MedPlus Gains Nearly 20% On Credit Suisse Upgrade To 'Outperform'

Shares of MedPlus Health Ltd. gained the most since listing after Credit Suisse upgraded its rating to 'outperform' citing strong network expansion.

The Hyderabad-based company's profit in the quarter-ended September fell 68% to Rs 7 crore.

Key Highlights Q2 FY23 (Consolidated, YoY)

• Revenue up 21% at Rs 1,121 crore.

• Ebitda down 4% at Rs 60 crore.

• Margins at 5.3% versus 6.7%.

Despite weak second-quarter results, Axis Capital and Nomura maintained their bullish 'buy' calls, while Credit Suisse raised its rating on the stock.

The stock gained as much as 18.5% to Rs 690 apiece on Monday. This is the most it has advanced since 40% gains on its listing day earlier this year. Trading volume is at at 36.4 times the 30-day average.

The scrip ended day's trade 4.6% higher, at Rs 609.

All eight analysts tracking the company have a 'buy' rating on it. The average 12-month consensus price target implies an upside of 29.6%.

Here's what brokerages made of MedPlus' Q2:

• Upgrades to 'outperform' from 'neutral', but cuts target price to Rs 750 from Rs 775, implying a potential upside of 28.8%.

• MedPlus witnessed a strong network expansion in Q2, with net addition of 348 stores, which is ~1.5x of its usual run-rate. The additions continue to be focused on non-metros, which are facing less competition and have a similar store-level Ebitda margin as metros.

• The key variable for MedPlus is average level of discounting, which has stabilised due to lower competitive intensity and would benefit its gross margin in the near term. Gross margin is also being supported via increase in value share of higher margin private labels.

• MedPlus would likely benefit from maturing of store network, sustenance of private label sales growth, and maintaining average discounting at current levels in light of reduction in competitive intensity due to funding winter.

• Key risks are increasing competition from e-pharmacies leading to higher discounting; slow ramp up in private label sales, and lower yield per store in new geographies.

• Maintains 'buy', raises target price to Rs 928 from Rs 925, implying a potential upside of 60%.

• Operating Ebitda was adversely impacted by higher overhead expenses due to high rate of store opening.

• Medplus is increasing the number of stores in smaller cities as 56% of new store additions in Q2 were in Tier-2 and beyond.

• As per the company, 71% of the stores that were opened between September 2021 and March 2022 achieved break-even in the first six months of operations. New store revenues are in-line or marginally ahead of our estimates.

• Medplus is operating three full service diagnostic centers in Hyderabad with two more likely to be added. The company expects operating Ebitda break-even in 12 months for the diagnostic centers.

• Maintains 'buy', cuts target price to Rs 750 from Rs 810, implying a potential upside of 29%.

• While MedPlus expects sales growth to remain steady as stores mature, margin pressure to continue in near term as it maintains 1,000+ store additions in FY23 (580 added in H1’23).

• Focus is to scale up diagnostic business with targets break-even in 6-12 months. 'Buy' stays on strong positioning (2nd largest) in retail pharmacy segment (long runway for growth).