Livemint: March 19, 2015
Hyderabad: MedPlus Health Services Pvt. Ltd, India’s second largest pharmacy retail chain, on Wednesday said it plans to raise $50-75 million in the next two months. The money will help the company finance its plans to open 10,000 outlets across the country in three to four years.
Hyderabad-based MedPlus currently has 1,244 pharmacy retail stores in 12 states and is expected to end the year with sales of Rs.1,400 crore.
Apollo Pharmacy, a subsidiary of Apollo Hospitals Enterprise Ltd, is the market leader in the retail pharmacy segment, with around 1,680 stores.
The fund-raising will be in addition to the secondary stake sale by its existing investors, said Madhukar Gangadi, chief executive officer of MedPlus.
Private equity (PE) investors, including US-based Mount Kellett Capital Management, TVS Capital Funds Ltd and Piramal Group-backed India Venture Advisors Pvt. Ltd, together hold around 34% of the company, which they acquired from Bahrain-based Arcapita Bank for Rs.410 crore, or $90 million, in March 2011.
“We haven’t raised money for a while, and the cost of putting up of a store has increased over the years,” Gangadi said.
Gangadi plans to double the number of stores in the firm’s traditional strongholds of Hyderabad, Bengaluru and Chennai, and enter Gujarat, Punjab, parts of Uttar Pradesh, Bihar and Haryana. Medplus has 200 stores each in Hyderabad, Bengaluru and Chennai.
It costs around Rs.25 lakh on an average to put up a single store and takes around three months to become cash positive and three to four years to recover the investment, Gangadi said.
MedPlus has so far invested around Rs.170-180 crore, and will need another Rs.2,000-2,200 crore to reach 10,000 stores, he said.
Gangadi launched MedPlus in February 2006—opening its first store in Hyderabad.
MedPlus follows a hub and spoke model. It establishes a central warehouse, around which it puts up as many stores as possible. The cost of warehouse is amortized across the stores. The company uses technology extensively for better supply chain management, and to network the stores and warehouses.
“We have waited for foreign direct investment (FDI) into multi-brand retail, but the restrictive conditions have put off investor interest,” Gangadi said. Organized pharmacy retail falls under the category of multi-brand retail. The previous United Progressive Alliance government had allowed 51% FDI in multi-brand retail subject to conditions such as a minimum investment of $100 million, 50% of it on the back-end, and 30% local sourcing.
Mom-and-pop pharmacy stores dominate the Indian pharmacy retail market, which is pegged at around Rs.80,000 crore annually. Organized pharmacy retail accounts for just 5% of that. “The India market is under-penetrated in terms of organized retail; there is huge potential to grow,” said Rana Mehta, partner leader, healthcare at PricewaterhouseCoopers.
“Organized pharmacy retail is a low-margin, high-volume business; so scale is important to become profitable and attract investments,” Mehta said.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.