Medplus Health Services Ltd Management Discussions

Indian Economy

FY2024-25 underscored Indias sustained economic vigour, characterised by impressive Real GDP growth of 6.5% for the full year. This expansion, fuelled by strong domestic consumption and strategic capital deployment, solidifies Indias position as a beacon of growth in the global economy.

Outlook

Indias real GDP is expected to grow by 6.3% in FY2025-26 anRs. 6.4% in FY026-27, supported by rising real incomes, a strengthening labour market, and moderate inflation. Private consumption is set to improve steadily, while investment will benefit from falling interest rates and continued public capital expenditure.

Inflation is projected to remain near the 4% annual target, though risks remain from an uneven monsoon or rising global commodity prices. The Union Budget 2025-26 outlines a path of gradual fiscal consolidation, targeting a reduction in the fiscal deficit from 4.8% to 4.4% of GDP.

Indian Pharma Industry Best Practices

Pharmaceutical best practices are standardised, science-backed protocols that ensure drug quality, safety, and efficacy across manufacturing, R&D, and distribution. They combine regulatory compliance (e.g., GMP), ethical rigour, and cutting-edge tech to deliver life-saving treatments reliably.

Pharma best practices ensure patient safety, regulatory compliance, and drug efficacy while optimising efficiency and innovation. They build public trust, prevent costly recalls, and sustain global competitiveness in a high-stakes industry.

The Indian pharmaceutical industry is one of the largest and most advanced among emerging economies, known for its generic drug production and global supply chain contributions. Best practices in the Indian pharma industry are shaped by regulatory compliance, innovation, quality assurance, and sustainability. Below are key best practices, based on industry standards and insights from available information:

1. Regulatory Compliance and Certifications

• Adherence to global regulatory standards such as those set by the US FDA, EMA, and WHO-GMP (Good Manufacturing Practices) is critical.

• Regular audits and inspections to align with Schedule M of the Drugs and Cosmetics Act, 1940, ensure domestic compliance.

2. Quality Control and Assurance

• Implementation of robust Quality Management Systems (QMS) to monitor all stages of production, from raw material sourcing to finished products.

• Use of advanced analytical techniques and quality-by-design (QbD) principles to ensure consistent drug quality and reduce variability.

• Continuous training of personnel on Current Good Manufacturing Practices (cGMP) to maintain high standards.

3. Research and Development (R&D)

• Investment in R&D for developing cost- effective generics, biosimilars, and novel drug delivery systems. Some big companies allocate significant budgets (5-10% of revenue) to R&D.

• Collaboration with academic institutions and global research organisations to foster innovation.

• Focus on developing complex generics and specialty drugs to cater to global markets.

4. Supply Chain and Logistics Efficiency

• Adoption of digital tools and blockchain technology for supply chain transparency, ensuring traceability of raw materials and finished products.

• Cold chain logistics for vaccines and biologics, with companies excelling in maintaining temperature-controlled supply chains.

• Strategic partnerships with global distributors to ensure timely delivery, especially for exports (India supplies ~20% of global generic drugs).

5. Sustainability and Environmental

Responsibility

• Implementation of green chemistry principles to minimise waste and reduce environmental impact during manufacturing.

• Adoption of energy-efficient technologies and renewable energy sources in production facilities.

• Compliance with effluent treatment and waste disposal regulations to meet environmental standards.

6. Digital Transformation and Industry 4.0

• Use of automation, artificial intelligence, and data analytics to optimise manufacturing processes and improve operational efficiency.

• Implementation of Enterprise Resource Planning (ERP) systems for streamlined operations and real-time data management.

• Leveraging big data for market analysis and demand forecasting to stay competitive.

7. Talent Development and Workforce Safety

• Continuous training programs to upskill employees on new technologies, regulatory changes, and safety protocols.

• Emphasis on workplace safety through adherence to occupational health standards and regular safety audits.

• Promoting diversity and inclusion in the workforce to foster innovation and collaboration.

8. Patient-Centric Approach

• Development of affordable medicines to address unmet medical needs, particularly in low-income regions.

• Engagement in public health initiatives, such as vaccination drives and awareness campaigns.

• Transparent communication with stakeholders about drug safety, efficacy, and pricing.

9. Intellectual Property and Ethical Practices

• Respecting intellectual property rights while leveraging Indias patent laws to produce affordable generics post-patent expiry.

• Adopting ethical marketing practices and avoiding misleading claims about drug efficacy.

• Robust pharmacovigilance systems to monitor adverse drug reactions and ensure patient safety.

10. Global Market Expansion

• Strategic focus on exports to regulated markets (US, EU) and semi-regulated markets (Africa, Latin America) to diversify revenue streams.

• Building strong regulatory teams to navigate complex approval processes in different countries.

• Establishing local manufacturing units or joint ventures in key markets to reduce costs and improve access.

Indian Pharmacy Retail Industry

Driven by favourable demographic shifts, increasing health awareness, and the rapid adoption of digital healthcare solutions, the Indian Pharmacy Retail Market is currently undergoing significant transformation and robust expansion.

Valued at approximately USRS. 22.7 billion in 2024, the market is projected to achieve a Compound Annual Growth Rate (CAGR) of 6.62% from 2025 to 2032, reaching an estimated USRS. 37.9 billion. This growth trajectory underscores the sectors dynamic nature and its increasing importance within the broader Indian healthcare landscape.

Historically, the Indian pharmacy retail sector has been characterised by its fragmented nature, with a predominance of unorganised neighbourhood stores. However, a discernible shift towards organised retail formats and the burgeoning e-pharmacy model is reshaping the competitive landscape. These organised segments are demonstrating significantly faster growth rates, attracting substantial investment and strategic interest from major players.

Leading pharmacy chains are strategically adopting omnichannel approaches, integrating advanced technology, and diversifying their product and service portfolios to include high-margin segments such as wellness products and diagnostic services.

These strategies are crucial for capturing market share and enhancing profitability within a complex regulatory environment and an intensely competitive market. The industrys evolution is further influenced by ongoing consolidation efforts, as larger entities seek to expand their footprint and achieve economies of scale, positioning the sector for sustained long-term growth.

Government Initiatives

The Indian government is actively implementing various policies and initiatives to bolster the healthcare sector and, by extension, the pharmacy retail industry. The National Health Policy aims to reduce premature mortality from Non-Communicable Diseases (NCDs) by one-third by 2030, which necessitates consistent medical support and long-term therapies, driving demand for pharmaceuticals.

Digital health programs like the Digital India initiative, Ayushman Bharat, and the National Digital Health Mission are contributing to the broader acceptance and growth of digital healthcare solutions, including e-pharmacies. Government support for e-pharmacies, through policy recognition and regulatory reforms, is crucial for their expansion and contributes to a more accessible and connected healthcare ecosystem.

Key Trends

• Digital Transformation and Automation:

Pharmacies are increasingly adopting digital tools for inventory management, real-time tracking, billing, and customer relationship management. AI and big data analytics are being used for demand forecasting and supply chain optimisation.

• Rise of E-Pharmacies: Online pharmacies are revolutionising access to healthcare products by offering convenience, competitive pricing, and doorstep delivery, especially to remote areas.

• Expansion of Organised Retail: Organised pharmacy chains are expanding their presence beyond metropolitan areas into Tier II and III cities, leveraging centralised procurement, logistics efficiency, and technology integration.

• Increased Focus on Cold Chain Distribution:

The growing demand for temperature-sensitive products like vaccines and biologics is leading to increased investments in cold storage facilities and advanced tracking technologies.

• Direct-to-Consumer (DTC) Models: The DTC

model is gaining traction, with consumers directly ordering medicines online for home delivery.

• Preventive Healthcare and Wellness: Theres a rising consumer awareness and demand for preventive healthcare products, including vitamins, supplements, immunity boosters, and herbal remedies.

• Expanded Role of Pharmacists: Pharmacists are increasingly expected to take on more responsibilities beyond dispensing, including patient counselling, medication adherence programs, and health screenings.

• Consolidation: The market is likely to see intensified consolidation as organised players acquire smaller pharmacies to strengthen their networks and achieve economies of scale.

• Sustainability: Pharma distributors are focusing on sustainable business practices, including electric vehicles for transportation and minimising plastic packaging.

Challenges

• Fragmented Market: The market is still largely dominated by small, independent local stores, posing challenges for standardisation, data visibility, and regulatory compliance.

• Shortage of Qualified Pharmacists: A scaling shortage of qualified professionals can impact operational efficiency and the ability to provide advanced services.

• Inventory Management: Ensuring adequate stock while avoiding overstocking, managing expiry dates, and keeping up with new product introductions is complex.

• Price Control and Competition: Intense competition and government price controls can put pressure on margins, especially for traditional pharmacies.

• Data Management and Integration: Challenges in tracking and managing data across a complex supply chain, data silos, and data quality issues.

• Counterfeit Products: Preventing counterfeit drugs from entering the supply chain remains a concern.

• Customer Loyalty: Building customer loyalty, especially for newer organised players, can be a challenge against established local pharmacies.

Opportunities

• Increasing Healthcare Awareness: Growing health consciousness and a proactive approach to

wellness are driving demand for pharmaceuticals and health products.

• Rising Chronic Diseases and Ageing Population:

The increasing prevalence of chronic diseases and an ageing population ensure a sustained demand for medications.

• Government Support and Digital India Initiatives: Government policies promoting digital healthcare and schemes like PMJAY create a conducive environment for growth and accessibility.

• Technological Advancements: The adoption of AI, IoT, cloud solutions, and pharmacy management software can improve operational efficiency, inventory management, and customer experience.

• Expansion into Tier II and III Cities: Untapped potential in smaller towns and rural areas offers significant growth opportunities for organised players.

• Value-Added Services: Opportunities to offer services beyond dispensing, such as health screenings, vaccinations, teleconsultations, and medication counselling.

• Focus on Patient-Centric Care: Tailoring services to individual patient needs and promoting better health outcomes can build stronger patient relationships.

MedPlus Position in the Indian Pharmacy Retail Industry

MedPlus stands out as a leading and trusted player in the highly competitive Indian pharmacy retail landscape. As the second-largest pharmacy chain in India, MedPlus has steadily expanded its footprint by offering a unique combination of affordability, accessibility, and reliability. The Company operates on an omnichannel model that integrates a strong offline presence with a robust digital infrastructure, enabling seamless consumer access to pharmaceuticals, diagnostics, wellness and general fast moving Consumer Products.

In a sector traditionally dominated by unorganised players, MedPlus has positioned itself as a pioneer of the organised retail format, ensuring standardised pricing, genuine medicines, and superior customer service. Its focus on private label products, technology-driven inventory management, and end-to-end supply chain control helps maintain cost efficiency while enhancing margins.

The Company has strategically leveraged Indias growing health awareness, rising chronic disease burden, and increasing internet penetration to

expand its ePharmacy services. Its loyalty programs and membership benefits continue to drive customer stickiness, while expansion into tier II and III cities aligns with the broader industry trend of deepening retail healthcare access in underserved markets.

MedPlus future strategy aligns with the evolving landscape of Indian pharmacy retail, which is moving towards consolidation, digital transformation, and regulatory compliance. Through continuous innovation and customer-centric practices, MedPlus is well-positioned to capitalise on emerging growth opportunities in the Indian pharmaceutical retail market.

https://www.credenceresearch.com/report/india-

retail-pharmacy-market

MedPlus Takes

The retail pharmacy industry in India is on the cusp of rapid expansion, and MedPlus Health Services Limited is well-placed to harness this trend. Being a sector that requires substantial capital investment for location selection and infrastructure development, it presents unique challenges. Nevertheless, our companys solid financial strength and deep industry experience position us to overcome these hurdles effectively.

Leveraging insights into market trends and customer profiles, weve built a robust network of storage facilities and delivery routes. Our comprehensive approach, which includes streamlined operations, innovative technology, and a seamless omnichannel strategy, positions us for rapid expansion.

As we expand our network of stores, we believe our distinctive qualities will enable us to capture a larger share of the organised pharmacy retail industry. MedPlus is prepared to be at the forefront of this emerging sector, utilising our knowledge and assets to foster success and establish ourselves as a leading force. With a solid vision and strong strategic plans, we are set for consistent expansion and outstanding performance.

Company Overview

MedPlus, established in 2006 by CEO Mr. Gangadi Madhukar Reddy, is a leading organised pharmacy retailer with a significant online and offline presence. What sets MedPlus apart, making it Indias second-largest pharmacy chain by revenue, is its comprehensive, backward-integrated operations. The Company was established with a vision to provide customers with genuine, high-quality medicines by leveraging technology and addressing inefficiencies in the supply chain.

MedPlus is engaged in retail and wholesale operations, as well as the import, distribution, manufacturing,

and contract manufacturing of private-label pharmaceuticals, wellness products, and FMCG goods. Additionally, it operates comprehensive diagnostic centres exclusively in Hyderabad, Telangana.

With a network of over 4,700 stores spread across thirteen states, one union territory and a workforce of over 25,000 permanent full-time employees, MedPlus has built a robust in-house, backward-integrated value chain. This integrated model has contributed significantly to its growth and enabled the Company to become the second-largest pharmacy retail chain in India by revenue.

Segmental Revenue

	Revenue
	FY 2025	FY 2024
Retail	60,268.86	55,490.52
Diagnostic services	1,081.07	748.85
Others	10.60	9.18

Retail Segment consists of Pharmacy stores across India, the Company has 4,712 stores (398 stores opened during the year FY 2025 anRs. 670 stores during the year FY 2024) of which Matured stores (more than 12 months operational) is 4,316 stores as on year end March 31, 2025.The Companys mature outlets maintained solid operational performance, with 10.32% Store Level EBITDA margin.

Diagnostics Segment consists of pathology and radiology services, the Company has four full-service Diagnostic Centres and eight level-2 Diagnostic Centres as on March 31, 2025, and our customers have embraced it enthusiastically.

The other segment includes insurance broking business.

Private label share to consolidated revenue climbed from 14.26% to 19.29% in FY 2025. Consolidated gross margin has increased from 21.92% to 24.37% in FY 2025. This marks a new high for MedPlus and demonstrates the strength of its supply chain and operational skills.

Financial Overview

Summarised consolidated Profit and Loss statement

Particulars	FY 2025	% of Income FY 2025	FY 2024	% of Income FY 2024
Total Income	61,846.69		56,648.63
Cost of goods sold (Purchases, materials, inventory)	46,406.61	75.03%	43,916.28	77.52%
Employee benefits expense	7,260.17	11.74%	6,255.19	11.04%
Finance costs	1,025.86	1.66%	964.33	1.70%
Depreciation and amortisation expense	2,498.43	4.04%	2,242.14	3.96%
Other expenses	2,822.73	4.56%	2,536.26	4.48%
Total Expenses	60,013.80	97.04%	55,914.20	98.70%
Profit before tax	1,832.89	2.96%	734.43	1.30%
Total tax expense / (benefit)	330.56	0.53%	78.66	0.14%
Profit after tax	1,502.33	2.43%	655.77	1.16%

Total Income

Total income increased from RS.56,648.63 to RS.61,846.69 between FY2023-24 and FY2024-25, indicating 9.18% growth in FY2024-25. This Growth has been contributed by mature stores and new stores.

Cost of Goods Sold

The Companys Cost of Goods Sold (COGS) for FY2024-25 was RS.46,406.61 million. This represents an increase of 5.67%, compared to RS.43,916.28 million in FY2023-24.

Employee Benefit Expenses

Employee benefit expenses increased from RS.6,255.19 to RS.7,260.17 reflecting a 16.07% increase in FY 2025.

This incremental cost is mainly driven by additional manpower for new stores and general increase in Salaries.

Finance Costs

It has increased by 6.38% in FY2024-25. The Company reported finance costs of C 1,025.86 million for FY2024-

25, which is higher than the RS.964.33 million recorded in FY2023-24. This incremental cost is mainly due to addition of new stores and warehouses.

Depreciation and Amortisation Expenses

The Depreciation & Amortisation expenses are RS.2,498.43 million for FY2024-25. It represents an

11.43% increase in expenses compared to RS.2,242.14 million in FY2023-24.

Other Expenses

Other expenses increased from RS.2,536.26 to RS.2,822.73 reflecting a 11.29% increase in FY 2025, primarily driven by increase in electricity, packing and forwarding charges and other operational expenses primarily on account of addition of new stores and

expansion of warehouses compensated by decrease in advertisement and sales promotion expenses.

Total Tax Expenses

Tax expenses for FY2025 are RS.330.56 compared to RS.78.66 in FY2024. The increase is due to higher profits i n FY2025. I n FY2024, tax expen ses were lower because of a deferred tax benefit from claiming the remaining portion of a tax incentive under section 80JJAA.

Profit After Tax

The Company reported a Profit After Tax (PAT) of C 1,502.33 million for FY 2024-25. This marks a significant increase of 129.09% compared to RS.655.77 million in FY 2023-24.

Key Balance Sheet Items

Particulars	FY 2025	FY 2024	% Change YoY
Property, plant and equipment	2,906.71	3185.71	-8.76%
Inventories	13450.99	13402.34	0.36%
Cash and Bank balances including bank deposits	4422.56	1701.84	159.87%
Trade payables	2,989.59	2530.35	18.15%
Trade receivables	132.71	175.04	-24.18%
Total equity (Shareholders funds / networth)	17,398.99	15773.59	10.30%

Key Financial Ratios

Particulars	FY 2025	FY 2024	% Change YoY
Inventory Turnover (Days)	80.01	86.97	-8.00%
Interest Coverage Ratio	2.79	1.76	58.19%
Current Ratio	3.20	2.98	7.27%
Debtors Turnover (Days)	0.79	1.14	-30.50%
Operating Profit Margin	4.66%	3.02%	54.26%
Net Profit Margin	2.45%	1.17%	110.01%
Return on Net Worth	NA	NA	NA

Explanation of the Ratios

• Inventory turnover ratio measures the efficiency with which a Company utilises or manages its inventory. It establishes the relationship between revenue from operations and inventory held during the period. It is calculated by dividing the inventory with revenue from operations and multiplied by 365 days.

• Interest Coverage Ratio measures how many times a company can cover its current interest with its available earnings. It is calculated by dividing earnings before interest and tax by total finance cost.

• Current ratio indicates a companys overall liquidity position and measures companys ability to pay short-term obligations or those due within one year. It is calculated by dividing current assets by current liabilities.

• Debtors(Trade receivables) turnover ratio measures the efficiency with which a Company utilises or manages its debtors. It establishes the relationship between revenue from operations and debtors held during the period. It is calculated by dividing the debtors with revenue from operations and multiplied by 365 days.

• Operating margin % - operating margin measures how much profit a company makes on a rupee of sales after paying for cost of goods sold, employee benefits expenses, other expenses and depreciation and amortization expenses, but before paying finance cost and tax. It is calculated by dividing EBIT by revenue from operations.

• Net profit margin % net profit margin measures how much net profit a company makes on a rupee of sales It is calculated by dividing a companys profit after tax by its revenue from operations.

• Return on Networth/ equity is a measure of profitability of a company expressed in percentage. It is calculated by dividing net profit by average net worth/ total equity.

Risk Management

MedPlus, like any large retail pharmacy chain, faces various risks across its operations. Effective mitigation strategies are crucial for its sustained success. Heres a breakdown of some key risks and their potential mitigation strategies:

Risk Category	Description of Risk	Mitigation Strategies
Intense Competition & Pricing Pressure	High competition from retail and online pharmacies results in pricing pressure. MedPluss reliance on branded products ( 75% of sales) makes it vulnerable to margin squeeze.	- Integration of 4,700+ physical stores with online platforms (Mart, Lens, Labs) for convenience and reach.
		- Expanding own brands to reach 20-25% revenue share by FY25; higher margins.
		- Over 5 million loyalty members and 70% retention rate.
		- Discounts up to 20% off MRP to attract price- sensitive customers.
		- Expanding into diagnostics, teleconsultations, and other health services.
Regulatory Changes & Compliance	Exposure to drug pricing controls (DPCO), evolving online pharmacy norms, and regulatory scrutiny by NPPA, PCI. Noncompliance can result in penalties and operational disruptions.	- Dedicated team/system for real-time tracking of policies.
		- Strong internal policies, regular audits, and staff training.
		- Consultation with legal experts and active participation in pharma bodies.
Supply Chain & Inventory Risks	With over 18,000 SKUs, MedPlus faces inventory and distribution challenges like stockouts, overstocking, and high holding costs. Overdependence on a few suppliers and South India concentration ( 70% revenue) are added risks. Counterfeit drugs also pose credibility threats.	- Sourcing directly from manufacturers; expanded vendor base.
		- Real-time tracking, forecasting, and warehouse automation.
		- Investment in logistics, warehouses, and distribution.
		- Strong quality control and collaboration with authorities.
Cybersecurity	Vulnerability to cyberattacks and data	- Firewalls, encryption, intrusion detection, and
& Data Privacy	breaches affecting operations, customer	regular audits.
Risks	trust, and legal compliance. Previous incidents highlight system susceptibility.	- Adherence to data privacy laws, access controls, and secure storage.
		- Periodic awareness sessions on phishing, cyber hygiene.
		- Structured plan for quick detection and mitigation. - Regular audits of third-party systems.
Financial Risks	Promoter share pledging affects investor confidence. Fixed costs from store operations (rents, wages, utilities) pressure profitability.	- Healthy cash flow, efficient operations, strategic pricing.
		- Gradual lowering of promoter pledging to boost confidence.
		- Use of tech and analytics to reduce store-level overheads.
Human Resource Risks	Attracting and retaining qualified pharmacists and support staff is challenging. Service quality and business continuity can be impacted by staff attrition or skill gaps.	- Competitive pay and benefits to retain talent.
		- Regular skill development and learning modules.
		- Positive culture, welfare schemes, and transparent HR practices.
		- Structured pipeline for key roles to ensure continuity.

Internal Control and Adequacy

The company maintains a strong internal control structure that governs all its activities and operations. It continuously aims to integrate all aspects of the business, from fundamental operational tasks to critical strategic support functions.

The company ensures that all its methods comply with established rules, practices, and legal requirements. To achieve this, it has developed well-documented policies, clear authorisation and approval processes, and routine audits.

The internal audit system encompasses all financial and operational controls across every department, division, and function. The internal audit team regularly examines the organisations different operations and identifies areas for improvement.

Human Resources

MedPlus considers its team members as its most valuable resources, recognising their significant contribution to the companys long-term vision and sustained success. The company is committed to treating all team members equally and fairly, regardless of their position within the organisation. In turn, all team members are dedicated to acting with compassion, integrity, honesty, and high ethical standards as they pursue their career aspirations within the company.

As an organisation, MedPlus is committed to fostering a culture that provides an energetic, enabling, safe, and open work environment for all its team members. The company also focuses on recruiting talent from diverse, world-class institutions and then nurturing and retaining them. This approach aims to help employees develop cross-functional expertise and consistently deliver a high-quality experience for all customers. In compliance with the requirements of paragraph B(1 )(h) of Schedule V of the Listing Regulations, there have been no material developments in this area.

Cautionary statement

The statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, and expectations, maybe forward-looking statements within the meaning of applicable securities laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand, supply and price conditions in the domestic & overseas markets in which the Company operates, changes in the government regulations, tax laws & other statutes & other incidental factors.