Please note that this conference is being recorded. I now hand the conference over to Mr. Prasad Reddy from MedPlus. Thank you, and over to you, Mr. Reddy.
Thank you, Michelle. Good evening, everyone. On behalf of MedPlus, it's my utmost pleasure to welcome you all to the MedPlus Q3 FY2024 earnings conference call to discuss the financial results of MedPlus for the third quarter of financial year 2024, which were announced on 2 February 2024. We have with us today the senior management team represented by Mr. Gangadi Madhukar Reddy, Chief Executive Officer and Managing Director, 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 is 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 would now hand over the call to Sujit, the CFO. Thank you, and over to you, Sujit.
Thank you, Prasad, and good evening, everyone, on this call. We are pleased to share that as of December 31st, we have been serving communities in over 600 cities across 10 states, including the 3 new states of Madhya Pradesh, Chhattisgarh, and Kerala, through our network of 4,233 pharmacy stores. Additionally, in Hyderabad, MedPlus operates 4 full-service diagnostic centers, 8 level two centers, and over 120 collection centers offering essential diagnostic services at affordable rates. Let me cover the network in terms of openings and closures of our outlets. As informed during the last quarter, we have taken a thoughtful approach towards store expansion, prioritizing scale-up of MedPlus-branded pharma and non-pharma products, and also maintaining a balance between overall growth and profitability. Over the past 12 months, we have added a net total of 676 stores. On gross basis, this was 758 stores, with 164 stores opened during Q3 alone.
Most of the new stores were opened in Tamil Nadu and Telangana, with 55 and 24 stores, respectively. This strategic focus on growth 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 2024 to be around 600 stores. In the third quarter, 59% of our store openings were in tier two cities and beyond, underscoring our strategic emphasis on these markets. Presently, out of our 4,233 stores, 1,908 stores, representing 45%, are situated in tier two cities and beyond. We acknowledge the growth potential inherent in these markets. Throughout Q3, there were 20 store closures. Taking into account both openings and closures, we achieved a net addition of 144 stores during the current quarter, a notable increase compared to the 114 added in the previous Q2 quarter.
In terms of the network age, approximately 18% of our stores are in the first year of operation, around 27% of our stores are in their second year of operation, and the remaining 55% 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. From a financial standpoint, they continue to exert a negative impact on our EBITDA. However, as these stores mature, we anticipate a positive contribution to our profitability. We closely monitor the time frame for our new stores to reach breakeven. For stores opened between January 2023 and June 2023, approximately 59% of them achieved breakeven within six months of their operation. As a cohort, all stores combined reached breakeven in just four months.
In terms of the store size, as at the end of the quarter, our network has grown to 4,233 stores, covering 2.2 million sq ft, compared to 3,557 stores over 1.9 million sq ft as at the end of December 2022. The average store size was 535 sq ft. To give you a sense of spread in store sizes, we have 3,082 stores less than 600 sq ft and 1,151 stores that are greater than 600 sq ft. In terms of revenue mix, with our expanded scale, we are strategically positioned to increase our revenue share from our private label products. Our private label range is crafted to provide customers with high-quality products at competitive prices. Presently, MedPlus offers over 1,000 carefully selected SKUs spanning across pharmaceutical and non-pharmaceutical categories. Private label sales currently constitute 14.5% of our total net revenue.
However, our growing presence in tier two cities and beyond is significantly impacting 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. I'm pleased to provide an update on the impact of the launch of MedPlus-branded products in Telangana state. In quarter one FY2024, prior to the launch, the share of private label pharma stood at 6.61% of the total GMV in Telangana. However, following the launch and in quarter three FY2024, the gross merchandising value notably increased to 15.03% of the total GMV in Telangana. Following the promising results observed in Telangana, the company initiated the launch of MedPlus-branded products in other states starting October 23 onwards.
Prior to the introduction of MedPlus-branded pharma products, sales of private label pharma products accounted for 8% of the gross merchandise value in quarter two of FY2024. However, subsequent to the launch and throughout the reported period, the private label share of GMV surged to 11.2%. The increase in private label GMV indicates a positive reception from customers and validates our commitment to delivering high-quality products under the MedPlus brand umbrella. Now, coming to the financial numbers, on our quarter performance, our consolidated revenue was INR 14,415 million, with a growth of 21.1% year-on-year and 2.3% quarter-on-quarter. Our consolidated EBITDA stood at INR 466 million, representing 3.2%. Around 99% of our revenue is from our pharmacy operations. The pharmacy EBITDA is INR 505 million, representing 3.6%. In terms of our store's performance, I would like to update on our stores older than 12 months.
Revenue from these stores in quarter three was INR 12,953 million, or 91% of pharmacy revenue. These stores had a store-level EBITDA margin of 9.6%. The store-level operating ROCE of these stores stood at 52.5%. A word here on the store-level EBITDA margin by age: while stores greater than 12 months had a margin of 9.6%, this was 10.1% for stores greater than 24 months and 7.2% for stores in the 13-24 month age bracket. If we allocated the non-store-related costs, then the operating EBITDA of stores greater than 12 months is INR 588 million, which translates to a margin of 4.5%. In numbers, diagnostic revenue has grown to INR 196 million in Q3 2024 compared to INR 97 million in Q3 of FY2023, which is primarily due to launch of the new centers across Hyderabad.
Diagnostic segments recorded an EBITDA loss of INR 34 million compared to a loss of INR 33 million in quarter three of FY2023. Our net working capital for quarter three was 66 days. The inventory in our warehouse was 38 days. As you are aware, because of the sales trajectory of new stores, their inventory turnover is lower in the first year. In Q3, the inventory level of our first-year stores was 111 days. In comparison, for our stores older than 12 months, the inventory was 42 days. Now, I request Chetan to share an update on our diagnostic business. Over to you, Chetan.
Thank you, Sujit, and good afternoon, everyone. As you know, Q3 is a seasonally weak quarter for diagnostics, in great part due to the festival and holiday season. However, we had 8% quarter-on-quarter growth in Q3. In October, we sold 405 gross clients per day. In November and December, this was 369 and 357, respectively. As on 30 September, we had 117,000 active clients and 207,000 underlying lives. As on 31 December, we had 127,000 active clients and 228,000 underlying lives. Our current observed on-time renewal rate was 19% in Q3 versus 15% in Q3. That concludes our update for the quarter. I request the host to open the line for questions.
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press star and one on their touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking your questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one to ask questions. Participants who wishes to ask questions may please press star and one now. The first question is from the line of Aashita Jain from Nuvama. Please go ahead.
Hi. Good evening. My first question is on your store opening guidance. I think for this year, you've slowed down to 600. What is the store opening guidance for the next two to three years or three years for FY2025? If you can give color on that.
Sure. Thanks, Aashita. So, as Sujit said earlier in this call, we are focused primarily on increasing the overall private label, both in pharma and non-pharma. That's going to be our focus for the first one or two quarters this year also. We have just introduced over 600 products, and even as the product line is expanding, we are also making sure that products are available across the entire network and all. And we are also ensuring that our employees are fully trained and are able to sell and everything else. So, as I said, the primary focus is going to be on this. We will most likely end up doing only around 600-700 stores the next year, the coming year too. But we will keep you guys updated as soon as our AOP is finalized.
Thank you. Sujit, you spoke about last few quarters about entry into the newer markets. What's the update on that?
It is still early going for the three states: one, Kerala, Chhattisgarh, and Madhya Pradesh. But we are, I would say, pretty encouraged by the response in all these places. We may put up a very small working kind of warehouse to make sure that we are able to service all our stores properly and all. But in general, both Madhya Pradesh and Chhattisgarh are doing well. We expect to go faster on that. I would say the growing is a little bit slower in Kerala for us, but we continue to expand in that state also.
Any particular reasons for this floor uptick in Kerala?
So, see, a lot of the initial store opening depends on the regulator out there. There are some regulators who are slightly more picky about every single detail, and in some states, it is not as much. It is a state-wise thing. So it is slow going in the beginning stages, I would think. But yeah, that's about it. Otherwise, it's not an issue. The market itself is pretty good in Kerala.
Understood. I think the normal job on the private label side, now we are close to 14.4% pharmacy operating percent. How would you say this number would settle in the next year, given our initiatives on the MedPlus-branded labels?
It's a little difficult to say. We are very encouraged with the way the initial two states have responded, the initial two regions where we started in June have responded, and also all the early listing out there in the other states. It is following the same path. Just on the pharma side alone, I think given that 80% of our sales come from pharma right now, and we will be able to, or at least we will be able to, I would say, have substitutes for at least 60% of the entire inventory, which is 70% at least of the medicines. I think for us to get to 20% may not be very tough on the pharma side over the next one year.
Okay. This is helpful. Thank you.
Thank you. Participants who wishes to ask questions may please press star and one. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah. Hi. Thanks for taking my question. Sir, on the private label, the MedPlus Brand, so I mean, what would be at a GMV level, how the ratio has moved if you get shared at an overall company level, how much it was before, let's say, when you launched in first quarter and now?
Yeah. Indeed, Saion. Thank you for the question. In quarter two, in terms of GMV, the private label pharma was 8.96% overall. And end of quarter three, the same percentage on the same basis of GMV reflects at 11.78%. If this is helpful.
This is for the overall entire pharmacy you're.
Overall. Only for the private label pharma.
Understood. Okay. And see, the other question I wanted to check with you is that you have provided the stores with less than 12 months revenue split. How has been the revenue growth for stores which are, let's say, more than two years old? I mean, is that growth very slow? I mean, is that a right assessment that it's in single digits?
Yeah. It's close to the inflation number. If we take all stores up to FY2021, it is inflation plus.
Okay. But generally, the pharma market growth is around 9%-10%, right? I mean, there is a price increase that is also there in pharma. So I was wondering why this number is a bit lower. Is there sort of a stabilization with the new stores opening? How do you sort of read this number?
Yeah. So, Saion, while definitely there is some price inflation, and unfortunately, the DPCO rules, which kick in once every while, also reduce the prices a little bit. So there's also that impact. For us, I expect that the growth will be slightly over inflation as we go forward. There may be some cannibalization in some existing states, but I don't really expect that to move the sales any more than it should. For us, the other main reason could be also this. We are not really looking except for places where we are reporting the private label, we are not taking the GMV route to actually explain the sales growth.
So in some of those cases where private label medicines have actually taken off, you would see a slight dip in the top line because of the lower value at which we sell the discounted private label products, the new pharma private label products.
Sir, is it possible to share the growth numbers on a like-to-like basis at a GMV level? Is it possible, too? You reported 21% growth. How much would happen to the growth at a like-to-like level at the CHP?
Sir, Sujit, do you want to take that?
In MedPlus Health Services, we are reporting. What we have done is we have benchmarked it to peers. But we'll take your feedback on board and see if there's more disclosure that we can give going forward.
Okay. And finally, are there any changes in the discounting in your normal branded products due to competition and behavior of online players? Any changes that you have witnessed in the recent past?
We have not increased the discounts anywhere. If your question was if the competition is actually coming down, are we thinking of decreasing it? No, not as of now.
Okay. Okay. Thank you.
Thank you. We'll take the next question from the line of Gaurav Nigam from Tunga Investments. Please go ahead.
Yeah. Sir, thank you for taking my question. Sir, first question was on I was looking at your presentation. You used to give this private label number of pharma SKUs. That number from Q2 to Q3 presentation has dropped from almost 1,100 to now 783. Just wondering, is this a correct number to look at, and what's the reason if it's correct?
We will have to come back to you. I don't think we have really decreased the overall number. If anything, given that we have been continually increasing the pharma private label, and also that it has not decreased the overall number of products.
Okay. Understood, sir.
If you do want to add anything else, you can follow this.
I will come back to you.
Understood, sir. Sir, another question was on can you provide the average level of pharma discounts that was there in Q3, and quarter-on-quarter, has it increased or reduced any sense of direction?
Pharma discounts on branded products have not really increased significantly. There may be a little bit of increase in one state responding where the earlier hurdle was. After the earlier hurdle, we used to give a 10% discount. We moved it to 15%, but that was at least 2-3 quarters ago. Otherwise, I see no reason for any increase in discount. If, as a blended, this thing is coming out a slightly higher discount, it could be because of our private label products. Our private label products, the new ones, sell at an average of 60%. So if you combine the entire pharma products, then that could increase the discount. But I think if you look at purely the branded ones, there should be no increase, or there should be very little increase.
Understood, sir. And sir, what is the guidance for diagnostics CapEx in FY2024 and FY2025, sir?
Do you want to take that, Sujit Mahato?
Yes, sure. I could take it. Apart from maintenance-level CapEx, we don't have anything really planned in terms of big machines or new centers. If there is a change in these, we will definitely update.
In FY2025, sir, is that you're saying?
Yes. For the foreseeable horizon, our CapEx program has been rolled out. In some of the centers, we may have minor CapEx, maybe an additional ultrasound ambulance, so which is why I kind of spoke about it like maintenance CapEx. But there is no plan on the cards for new centers or new cities or new big machines. We will update as and when anything like that is on the cards.
Understood, sir. And sir, just that last question, is there any update on the QIP? I think you have taken a shareholder approval. So just wondering if there is anything in the plan going forward.
Thank you for asking that question. We maintain our stance that what we had taken was shareholder enabling provision just to keep that optionality, and that is for a full duration of 12 months. As and when the circumstances require us to raise additional funds, we will then have the option of both looking at equity and debt. As of now, it is an enabling provision, and there is no action expected on it in the near term.
Understood, sir. Thank you. Thank you for answering my question.
Thank you. We'll take the next question from the line of Kunal Randeria from Axis Capital. Please go ahead.
Hey. Hi. Good evening. Thanks for taking my question. Madhukar, your private label sales contribution on the pharma side has actually gone down on a year-on-year basis, right? But your GMV has gone up, I believe. So does it mean Wynclark MHS had a lot less discount than made by MedPlus Brand?
Yes. So earlier, Wynclark and even a little bit of the Trade Generics , which we sold, were sold at the same price as branded products. Since then, we have decided to basically go with a store-generic thing, promote MedPlus Brand, and give it the full discount. So while response to this has been very good, there has also been a little bit of cannibalization of our original Wynclark brand. And so in some places, that has come down a little bit. And so overall margin will have come down because of that.
Okay. Sir, do you still sell under Wynclark?
Sorry?
Do you still sell under the Wynclark brand, or have you stopped it?
No, no. We do. We do. So we will continue that, at least in the acute kind of therapies and all. In Telangana, the entire state of Telangana, we have reduced the price of Wynclark to the level of the MedPlus Brand. So we sell it at the same price. All the private labels sell it at the same price. But in the states in which we have started after this, in the rest of the country, the seven states, Wynclark continues to sell at the old price. Some of the chronic for some of the chronic therapies, the sales have come down. Most likely, it will come down to next to nothing or zero in a while. We'll let that happen over a period of time. But we will continue to actually sell the Wynclark private label at the full price for acute therapies.
The idea is that for those who are not very price-sensitive, those who are not members of the MedPlus discount plan at all, and those who need them and those who are seeking only convenience, from them, we will get the full price. Otherwise, anyone else who is price-sensitive will get the MedPlus Brand at the full discount.
Got it. And just one last one on this. So this is more like your it's been what, a few months since we launched Made by MedPlus. Let's say as it gets bigger and people recognize the brand, do you plan to reduce the discounting slightly, let's say from 70%-60% or something like that?
So today, our overall discount is at around 60%. We say 50%-80%, but the average falls at 60%. That is something we will see as we go forward, depending on how the market is and all. Our primary thing right now concerns is to grab market share and increase the top line. Once it is fully established, people understand the quality of the product, and people are buying MedPlus for it are asking for it by name and then coming and buying it, then we could always play around either with the top line, either with the MRP price, increase it slightly, or perhaps decrease the discounts to a slightly lower number. But that is not something which we are going to decide right now.
Got it. Got it. Just one more thing, sir. Have you introduced it across the states, or is it just Telangana at the moment?
No, it is across all the seven states right now. As I said, only in Telangana, we have killed our old private label. Everything is now available at the new MedPlus private label brand rate. But in the other states, both go at least.
Got it. Got it. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Harith Ahamed from Avendus Spark. Please go ahead.
Hi. Thank you. I joined the call a bit late, so my apologies if this was asked before. So my first one is on store additions. I see that we are tracking around 400 stores added year-to-date FY2024. So I remember that previously, we had guided for roughly 1,000 store additions, 800,000. So what would be the updated number for FY2024, and is there a revision in the guidance for FY2025 and beyond in terms of net additions?
Sure. The number of stores, the gross additions this year will be close to 600, around the 600 mark. The net additions may be slightly lower. For the coming year, though, the number could be around the same number. The focus this year is going to be on private label. We want to make sure that we get it to the 20% kind of mark on the pharma side. So that's going to be the thing. Both by increasing the range, increasing the awareness, and also increasing the education level of our own employees in being able to sell this product.
Okay. So based on your experience so far on the MedPlus branded private label side, can you share some of the lessons or challenges that you've encountered in this foray? Is it on the sourcing side, or is it in terms of getting subscribers? And if you can comment on the willingness that you've seen among patients to switch from the brand to the private label? So if you could share some of the takeaways on these areas, that would be helpful.
Sure. So we have seen a pretty good response to our products. In Telangana, where we launched it first. The results from this are only a quarter old. Actually, we started only in the middle of October or late October in the rest of the country. So the numbers are still not there. But in Telangana, we have seen a very good response. What I think is that the early adopters, people are buying the fact that all the products available in the market are generic only, and MedPlus is able to give a very good price only because it does not have any marketing or distribution cost. People are getting that. So some of the early adopters have come on board. We think as we go forward but there still remain some questions. I think we have our work cut out in trying to educate the customer.
The common question we have encountered is this. Whenever our guys have gone and said, "50%-80% discount on our brands," they have said customers have come back and said, "Is this a generic product?" So we are taking the time to explain that all the products in the country are generic. There's really no difference. It's all the same product anyway. The only way you can differentiate one from the other is on the quality of its make. So we are countering that using several different explanations out there. And we are seeing a lot of people converting once that happens. So this will happen not just through our stores but also through media, influencers, and all sorts of other testimonials and all. Again, to come back to your question, how is the response? Pretty good. The early adopters are on board.
People like the fact that they're saving a lot of money. We're seeing a steady increase. But I think if you want to hit the next, let's say, level of growth, you'll have to answer some of these questions, which we are now in the process of doing.
Okay. Just a clarification, Madhukar, you mentioned that you've launched it across all the states that you operate in, but in select stores. So I was just wondering that from an operational standpoint, wouldn't it be easier to launch it across all the stores in a certain market versus launching it in select stores?
No, I may have communicated it wrongly. We have actually launched it across all states, all stores.
All states, all stores.
I don't know why it came out like that. Yeah. Now it is all states, all stores.
Yes. And last one. I didn't get one number that you shared previously, the store-level margins for stores of more than 24 months' maturity.
Sir, could you ignore it again?
Yeah. It's around 10.1, Harith.
All right. All right. Okay. That's all from my side. Thanks for taking my question.
Thank you. Sorry, sir. The next question is from the line of Madhav Marda from Fidelity International. Please go ahead. Mr. Marda, I have unmuted your line. Kindly proceed with your question.
Hello. Am I audible now?
Yes, sir. Sir, I would request you to kindly increase your volume a little bit. Your volume is too low.
Is it better now?
Yes, sir. Please proceed.
Yep. So my first question basically was that as we target this 20% private label mix in the pharma portfolio, how do you see the gross margins for the company trending say in the next I think you said that you can hit the 20% mark over the next year or so. So if we look a couple of years out once we hit that mark, how do you see the gross margin profile? I think we're trending at about 21.5%-22%. How do you see this changing for the company?
Madhav will try and give you a guidance as we go forward on that. It's going to be a function of 2 things. 1, as we replace the branded product, we will see an increase of around 0.1% or 10% overall.
Half of what?
Sorry?
Sorry. You said half of what?
Yeah.
Yeah.
No, no. As we replace the branded product, right, on the branded product, post-GST, post-everything and all, we probably get around 13% overall margin, and which one basically gets around 22%-23%. So there'll be that increase as we replace that. But in the initial phase, though, we may end up replacing some of our own private label, which is Wynclark. While we continue to basically run both of those, I think the consumers who are buying chronic products, the medicines for chronic ailments, and we are buying the Wynclark brand on that may switch over to MedPlus brand. And there, for every 1%, we will probably end up losing around 0.3. So if we convert maybe 2% or 3% out there, we'll probably end up losing 1% gross margin on the Wynclark side. But after that, it'll all be a gain.
Okay. No, sorry. You're saying Wynclark is a guide?
So Madhav, sorry to interrupt right there. See, our goal in trying to actually get this MedPlus Brand popular and get the word out to everyone about the quality and the pricing of that is not to convert the existing customers into the MedPlus Brand, but to actually get customers from increase the top line by bringing in customers from the other mom-and-pop and other organized stores. We are seeing a lot of people actually doing that. So we expect the benefit to us is going to be more on the top line than on actual margin side.
Okay. Okay. Understood. Got it. So would that mean that if earlier, like you said, the store-level bidding margin for 24-month-plus stores, that's it, 10.1%? Essentially, what we are saying is that there is gross margin, and then there's a bidding margin. So in your view, if we get higher volumes at the existing stores, would you have a view on where the store-level margins for the mature stores could move? Because I guess that's what we are finally trying to target.
Sure, sure. So for us, I mean, just if we were to increase our sales by, let's say, 10% over the current level, right, the average store, let's say, is doing around INR 15 lakh out there. If we were to increase the top line without really changing anything else by 10%, that increase the sale by INR 1.5 lakhs, the margin would be INR 30,000 extra. And that would actually increase the overall EBITDA by 50%.
Okay. Okay. So basically, the sort of older version versus the newer version of stores, you could get 200 basis points higher margin as this mix of private label goes up because we sell more, basically, at the same store, right?
Yeah. The idea is to be able to sell more because if it was purely for margin accretion, then we would just continue on the old private label and just continue that. What we feel is introducing a store-generic concept for the first time in India, getting people to see, our ability to convert a normal customer into the Wynclark customer for a higher margin is only so much given that our pricing was not any lesser than the other brands. Now, when we talk about it and we tell people about the MedPlus brand and its quality, and we also talk about the price advantage to them, we see a lot more people, a lot more receptive. So A, conversion of our existing customers. But B, more importantly, we have only about 15%-20% of any other markets in this city, even though we are really big.
We feel the balance 80%. We feel we'll be able to win over at least 10%-20% of the balance 80% who are not shopping with us based on the price. That's what we're looking for. Yes.
Okay. Okay. Got it. All right. Thank you so much.
Thank you. Thank you, Madhav.
Thank you. The next question is from the line of Sayantan Maji from UBS Group. Please go ahead.
Yeah. Thank you for the opportunity. So my first question is on the portfolio of private labels. How much of it so how much of the current pharma sales are these private labels addressing? So I remember a number that you had given earlier was somewhere around 55%. So has it increased now that we have launched it nationally, or is it still somewhere in that range?
No, it has increased slightly. So earlier, when we talked about it, it was 80% of our overall sales comes from medicines, and for 55% of that, we had a substitute. So on the overall scale, we had substitutes for 44%. Now, that 54%, I think, has now moved to around 60 or 62%. But we have also placed an order for a lot more medicines. So I expect that it'll easily go up to 70% as we go forward.
Okay. So if I say, let's say, 70% of 80%, which is, say, 55%, so out of this 55%, you are expecting a 20% share of pharma private label, or is it on the total sales?
I know we are expecting on the total thing. See, on this 56%, the 20% is already there almost because even leaving aside Telangana, the rest of the country is at 11.2%. So out of the 56, 20% would be only 11.2%, right? So we already have that. And in Telangana, it is actually 14%. So the number is slightly higher. So when I am talking 20, I'm talking 20 on the overall number, so which will actually become 20 on 56 to your question.
Okay. Okay. So this is basically the share of GMV and not the net revenues?
Yeah.
Okay. Got it. And also, I think in the opening remarks, you had mentioned that the share of pharma private labels has increased from 8%-11.2%. And later in the call, you said 8.96%-11.78%. So is it the difference between the timing, or can you just explain where is the difference coming from?
Sure. Sujit, do you want to take that?
Yes. Yeah. The first number, 6.61%-15%, was an update on only Telangana, which we had launched end of June. The second one, 8%-11.2%, is all states put together excluding Telangana.
Got it. Got it.
Which we only launched during October, and that's relevant to the quarter.
Okay. Understood. Okay. That's clear. And my second question is on diagnostics. So in diagnostics, we are ramping up in Hyderabad. And I remember you saying that it is a pilot. And once the pilot is successful, you will expand to other cities. So when do we, at what point, will the decision be taken to expand into other cities based on the results of the pilot in Hyderabad?
Sure. Second, I'll take this. So yeah, no, this continues to be a pilot still. Today, we are at around 120,000 subscribers and serving roughly around 220,000 people out there. The goal is for us to get to at least a 200,000 number before we can take a call on expanding in the current situation.
Okay. Okay. That's clear. Okay. Thank you so much for taking my questions.
Thank you. We'll take the next question from the line of Tanmay Gandhi from Investec. Please go ahead.
Hi, sir. Thanks for taking my question. Sir, firstly, if you can clarify the private label pharma sales number, right? So is it possible to split it between MedPlus branded and the normal private labels, which we used to have even earlier, on a net revenue basis?
Sure. We'll see if we can do that. But for Telangana, that is Hyderabad and rest of Telangana state, all of them are lumped into one category right now. To the customer, it doesn't matter because he's getting the same price. To us also, it doesn't matter. So we're just not differentiating them out there. But we should be able to give you the actual split. In the other places, I think out of 11.6 or 11.7%, I think around 5% is probably the old Wynclark. I'm not sure. Sujit, if you have the right numbers, you can just go ahead.
Yes, sir. Around 11.2% on a net revenue basis, the old and the new put together.
No, sir. Actually, no, no, sir. Actually, I want it on a net revenue basis, which we report, right? So I want a split of the.
I mentioned it is on net revenue basis. I am mentioning on net revenue basis, but both the old as well as the new put together, as Madhukar explained, that in the state of Telangana, we have not differentiated between the erstwhile model and the current MedPlus brand. And therefore, on a total basis, this is around 11.2% net.
Okay. Got it. Okay. And secondly, now that the pace of store addition has come down, so how should we look at the corporate-level operating margins? So should we see a meaningful uptick, or do you plan to invest in some other initiatives like diagnostics or the MedPlus branded generics which you have launched?
Okay. See, on the diagnostics, as you said earlier, we're not going to be doing any other investments. I think we are fully invested except for some small maintenance cap, as I said earlier. We will wait to see how it is taking off. We are doing well on the B2B side. We also want to see some traction on the B2B. And for that, we'll figure out how to actually expand either on investments in the same place or in going to new cities. On the private label side, there is no significant investment for us. The cost of the medicines is not very high, and it is just replacing one part from the other. That's all.
I think the benefit of adding lesser stores should be, I would say, more on allowing us to focus on the private label and possibly on the profitability also as we go forward.
Sure. So sir, if we look at your operating EBITDA bridges that you provide, right, what are the various drags on the reported numbers? So I think the biggest drag comes from the new store additions. And given that now we have a bigger base, and obviously, the addition will also be lower in FY2025. So is it fair to assume that there will be a significant uptick in EBITDA margins, or it will be a steady expansion only?
No, please assume for now it is going to be a steady growth only in that. We will see how the private label and how the top line and all go up. I know the cost will be slightly lower, but I don't think that we'll. I think a bigger driver for us are the first two, which is top line and private label compared.
Got it. Thank you.
What you said, I mean, Tanmay, I think you have the modeling inputs over the last many quarters. The reason why you heard Madhukar say what he said was because we do see the new private label having a fairly large opportunity, and we may have additional non-store operating costs like marketing, etc., which is why Madhukar said what he said.
Mr. Gandhi? Mr. Gandhi, we were not able to hear you, sir.
No, sorry. So sorry, I lost you, Sujit and sir. But my question was that given that we are homing in on our store addition guidance, should we assume a good uptick in margins because, as Madhukar said, that we are not spending a lot on private label sites? Sorry, I missed you. I don't know if this is the question. Hello?
Sir, I would request you to kindly unmute yourself and speak. Sujit and sir and Madhukar, sir.
Actually, we couldn't comprehend what was being said. At least at our end, it was quite garbled.
Mr. Gandhi, I would request.
Yes.
Yeah. Mr. Gandhi, I would request you to kindly use your handset to ask questions, please.
Yeah. Is it any better?
Yes.
Yeah. No, sir. So my question was that because we are reducing our store additions for the next year, and obviously, now we have a better base as well, right, larger base, so should we assume a significant uptick given that we are not spending much on marketing, as Madhukar has said, right? So I just wanted to clarify that what are the various drags on the margins because if we are lowering our store addition, then ideally, there should be the gap between 12-month-plus stores' margins and the reported margins at a company level should be narrower, right?
No, what you're saying is right, Tanmay. Logically, if we have lesser new stores, yes, definitely. But for us, the drag off that was never very big anyway. We will continue to report stores which are more than one year old and all. And I think it should definitely be slightly better as we go forward.
Okay. Thanks.
Thank you. The next question is from the line of Neelam Punjabi from Perpetuity Ventures. Please go ahead.
Yeah. Thanks for the opportunity. My question is on the diagnostics business. So if I look at the latest quarter, we have already reached an INR 80 crore annualized generate for the diagnostic business. However, we are still reporting losses segmentally. So by when can we turn profitable in our diagnostic franchise?
Sure. Hey, Chetan, do you want to take that?
Yeah, sure. I can take the first question. Neelam, the diagnostics business also has a similar structure like pharmacy in the sense that a lot of operating costs sit both at the centers and outside the centers. So because the diagnostics business has costs which are at the HO level, which are currently not diversified across many cities, the segment continues to be dragged by those costs. The improvement in the performance of the centers naturally will make up for some of that, and we do expect to report the segment as profitable.
But what we haven't disclosed so far is the center-level profitability for diagnostics as we do in pharmacy, which is why if you can just keep that framework in mind that what's ramping up is the revenue and the profitability of the diagnostic center, but the HO level costs which are actually at a multi-city level, that degree of preparation, whether it is procurement or heads of various lines of sub-business, that continues to be a drag because our current operations are limited to Hyderabad.
Okay. But however, then can you help us understand what's the center-level EBITDA margin, at least for the mature center, the oldest, first Gachibowli center, if that would be helpful for us to understand then?
Sure. If you allow us, we'll do that in the next quarter.
Sure. Okay. And one clarification I needed. For the private label for a pharmacy business, we gave a target of about 20%, right? So is that on the net revenue or GMV basis?
Sujit, I think we are talking on a GMV basis, team.
GMV basis. Okay. Got it. Understood. Thank you.
Thank you. Thank you. We'll take the next question from the line of Lokesh Manik from Vallum Capital. Please go ahead.
Yeah. Good evening, team. I had just one question from my end. If the store addition in this quarter is net addition is 144 stores, but the rent expense is flat at INR 53 crore, so can you please help me reconcile this? What is causing this being flat?
Yeah, I take that. So if you observe last year for the similar period, over the period, we opened around 1,100 outlets at various points in time during the year. And in the current year, during the nine months, we have opened 400+ outlets. So that is the full impact taking care of the timing issue. But for that, there is no under but for that, I would say we have the 5%-7% annual contract-based increase. So that's the major reason for the variance in the rental expense.
Okay. But for this quarter, we should have expected a higher rent expense, I mean, because we opened them for the first stores, which are not there in the last quarter. So quarter to quarter, it's flat.
I'm sorry?
Q2, Q3 is INR 53 crore.
I'm back to you.
Hello?
Yeah?
Yeah. Q2, Q3 is flat at INR 53 crore, and there's an increase in store addition of INR 144 crore. I'm just trying to understand how the rent expense is.
Yeah. It's in line with the contract which we have entered the lease rent bill. There's no exceptions in those numbers.
Okay. Thanks a lot, sir.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
I thank all participants on this call for your interest in the MedPlus journey. Our investor relations team can be contacted at ir@medplusindia.com. Thank you and have a great day.
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.