Note that this conference is being recorded. I now hand the conference over to Mr. Srinivas from MedPlus. Thank you, and over to you.
Thank you, Ashley. Good evening, everyone. On behalf of MedPlus, it's my utmost pleasure to welcome you all to the MedPlus Earnings Conference Call to discuss the financial results of MedPlus for the fourth quarter of FY24, which were announced on 28th May. We have with us today the senior management team, represented by Mr. Madhukar Gangadi , CEO and MD, Mr. Sujit Mahato, CFO, and Mr. Chetan Dikshit, CSO. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties on slide one of the investor presentation shared with all of you earlier. Documents relating to our financial performance were circulated earlier, and these have also been posted on our corporate website. I will now hand over the call to Sujit.
Thank you, and over to you, Sujit.
Thank you, Srinivas, and a very good evening, everyone on this call. We are pleased to share that as of March 31, 2024, we have been serving community in over 640 cities across 10 states through our network of 4,407 outlets. Also, the company operates four food service diagnostic centers, eight level two centers, and over 110 collection centers offering essential diagnostic services at affordable rates. On the update of the network, over the past 12 months, the company has added a net total of 585 stores, gross additions being 670 stores, with 199 stores opened during Q4 alone. Most of the new stores were opened in West Bengal and Karnataka, with 55 and 37 stores, respectively, during this Q4.
This reflects our commitment to meet the evolving needs of our community while maintaining a focus on sustainability and financial health. We expect the new store openings for the fiscal year 2025 to be around 600 stores. In the fourth quarter, 54% of our store openings were in Tier 2 cities and beyond, underscoring the company's emphasis on these markets. At present, out of our 4,007 stores, 2,008 stores, approximately 45%, are situated in Tier 2 cities and beyond. We acknowledge the growth potential inherent in these markets. Throughout Q4, there were a total of 25 store closures. Taking into account both openings and closures, we achieved a net addition of 174 stores during the quarter, compared to 144 stores added in the previous quarter three.
In terms of our stores' network age, around 41% of our stores are operational for less than two years, and the remaining 59% of our stores have been operational for two years or more. It is noteworthy that all stores in the less than two years age bracket are still in their ramp-up phase. As these stores mature, we anticipate a positive contribution to our profitability. As a guardrail, we closely monitor the timeframe for our new stores to reach breakeven. For stores opened between April 2023 and September 2023, approximately 70% of them achieved breakeven within the first six months of operations. As a cohort, all stores combined reached breakeven in just four months.
In terms of our store size, as at the end of the quarter, our network has grown to 4,007 stores, with 2.3+ million sq ft, compared to 3,822 stores, with 2 million sq ft at the end of March 2023. The average store size was 530 sq ft. To give you a sense of spread in store sizes, we have 3,234 stores less than 600 sq ft and 1,173 outlets that are greater than 600 sq ft. In terms of the revenue update, we are strategically positioned to increase our revenue share from private label products. Our private label range is crafted to provide customers with high-quality products at competitive prices.
Presently, MedPlus offers over 1,100 carefully selected SKUs spanning across pharmaceutical and non-pharmaceutical categories. Private label sales for Q4 , FY2024, constitute 15.2% of our total reported revenue. Moreover, our growing presence in Tier 2 cities and beyond is significantly impacting on our revenue mix. Sales from these markets comprise 35% of our pharmacy revenue in the current quarter, marking an increase from 33% in the same period last year. The following is the impact of the launch of MedPlus brand products across our network. In Q1, FY2024, prior to the launch, the share of private label pharmaceutical stood at 7.9% of total gross merchandising value, compared to 13.6% during the current quarter.
The increase in the private label GMV share indicates a positive reception from customers and validates our commitment to delivering high quality product under the MedPlus brand umbrella. Now, on our financial numbers. On our quarter's performance, our consolidated revenue was INR 14,905 million, with growth of 19% year-on-year and 3.4% quarter-on-quarter. Our consolidated operating EBITDA stood at INR 581 million, representing 3.9%. Around 99% of our revenue is from our pharmacy operations. The pharmacy operating EBITDA is INR 593 million, representing 4%. On our store performance, I would like to update on our stores older than 12 months. Revenue from these stores in Q4 was INR 13,532 million, or 94% of our pharmacy revenue.
These stores had a store level EBITDA margin of 10.3%. The store level ROCE of these stores stood at 52.2%. A word here on the store level EBITDA margin by age. While stores greater than 12 months had a margin of 10.3%, this was 10.7% for stores greater than 24 months and 7.6% for stores in the 13 to 24-month age bracket. If we allocated non-store related costs, then the operating EBITDA of stores greater than 12 months would be INR 685 million, which translates to a margin of 5%. Our diagnostics numbers. Diagnostics revenue grew to INR 232 million in Q 4 FY24, compared to INR 119 million in Q 4 FY23.
Diagnostics segment recorded an operating EBITDA loss of INR 11 million, compared to a loss of INR 37 million in Q4 FY 2023. However, it is noteworthy that, I'm happy to report that the center level operating EBITDA stood at INR 33 million. On our working capital, our net working capital for Q4 was 67 days. The inventory in our warehouse constituted 33 days. In Q4, the inventory level of our first-year stores was 118 days. In comparison, for our older stores, the inventory was 47 days. Now, I request Chetan to update on our diagnostics business. Over to you, Chetan.
Thank you, Sujit, and, good afternoon, everyone. As you know, Q4 is a seasonally strong quarter for diagnostics. In January, we sold 361 gross plans per day. In February and March, this was 369 and 357 respectively. As on 31st December, we had 127,000 active plans and 228,000 underlying lives. As on 31st of March, we had 133,000 active plans and 247,000 underlying lives. Our current observed on-time renewal rate was 21% in Q4, versus 19% in Q3. That concludes our update for the quarter. I request that the host opens the line for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take our first question from the line of Kunal Randeria from Axis Capital. Please go ahead.
Hi, good afternoon, sir. So, just firstly, on the revenue side, if I take an average revenue per store, it seems to be consistently, you know, sort of going down. So for FY24, it was around INR 37 ,000 per day, and a couple of years back it was in excess of INR 40 ,000. I don't think the store maturity can be a factor as, you know, our mature stores have gone up. So what do you attribute this to? Is it because you have more stores in Tier 2, where the revenue is lower per day? What exactly, you know, can explain this factor?
Sure. So it's probably a combination of both. Stores, smaller stores in Tier 2, Tier 3 areas, which we always expect will be slightly lesser anyway. That proportion has been growing. And second, with the introduction of the new private label products, the top line also would have compressed a little bit. I wouldn't say it is a huge impact, given that it has only gone up from seven, seven percent to 13.7% overall. So but both factors would be there. For us, though, you know, we tend to look more at the EBITDA and to see if the stores are in line for a 24 to 30-month EBITDA margin of around 10% at the store level.
Okay. Okay. Secondly, now just to take this private label point that you mentioned, you know, your, you know, private label contribution is around 15.2% at the end of Q4. I believe the private label gross margins should be, you know, higher than your average. But if I see on a year-on-year basis, the consolidated gross margin is pretty similar. I just want to understand, you know, what has changed. Is there some extra provisions that you have taken? If you can just explain this.
No, actually, there's a significant change in our private label strategy in the last one year or so. You know, we used to sell our medicine private label earlier at the same price as the regular brands and with the same discount as regular brands.
While we continue to maintain the MRP at the same level, we have increased the discount significantly now. For medicines, the discount now has gone up from 17% to nearly 55%. While this is a great way for us to attract new customers, and we are doing that, we are seeing a huge response to that, it definitely means that the margins would have gone down slightly. Even on the general goods also, where, you know, given the fact that, we have roughly around 250-300 products, these products are doing very well. They're high quality products made for us specifically. While they match the quality of the regular brands, we thought that it would be a great idea for us to give a customer one more reason for him to actually buy this product.
We are not normally a destination for people to come and buy toothpaste or dishwashers or any other home cleaning or other equipment and all. We are, you know, in a position where we can basically be seen as a convenience store almost, where we have a customer walking in. We would like to encourage them to spend a little bit more in our stores, and hence we're encouraging them by basically reducing the price slightly. We've seen a pretty big impact because of that, and we continue to see it, but that's one of the reasons why the private label margins would have not really bumped up the overall margins for us.
Got it. So if I were to summarize, it is because Wynclark margins would have been higher than made by MedPlus, and that is why you're not seeing a jump?
Yeah. No, no, absolutely. So on both accounts, actually, we have also gone towards a market share growth kind of strategy on the private label, non-pharma also, so both of them. And we are actually seeing fantastic results there. It is yet to, and the impact will be seen as we go forward, but we are seeing the growth. Yeah, so both, both the reasons. Wynclark would have had slightly higher margins, and so would have our older private label, non-pharma products.
Sure. And just one more, if I can squeeze in. See, a month ago, you know, there were some news items saying that, you know, there are a couple of associations with chemists in Karnataka and Telangana who have been pushing the CDSCO to take action against MedPlus.
So if you can help us understand what exactly happened and where things stand now today?
So, you know, every time we go there and do, you know, this kind of, let's say, I won't say disruption, but at least a logical progression. You know, we have built the scale, and now we are ready to launch our own products, and obviously, because we can pass on the benefit of gaining more market share by doing that. There will be some people hurt, and that's what is happening with the smaller stores. They have gone and approached all the, you know, both their local associations, local drug bodies, from which nothing actually happened, so ended up writing a letter to the CDSCO.
Nothing concrete out there, but given that we have been advertising our 50%-80% discount quite prominently everywhere, I think in some cases, some of the departments have picked up the samples to check, which, you know, we are more than happy to let them do. So that's about it. I don't think there's been any other impact as of now.
So there is no litigation or any legal and court cases going on, no?
No, absolutely none. None at all. See, Kunal, while we all know that the government is behind this. Government wants everyone to basically go towards the generic side. Government wants everyone to basically pick one, you know, and save money on that, and that's been the thing out there.
The drug departments and everyone else recognize the fact that, you know, this is going to be a part of the overall business as we go forward. I don't think, you know, anything which benefits the customer so, in such a large, you know, fashion, I don't think it's going to really find any kind of opposition from the government. Yes, trade at small may get affected and may approach them, but I don't see any action happening from that side.
Okay, got it. Thanks for all the best. Thank you.
Thank you. We'll take our next question from the line of Harith Ahamed from Avendus Spark. Please go ahead.
Hi. Good afternoon. Thanks for the opportunity. So, my first question is on the private label, the pharma private label number that you shared, which is at 30%-odd of GMV for the quarter. So, will you be able to give a breakup between the old private label and the new MedPlus brand private label for this 30%-odd number? And some color on how this number or how this share has ramped up in different geographies, maybe in Telangana, where you launched earlier, and in other states, how the progress has been.
Sure. So I'll try and get you the exact breakup, but to my knowledge, at least from what I remember, I don't think the old Wynclark is now more than 1% or 2% of the overall sales, maybe 2% of the overall sales, is what I think is the number, but I'll get back to you on that. On the launch itself, while October, November, we launched this across the country.
We have gone about, you know, using advertisement only in very selective areas. So we started in AP Telangana very early, and then we basically did it in Tamil Nadu, and now in West Bengal. In all these places, it has actually gone up very significantly. Let me actually, why don't I, Sujit, why don't you step in and give the actual numbers, if you have any, for the different states, Tamil Nadu and all?
So in Tamil Nadu, where we launched it, post our marketing campaign, March exit, on pharma GMV sales, we are at 19.3%, right? And in Telangana, we ended it with 15.9%. And for all the other details, maybe we can connect offline and can share the data.
Okay. And Madhukar, for you know, previously you had shared a goal of around 20% share from a private label. Do you still maintain that?
No, absolutely. We continue to increase the number of products out there. There's been a slight delay in bringing all the products into the market. You know, we started off with around 433, now we are at around 550, 560. I think we are adding another 200 products. So that process is on. And we're also seeing a larger number of people coming to buy from our stores. You know, there'll always be some people who will probably drop out for whatever reason, you know, the doctors would have told them or whatever. But we are seeing an ever-increasing number of new people and the existing ones, so we're tracking that. And for us, the 20% number should not be a difficult one to beat.
If you actually look at only the medicine part, you know, given that 80% of our sales is medicines, and given that something like 15.6, even in Telangana, and slightly more in Tamil Nadu, is already from this, you could say that 20% of all which we sell in medicines is already MedPlus private label.
Okay. And, and, one question on the margin profile of our pharmacy retail segment. So, when I look at the maturity profile of our stores, the less than 12-month stores, which accounted for 30% of our overall stores in March 2023. Now, it, it's around 15%, but we haven't seen a commensurate improvement in our margins for pharmacy retail segment. It's, it's broadly in line with what we, where we were last year. I know there are a lot of moving parts, but, if you can help us understand how we should think about this trajectory, going forward, by 2025 as well, we have a lower number of store additions, so that will aid maturity mix even further.
So, some broad sense on how we should think about margin profile for just the pharmacy business.
Sure. So, couple of reasons why the margins have not gone up, to the level which we, which we would have normally expected. One, we switched from our old private label to new private label. In the initial product stage, it would basically mean a slight decrease in overall margin. So if you actually look at it, our overall margin on private label has come down slightly, because of the huge mix of the new ones which are coming out there. So that's one. The second thing is, we also spent a little bit of money on advertising these. So compared to what we would have normally spent, there's been an increase in marketing. And, while it is not really significant, but it is enough to basically offset that small increase we would have had.
We're happy to tell you that the advertisement is really paying off. More and more people are coming to ask and request for the MedPlus brands in AP Telangana and Tamil Nadu out there, but that's a cost. That's something which we have taken initially.
Understood. That's all from my side. Thanks for taking my question. Thank you.
Thank you. Before we take the next question, we'd like to remind participants to press Star and One to ask a question. The next question is from the line of Jatin Chawla from RTL Investments. Please go ahead.
Yeah. Hi, good evening, and, thanks for the opportunity. So, the first question is, on the new private label side, what are the sort of, retention rates that you are seeing? I, I know the absolute numbers are going up, but are you tracking retention rates for people who are subscribing, and, you know, how is that panning out?
We are tracking. We're not sharing the numbers right now. I don't think it is being. We'll try and see if we can do it at a later date, but right now, no. The retention rates are in line with the usual rates which we have for all customers. It is no different.
Okay, got it. On the pharma GMV share numbers that you shared for Telangana and Tamil Nadu, it seems Tamil Nadu has done far better despite the new private label strategy there being there for a shorter period of time. So what are you doing right there? And, you know, is there any learning that you can kind of extrapolate to other states?
So a couple of things. Yeah. So one thing, of course, you have to note that Tamil Nadu started with a base of around 9.6% private label, and then that went up to 19%, whereas Telangana started with a much smaller base at around 6.9%, and it has gone up. And the second thing is, in Telangana, we really did not spend too much money on any kind of advertisement. We just did a couple of press conferences and did a little bit of, you know, unpaid kind of advertisement and a, and a very low-level, newspaper kind of ads. Whereas Tamil Nadu, we decided to step it up a little bit and actually, I would say spend at least twice the price of what we had spent in Telangana.
So two things, the base as well as increased expenditure, both of them are actually working in Tamil Nadu. We expect, and we were, you know, running ahead with Tamil Nadu just to see if the spend would actually yield the way we want it to. We are still to, you know, decide on that. Once we are fully convinced, then that's what we decide. That's what we'll end up doing across the country.
Got it. When I look at your mature store ROC numbers that you share every quarter, if I look at it on annual basis, it seems, you know, that number has gone down from, like, 60% on an average to close to 50%. So this 10% decline, is this largely driven by the margin impact on the private label, or is there any other factor which is driving that?
It's unlikely that it is mainly the margin impact, I would say. Possibly some effect, but it is actually largely because of slight increase in store level inventory, and that is because, you know, we have introduced around 550-600 new products. Each of these products have gone to the existing stores. We have not yet or over a period of time, our overall inventory of the other brands as, as this displaces that, that will come down, but meanwhile, there is a slight increase in inventory, and that is what is resulting in the decreased ROCE out there.
But as we go forward, given that our cost of private label is so much lesser than the branded drugs and all, as we figure out which portion of the branded drugs is actually coming down, as we start to reduce that inventory, I think it'll come back to normal.
Okay. Just one last question. So you said that your, so both private label pharma and private label non-pharma margins have come down, this year. Between the two, which of it has a bigger impact on gross margins this year?
Possibly, definitely the private label pharma, I would say, because, you know, we were at around 8%-8.5% private label, with a 70%-75%, kind of margin or slightly more than 80% kind of margin out there. Now, that portion, which is at 80%, has come down to something like 1% or 2%, and it is all filled up by the new product, which is at roughly around 70% margin overall. But this 70% also is on a lower top line. So what we used to sell at roughly around INR 83 on a INR 100 MRP now sells at roughly around INR 45 to INR 42 , INR 42 to INR 45 .
So it is slightly lesser in margin on the new private label, but even the slightly lesser margin is on nearly half of the overall thing. So this would have impacted it significantly.
This impact when in Tamil Nadu, you reached, like, 19% share, GMV share. At that share, is this impact now negated, or do you need a still higher share for this impact to be negated?
No, I think more or less negated, because in Tamil Nadu, we probably are at around 1%, 1.5%, or less than 2% of the whole private label. And if that comes down to 1% or 2% or less, then and we are still maintaining the same margin. So from there, any growth in the new private label is going to see a growth in margin for us.
Okay. Got it. Thanks a lot for answering the question.
Thank you. We'll take our next question from the line of Madhav Marda from Fidelity. Please go ahead.
Hi. Good evening. Thank you so much for your time. I had a question on the two questions. First one is on the GMV growth. Could you help us understand how much is the GMV growth, which, which in my understanding, would be a proxy for volume growth for the company in total?
Sure. As Sujit actually said that the overall GMV for pharma is roughly around 13.7%, I think. Because and in states where we have gone and advertised and actually made it big, I think it is in excess of around 16% in Tamil Nadu now.
No, I meant the GMV growth. The mix, I got the mix, but how much is this?
Oh. Got it, got it, got it, got it. The mix which I told you about was 16% when you look at it on GMV basis. Let me just come back to you on the actual growth itself. So yeah.
Got it. And then.
On a year-on-year basis, that is 27.4% in terms of the revenue, in terms of GMV.
which I should take as proxy for volume growth, right? In the sense that 27% growth in volume.
Uh, absolutely.
Yeah. Okay.
Yeah.
Then my second question is on the margins. I think in the morning, in the television interview, you did mention that we spent about INR 10 crore extra on promotions for the new private label in Tamil Nadu. So just wanted to understand that, and I think you also mentioned that in FY25, if I picked it up right, we expect the pharmacy operating margins to be 4.5%-5%. So just wanted to check, firstly, did I pick the comment right? And if you could share your outlook on this for FY25 for the pharmacy operating profit margin.
Got it. So, I'm not sure if the exact number is 10% for last year. I think some of it would have actually gone into this year also. But I think the overall increase in spend last year was-
Crore, you're saying.
Was more than INR 10 crore extra than, you know, more than usual. Not sure if it is exactly in Tamil Nadu. I'll come back to you on that matter.
Sure.
We started the campaign in Tamil Nadu on February 25th, so entire February, that last part of February and March would have gone to last year. But the number INR 10 crore or slightly higher was spent for private label across the country, before that. And on the growth itself, so if you, I think we exit the year with around 4% overall. We expect that we will achieve growth, growth rate by at least 1% as we go forward, given that we are adding lesser number of stores, and we'll also get some operational benefits now as we go forward.
So which is what my question was, that is Q4 , you're saying we were at 4%. For FY25 as a whole, can this number be, I think, 4.5%-5%? Is that, is that what you said in the television? Or if you could just share your guidance for FY25 for the full year, given we have lesser stores, coming in as well.
So then definitely be, you know, higher than what we are, and probably exit at least at 1% higher than this. But for the full year, we may go, you know, slightly above where we are, because we will still see the impact of the private label, the old private label, coming down slightly, and that will be there. But right now, at this point, you know, while I don't want to give you the full margin guidance right now, but you can definitely expect some improvement out there.
FY25 to be higher than exit of FY24, you're saying, right?
Yeah, definitely.
Yeah, exactly. Okay. All right. Thank you so much. Thank you.
Thank you. We'll take our next question from the line of Ashish Jindal, an individual investor. Please go ahead.
Sir, I saw a few podcasts. I think it was a great way to market. I would appreciate if you could do more such podcasts, more languages. I guess it would give MedPlus more acceptability in newer territories. So my question is that, what are the challenges in getting B2B diagnostic business, provided that we offer such a value to our customers?
Oh. The B2B part is not like the usual business of the other diagnostic companies. When other diagnostic companies say that, they're basically saying that they are picking up samples from other small centers and processing it, and that's their B2B business. For us, the B2B is in subscription. Our business is selling subscriptions. Today, we sell B2C for subscriptions to people who come to our stores, who come to our diagnostic centers, and who go online to buy. And the B2B would mean we would go to large companies and sell this as part or as, or on a like-like basis, you would say, equal to an insurance kind of product. Companies normally pay INR 25,000 a year for a family to get themselves covered for health insurance.
We are basically saying maybe they could pay INR 1,500 or some number like that for the family, for them to get covered for the diagnostic part. So that's the B2B part. Obviously, it's good to get that business going, and that's what we are looking to do this year. But the selling cycle out there is much longer, and it does take a while to convince them. B2C, on the other hand, is doing very well for us. B2B is what we're looking to crack this year.
Okay, sir. Thank you, sir.
Thank you. We have our next question from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi, good afternoon to all. Couple of questions. First, I was looking at your deck. The share of private label in pharma has not changed much from last year's level, 8.4-8.5. The increase has come from private label others. Could you put that in perspective? Because I thought with the private label pharma launch, that should have gone up more.
Yeah. So, it looks like it has not gone up too much because you're looking at the net prices. Our prices on the new private label have actually gone down significantly, as I said earlier. What we used to sell at INR 83 and INR 100 MRP, today we sell it around INR 72-INR 25, so you would have seen a decrease because of that. But if you look at the GMV part, last year, where we ended at 8.1%, or last year was 8.1%, this year is 13.7%. And this got started only in the later part of the year for the rest of the country, but you're still seeing the growth. On the FMCG side, it used to be. Yeah, it, it has gone up there around 1.5% on the FMCG side.
Understood. On the diagnostic side, what is our latest plan and thoughts? Are you planning to expand it further, or still we are in the figuring out the business model stage?
I will let Chetan answer that question.
Yeah, sure. You know, in diagnostics, we will continue to, you know, perfect the model here in Hyderabad before we look at expanding in any meaningful way outside of Hyderabad.
Understood. But, within Hyderabad, you are adding more labs or centers or anything like that?
There will be some maintenance CapEx-type additions like, you know, ultrasound or, you know, something similar. But there is no large-scale CapEx that is currently scheduled for Hyderabad.
So no big diagnostic centers or, no heavy CapEx plans, just something more like maintenance CapEx.
Understood. Just a bookkeeping, you know, the consolidated level, the tax rate this year was around 10% odd. Could you let us know how it will progress over the next two years at the consolidated level tax rate?
Over the next couple of years, we expect the tax rate to be normalized between 24%-25%, as a guidance.
Okay. Thank you.
Thank you. Next question is from the line of Madhav Marda from Fidelity. Please go ahead.
Yeah, thank you for the follow-up. My, the only other question was that if we, like, you think from, like, a three to five year view on the pharmacy operating EBITDA margin, which was at 4% in Q4 . You know, as we have store maturity, and I guess the new private label, once it starts giving you the volume growth, that, that there are some signs and as that scales up across the country. And I think our stores in the smaller towns, you'll have indicated in the past, have a better margin. Just, just wanted to get, like, you know, where could the sort of company level operating EBITDA margin look like in three to five years?
If you could give us some sense, are we thinking of the drivers correctly for the margins, or are we missing something?
Yeah, definitely. Same-store sales growth as the stores mature and go forward. Two, slightly greater EBITDA in the smaller towns and all. And three, even when the top line is slightly lesser, and three, private label. But private label comes with a couple of, you know, caveats out there. We still have to get the old private label completely out of the system, and as we get it out, you know, you will lose a little bit of margin out there. And it will also come with a little bit of spend. We will end up spending a little bit of money just to get the word out. What we think is, is Mada, we're building a brand, and we're getting people to come in and ask for the MedPlus brand out there. We're giving this discount.
We feel as we go forward, we can play around with the discount a little bit. We can definitely play around with the MRP. We are allowed to increase the MRPs every year and on. So all those will be great levers for us. But in the near term, though, while we build a brand, the margins may be flattish as to grow up or grow up slightly. In the very near term, this thing, you know, we will see some seasonality effect. Q1 is typically expected to be slightly lower because of seasonality and all that. But otherwise, you know, on the overall side, I would say we'll continue to grow and get better margins. The levers are, as you said, smaller stores, smaller towns, slightly better EBITDA and private label.
Okay. Okay. So the old private label in Q4 , you said it was 1%-2% of our GMV. Is it, is that right?
In some of the places, I would say in Tamil Nadu, now it's probably down to that level, but in other places like Maharashtra and a couple other places where we have not fully launched with any kind of advertisement, it may still be slightly higher than that at this point.
Okay. We plan to straddle it anyway, right? Like in most of the parts, most of our stores, except for one or two states, we do plan to keep the old private label as well, or what's the plan there?
But it'll probably come down to just the acute kind of products being sold in that.
Yeah.
So what we will say is, you know, we sell a subscription plan to people who want to buy the chronic, so who want to buy the MedPlus thing. So our thing is, okay, we differentiate between the person who is really price sensitive, and he wants to become a member, and he wants to take the full advantage, he'll get that. But someone who is not, you know, who is seeking only convenience and fast service, not really looking to become a member and is just buying it one-off, will probably end up buying some of our private label in the old brand for acute needs. So he'll probably give us the full margins. But I don't expect that to be more than 1% or so as we go forward.
Understood. Understood. Okay, thank you.
Thank you.
Thank you.
We have our next question from the line of Lakshmin arayanan from Tunga Investments. Please go ahead.
Yeah. Thank you. A couple of questions. First, when you say your store is mature, at what stage you call the store as mature? Is it after two years or after three years?
So 24-30 months would be the stage. Slightly, it depends on the place and all. Smaller towns tend to plateau much faster. They will not grow beyond a certain level. Whereas the larger cities like, you know, Bengaluru or Mumbai or something like that, will tend to continue to grow even after, like, 24-30 months. And it is needed, too, because these stores typically come with a much higher rent and all. We expect them to do a lot, lot more. So they continue to grow to 30 months. Yeah, 30, 36 months.
And then when it comes to around 30-36 months, from there, what is the typical same-store sales growth? From there, I mean, usually, what normally tracks?
Typically, we would say inflation plus, but given the fact that we have a big price advantage over other competitors and all, we expect that we at least grow at around 10% on those stores.
Okay. Okay, when you say inflation, it is the, the pharma inflation or the general inflation you usually model it with?
Pharma inflation, the 20% of it is the general goods, so it come with that general goods plus pharma inflation kind of thing.
Got it. Got it. And you say 10%, is it including the taxes, or how do you think? Because what we understand is that the pharma companies themselves can take the prices up in that range, inflation-wide. So if you're growing at inflation, just want to understand whether it is including taxes, excluding taxes, and how does the pharma inflation play a role in this?
Pharma inflation is the main thing out there. One of the other things is also, you know, I won't say inflation, at least, you know, you keep adding new categories out there and all, so that also causing a slight bump. Unfortunately, pharma inflation also comes with a, I would say, a reverse risk thing out there. It comes with the DPCO price rules, which, you know, are reset from time to time, and which tend to drop the prices a little. So it is not always going up, or it is not always going up for the entire set of products. There are set of products which go up, and some which could actually get moderated or even come down a little bit.
So on the whole, because we would definitely be dependent on the pharma inflation and, taking some market share from the other competitors, I would say 10% would be a good number to shoot for.
That's 10, 10% is our realization net of taxes?
Growth, yes.
Yeah. And second, from an operating cash flow point of view, what is your goal or aspiration for the next couple of years? When I say operating cash flows, I mean net of lease rentals and so on. How do you think that would pan out? What's the aspiration for the management for not just one year, but, like, two, three years down the line?
So over a period, the way we think is, you are right, from the operating cash flow, if you remove the lease rentals, which goes back to greenfield, and then also look at the CapEx which the company is currently investing. Because we are in the growth phase, it would continue to be minus, and then we would leverage whatever working capital is required through a separate credit line as and when needed. But once we reach a stability, that's the point where the company starts generating operating free cash flows.
And typically, in your expectation, how far we are? Are we two years out, or it's like it could take another five years?
If we go at the current speed, I think in a couple of years we will be having surplus cash. Because the base starts growing, and when the base gets maturing, then the level of cash inflows versus what we spend on an average of 600 stores per year, it would definitely inch towards the surplus cash.
Sorry to again harp on that point. Are we, I mean, we are in 2025 start rate, so we expect by 2027, 2028, or, I mean, how should investors look at it?
Okay. So for us, if you look at it, as Sujit said, if you were to grow only at the rate of around 600 stores a year or even 800 stores a year, then the overall investment for us would be anywhere within INR 200-INR 220 crores. That is, you know, taking the investment around INR 25 lakh-INR 30 lakh per store. Given that we are at something like INR 170 crores on EBITDA right now, and we should expect to grow quite significantly as we go forward, I don't think it'll be too long before. Because below the EBITDA, we don't have any debt as of now. There's only a tiny amount of depreciation, otherwise it is just taxes. So for us to actually get to this number, it's not going to be too far.
And it all depends on, you know, what else happens in the company. If the margin were to go up by 1%, obviously at 1%-1.5% as we bring in leverage, the benefits of leverage and price hiking, then this, of course, can be achieved much faster. But on a conservative level, it is what Sujit said. In the next two to three years, we should be having enough cash to fund any kind of growth.
All right. My third question is related to discounting. Just want to understand how the discounting has actually panned out for the industry in the last one year. What we anecdotally see is that discounting has reduced in some pockets. Just want to hear your thoughts on discounting practice, both online as well as offline, and how are you thinking about as we move forward?
Sure. So if you look at the discounts, I'm pretty sure, given the amount of money which online players usually spend on advertising and all, they have a very high level of visibility, and so what they do tends to basically be seen as the industry's numbers. Definitely, they have reduced their discount a little. You know, across the board, I think they've all reduced their discount, at least for the lower tickets, they've reduced the discount. But please bear in mind that the overall online business is actually less than 5% for the country, which basically means the rest of the business is in the hands of the mom-and-pop operators and the other brick-and-mortar operators. And there, we haven't seen any signs of reduction of discounts. If anything, people are now selling more and more generic drugs.
They are mixing prescriptions with generics, and are able to offer 20% and at times even 25% discount. So on the ground, it is a mess. People are using, at least, you know, stores seem to be using all sorts of techniques to basically offer a higher and higher discount. A lot of times it is by just mixing either generics or outright. I would, yeah. Sujit will explain to you. So on the and to answer your question, yes, the online guys have reduced it. No significant impact to us, honestly, whether they have reduced or increased. The offline players, though, are where they are. If anything, they are actually increasing the discounts.
Got it. Okay. Thank you so much for your detailed answers.
Thank you. We have our next question from the line of Saion Mukherjee from Nomura Securities. Please go ahead.
Yeah, hi. Thanks for taking my question. Sir, just one question on private label pharma. So the reported number is 8.5% for the quarter. If you were to split it between old and new, can you do that just to understand how much of cleanup of the, you know, old private label is still left?
Can't give you the exact number right now, Saion, but I think it is roughly around 2% right now. But to give you an idea, I think. Just hold for one second. I think we have somewhere. Yeah, probably around 2%. I'll come back to you with the GMV equivalent for the private label.
So this 2% is new or is the new, sir?
Sorry, the 2% is old and new? Okay, well, well, Sujit has the numbers. Why don't I ask him to answer the question?
Sure. So in terms of GMV for the whole year, the breakup is 5.3% is the new product, and the old private label, because we launched it only in October, still continues for the whole year at 5.4%. For the quarter, it should be a different number. Just give me a second, I'll give you that as well. And for the quarter, the old private label has shrunk to 2.9%, and the MedPlus branded has moved to 10.7% in terms of GMV.
Okay. So a large, you know, switch has already happened. Okay.
Yeah, it has.
Yeah. Sir, I'm interested to get some color. When you think about this new private label, the volumes that you've got, how much of this volume has come from new customers who are not, you know, who didn't buy earlier from MedPlus, and how much is from the existing customer? So if you look at the mix of the new private label currently.
Little difficult to split that exactly, you know, but in the states where we have seen the private label taking off, primarily because we have advertised it slightly better out there, we have seen a slight growth in the overall sales, and we've also seen a lot of new customers walking into our stores. So, difficult for me to tell you, but yes, there has, there's a certain percentage of people who are converting existing, right? And there's also significant people, number of people who are coming in, who are otherwise not buying with us or who have stopped buying for whatever, whatever reason.
Okay. I mean, okay, you don't have the split, you know, at this point, I mean.
I don't have the split.
Okay. But do you think, I mean, just, you know, qualitatively, like, more than 50%, you think would be new customers? Or, it is, you know, old customers, which would be the majority of this new private label currently?
Up to 50% could be new people.
And, you know, you mentioned it's more sort of focused on chronic, right? So is there a disproportionate contribution from chronic here?
Okay. So, I would say it is definitely represented more by people who are buying for MRP values, which are more than 1,000 and more. The reason I say that is, everyone who comes in to buy his chronic medication also has some parts of acute also, or some parts of general use. You know, they basically have a bunch of products like pantoprazole and vitamins and everything else, which are not necessarily chronic, and we could also have some of the other acute products. But the pure, the lesser ticket value, the guy who walks in for just that, the immediate need, that definitely is slightly lesser on the that aspect.
The reason being, you know, that guy doesn't have time to actually listen to the explanation of our pharmacist. Neither is he going to go become a member, paying any kind of money, as small as it is, to get that advantage. You know, because tickets are small, discount really doesn't matter.
Understood.
He's not really going to change the brand at that time. Yeah.
Understood. Thank you.
Thank you. Ladies and gentlemen, we'll take that as the last question for today. I would now like to hand the conference over to management for closing comments. Over to you.
Thank you, ladies and gentlemen. I thank all the participants on this call for your interest in the MedPlus journey. Our investor relations team can be contacted at ir@medplusindia.com.
Thank you, members of the management. Ladies and gentlemen, on behalf of MedPlus Health Services, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.