still depends on a shop near the customer for many prescriptions, even when orders can be placed by phone or online. Each new store adds a local point of sale, a local stock of medicines and a local team.
MedPlus plans to open 800 new stores this financial year. That MedPlus plan, if carried out, would add far more stores than the 166 added in the September quarter alone, and it would require openings to continue at a faster pace in the remaining quarters of the year. The plan is a statement of intent from the company, not a completed result.
MedPlus rivals in organised drug retail
MedPlus competes with Tata 1mg, Apollo Pharmacy and Reliance Retail’s Netmeds. Those MedPlus rivals include both shop based chains and online pharmacy brands, and they compete on price, range, delivery time and the trust of customers who buy medicines regularly. A customer who needs a medicine every month will return to a seller that has the medicine in stock, that charges a price the customer can accept and that delivers or dispenses it without delay. That repeat purchase is the core of pharmacy retail.
India’s pharmacy retailers have seen steady demand for chronic therapies, according to the report of the results. Chronic therapies are medicines taken over a long period for conditions that do not go away after one course of treatment. Demand for those medicines is steadier than demand for short term treatments, because patients need refills at regular intervals. A retailer with a large base of chronic therapy customers therefore has a steadier stream of sales than a retailer that depends on one off purchases.
MedPlus focus on diabetes and private labels
Companies in the sector are also seeing increased adoption of diabetes and obesity treatments, according to the report. Diabetes treatment is a large part of chronic therapy demand, because patients with diabetes often need daily medicines for years. Obesity treatments are a newer area of demand, and their growth reflects wider interest in weight management medicines. Both areas add to the chronic therapy base, because treatment in both cases tends to continue over time rather than end after a short course.
Companies are also focusing on private label products to support margins, according to the report. A private label product is sold under the retailer’s own brand, rather than under a manufacturer’s brand. The retailer can often earn a higher margin on its own label, because it controls the sourcing and the price, while the customer pays a price that may be lower than a branded equivalent. Private labels therefore matter for profit, even when they form only part of total sales.
For the quarter ended 30 September, the headline figures are clear. Consolidated net profit was Rs 560.8 million, against Rs 555.01 million a year earlier. Revenue was Rs 20.37 billion, up 21 per cent and broadly in line with Nuvama analysts’ expectations of about 20 per cent growth. The company added a net 166 stores in the quarter and plans to open 800 new stores this financial year, in a market where demand for chronic therapies is steady, organised retail is growing and diabetes and obesity treatments are gaining ground.