Ladies and gentlemen, good day, and welcome to the MedPlus Health Services Limited earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivas from MedPlus Health Services. Thank you, and over to you, sir.
Thank you. Good evening, everyone. On behalf of MedPlus, it is my utmost pleasure to welcome you all to the MedPlus Q2 FY27 earnings conference call to discuss the financial results of MedPlus for the second quarter of FY27, which were announced earlier. We have with us today the senior management represented by Mr. Madhukar Reddy Gangadi, CEO and MD, and Mr. Sujit Mahato, CFO. 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 good evening, everyone on this call. An update on our network in terms of openings and closures. We have opened 219 stores, and there were 53 store closures, including 14 relocation cases and 23 franchisee outlet closures. We achieved a net addition of 166 stores, including net addition of 82 franchisee outlets during the quarter compared to the 146 stores added during the last quarter. We continue with the outlook for adding 800 net new stores, including the franchisee outlets in FY27. An update on the store network. In terms of our store network's age, around 29% of our stores have been operational for less than two years, and the remaining 71% of our stores have been operational for two years or more.
In terms of the store size, at quarter end, our network consists of 5,642 stores, including 849 franchisee outlets spanning over three million square feet. This compares with 5,476 stores, including 664 franchisee outlets as of June 2026. The average store size stood at 539 square feet. During the quarter, we added 82 franchisee stores and converted 103 COCO stores to franchise model. An update on the revenue mix. Presently, MedPlus offers a large range of SKUs spanning across pharma and non-pharmaceutical categories. Private label sales for quarter two FY27 constitute 21.4%, pharma being 10.7%, and non-pharma 10.7% of our total revenue. Private label non-pharma sales grew by 18% quarter- on- quarter, with the sales mix improving from 9.8% to 10.7%, primarily due to improvement in supplies post quarter four FY26. We plan to further expand the product range to drive growth and increase the private label non-pharma sales mix.
Private label pharma sales grew by 5.9% quarter- on- quarter, while the sales mix declined marginally from 11% to 10.7%. Gross margins increased from 24.5% in Q1 FY27 to 25.1% in Q2 FY27, driven by higher private label sales mix and lower discounts. During the quarter, we updated the presentation of revenue mix by product category on slide 13 of the investor presentation by reclassifying revenues from franchisees previously included under others into the respective product category. To ensure comparability and consistency, the same reclassification has been applied retrospectively to the preceding quarters, covering all the periods presented. Our consolidated revenue for the quarter stood at ₹20,371 million. Our consolidated operating EBITDA for the quarter stood at ₹981 million, representing 4.8%. This quarter included a one-time benefit of ₹79.6 million. This relates to the reversal of retention bonus provision for store employees.
Excluding this reversal, consolidated operating EBITDA for the quarter would have been ₹901 million, representing 4.4%. Revenue from pharmacy operations grew by 21.3% on a year-on-year reported basis. The pharmacy operating EBITDA stood at ₹885 million, representing 4.4%. An update on our store performance. Stores older than 12 months. Revenue from these stores in Q2 was ₹17,325 million, representing 93% of pharmacy revenue. These stores had a store-level EBITDA margin of 11.7%. A word here on the store level EBITDA margin by age. While stores greater than 12 months had a margin of 11.7%, this was 11.9% for stores greater than 24 months and 8.4% for stores in the 13 months to 24 months age bracket. On allocating all non-store related costs, the operating EBITDA of stores greater than 12 months would be ₹945 million, which translates to a margin of 5.4%.
An update on our working capital. Our net working capital for Q2 was 54 days. The inventory in our warehouse was 34 days. In Q2, the inventory level of our first-year stores was 86 days. In comparison, for our stores older than 12 months, the inventory was 34 days. An update on our diagnostic numbers. Diagnostics revenue for the current quarter grew to ₹410.5 million compared to ₹332.5 million in Q2 FY26. Diagnostics segment recorded an operating EBITDA of ₹97.9 million, representing 23.8%, compared to ₹50.9 million in Q2 FY26. In July, we sold 648 plans per day. In August and September, this was 640 and 657 respectively. As on 30th September, we had around 2.16 lakh active plans. That concludes our update for the quarter. I request the host to open the line for questions.
Thank you. 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. The first question comes from the line of Paresh Chaudhary with Latent Advisors PMS. Please go ahead.
Hi. Can you hear me?
Yes, Paresh. Please go ahead.
Yeah. In the previous calls we had given a commentary that we expected the franchisee outlets to have a higher share of private label products as compared to the COCO stores. So how has it played out on ground? If you could give some like-to-like comparison of, let us say, some geography.
We will have to come back to you with details on that. Maybe starting next quarter, we will actually start splitting out the franchisee numbers for all of you. But for now, I think it is more or less in line with what the company has. The private label sales are a function of two things. Typically, the region in which the store is and the vintage of the store. So for a rural franchisee, the private label is bound to be higher versus a city store. And obviously, while we expect that the franchisee will do more private label as we move forward, initially it is still going to be less. Given that most of our guys are still new, it may still not be at the same level as the overall company.
Got it. That's it from my side.
A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Sudarshan Agarwal with Axis Capital. Please go ahead.
Hey. Hi. Just checking on the private label mix. This quarter we have seen it steady on the private label pharma side, I guess. Where do you see this going ahead in quarters ahead on the private label pharma? Secondly, on non-pharma also we are seeing consistent growth on a YoY basis as well. Where do you see this kind of moving in the next, let's say, three to four quarters?
Sure. On the pharma side, as we mentioned in the past, the sale growth got muted. In fact, it actually went down a little bit in percentage terms because we wanted to make sure that our employees are not mis-selling. I would say that they are not being too aggressive in pushing the private label. That was causing a little bit of a problem with our regular customers since we got it muted down. Hence, over the last three or four quarters, you would have seen that we had gone down by around 0.5 or 0.6 quarter- on- quarter. This quarter though, I think that largely got arrested. The de-growth was much smaller. In absolute terms, the number was actually higher than what we had sold in Q2.
While even the private label sale went down slightly on the pharma side, overall it actually grew in absolute terms. That is one. On the non-pharma side, that was a problem more of supply chain and the pricing being not quite right and all that. Both of those have been corrected now. I think it went up from 9.8% to 10.7% quarter- on- quarter. This is now going to be just a function of us adding as many new categories as possible. Obviously, we have to do only the adjacent categories. We cannot just sell anything out there. It is also going to be a function of how many stores come up in a newer format, which has got a self-service kind of thing, which is slightly more amenable to the private label, non-pharma kind of sales. But I do not see any gap on that.
I do not see any reason why it should not continue to grow.
Yeah. But I think a few quarters back, you used to allude to the fact that maybe we can increase the private label mix by 50 to 100 basis points on either one or the other basis on a quarter-on-quarter basis. Does that trajectory now start back, given that-
So-
Yeah.
If you take both the components of private label, which is pharma and non-pharma, I do not see any reason why we should not grow in the range of around 0.5% every quarter. Maybe slightly less, but yeah, on the whole, I think that is the number we will be at if you combine both. The pharma side may actually grow slightly less than maybe a 0.2, 0.3. But the other one may be 0.1 or 0.2, or something like that. The balance will be made up by the non-pharma side, where it is not a question of substitution, it is just a question of adding new products and taking a larger share of the wallet.
Got it. Lastly, I think I saw that your discounting has come down a bit, one odd percent on broadly membership or otherwise. This is in relation to the wage hike to offset the wage hike, etc., that has happened. Will this remain at these levels, the discounting? Is there a similar trend being observed in the industry as a whole, that discount rates are coming off a little bit?
No, not really. We had this in our thing even earlier. Unfortunately, the increased wage hike did not let us get the full benefit of this. Otherwise, we should have had a slightly higher EBITDA, obviously. No, given that we are the biggest discounters out there, I don't think anyone else is really following us out there. I don't think there's anything. It's not a general trend in the industry, let me put it that way. This is part of a plan for us to increase the discounts over a period of time.
Got it. That's it from my side. Thank you.
Thank you.
Participants, please press star and one to ask a question. The next question comes from the line of Rikan Singh, an individual investor. Please go ahead. Hello, sir.
Yeah.
Hello.
Sir, our profitable margin is near about ₹2,000 crores sale and net profit ₹56 crores. How long will this improve? Meaning, what happens is, like what happened last quarter, there was a little disturbance in the supply chain, so the net profit margin decreased. At least this should be near about 10%, as an investor, I think it should be. What does the management think about this? How long will this improve? Because anytime, anything, be it the price of plastic, the price of raw material changes or anything happens, this can take us to negative. Meaning quarterly, we can even go to negative because a fluctuation of 3%, 4% coming is, as you said, a normal thing. What does the management have to say about this, sir?
I think thank you for your question, Rikan. It's a journey. If you look at the retail business, I think what you alluded is 10% PAT, that's a wishful thinking. But yeah, the process to it is between what we have been there for the last two years, you would see a continuous steady improvement on the PAT levels, and that journey will continue as Madhukar explained, as in how we expand the EBITDA margins. That flows down to the PAT, and that continues to increase. But definitely, we would not allude anywhere between 10% of PAT. Currently, we are at 2.5% and 3.5%, and that's the trajectory we would take and slowly increase.
Okay, sir. Thank you, sir.
Thank you.
A reminder to all participants, please press star and one to ask a question. The next question comes from the line of Akhil Parekh with 360 ONE Capital. Please go ahead.
Yeah, thanks for the opportunity. My first question is on the margins front. Last quarter, you had said you will be in a better position to guide how the EBITDA margins will look like for the remainder of the year. Going forward in FY 28, if you would like to guide on the EBITDA margins front, that would be helpful.
I think this quarter we are at around 4.8% EBITDA. I expect that we will only get better in the next coming quarters. I cannot tell you exactly how much, but it will definitely improve as we do two things. One, streamline the cost and, more importantly, actually improve the product mix. Both of those are happening. I expect it will increase. I think for the year though, the overall EBITDA may be in the range of, I would say conservatively around ₹380 crores to ₹400 crores, is what I think the number will be, depending on how the next two quarters are. But yeah, that is something which we can easily commit to. I don't think that's a challenge. The AOP though, I think, which got by mistake circulated out there, had a slightly higher number.
Unfortunately, after the AOP, we saw a huge increase in the salaries across Karnataka and Telangana and all, and that has actually been a pretty big impact, I would say. If it were not for that, we should definitely be at a much higher number. As a percentage basis though, the EBITDA will continue to grow. I would say that the last quarter was an aberration. This quarter will probably be back in the 4.8, 4.5 kind of thing as we move forward.
If you take the ₹400 crores, the annual pre-Ind AS EBITDA is what roughly we can make it basically.
Yes. Go ahead.
Secondly, the cash flow, right? For first half, they are softer as compared to last year because of the increase in net working capital needs. While if I look at last couple of years, our cash flows have been very strong. FY 2025 and 2026, they have been roughly in between ₹500 crore- ₹540 crore. Is it fair to assume our cash flow generation for full year 2027 and 2028 will get back to what we have delivered in terms of, say, EBITDA to OCF conversion will be similar to what we did in 2025 and 2026?
A fair portion, yes, because if you also look at it's a function of the number of new stores we are adding. As and when we add new stores, there is a gestation period of when the stores start delivering positive cash. To that extent, subject to that, absolutely we will be back on track.
Great. That's very good to hear. Last two questions from my side. One is on the aging structure of our stores that has kind of deteriorated from 79% to 71% if I look at it for last four quarters, obviously because we are adding stores at an aggressive pace. Do you think the streamlining of costs and private label going up, that can get offset because of the inferior aging structure of our stores going forward? Will that play a role on the margins?
I think for a growing company like ours, that trade-off will always be there. That is the only reason we explain the details about the network age, because as you rightly pointed out, there will be a play between the mature stores versus the stores which we believe are still in the nascent stage. To that extent, that drag as the network size increases versus our growth, for sure will offset and still we should be able to deliver a positive growth net.
Okay, sure. That's helpful. Lastly, promoter pledging of the shares. Given that our business fundamentals are so strong, as an analyst, I feel we are not getting the right multiple, and probably the share pledge is one of the overhang. Any thoughts on that would be helpful, and if any corrective measures will be taken by the promoter? In fact, I think that can lift up the price pressure of the stock.
The pledging is only a function of the pricing of the stock, unfortunately. We are not really selling or taking any cash or doing any loans or whatever stuff. I believe it is the wrong time for me to sell any stock and get the debt down. Although that is on the cards, but it is not going to be immediate or it is not going to be in the next quarter or so. We will probably do other things to make sure that the price goes up, but eventually it is the overall, I would say, performance of the company which will take the share price up is my belief.
One of the things which we think is the whole thing around the private label and our ability to sell a high-value product like the medicine and make it in our own brand and be able to sell is not getting communicated properly, I guess. I am sure eventually the message will go. Just look at the fact that today, out of the ₹650 crores- ₹670 crores which we sell every month, 21% comes from private label and ₹70 crores is general goods. If you take it, that is almost ₹800 crores of our own brands selling out there in general goods and an equal amount selling in the medicine side, which is again, a pretty substantial amount. We are seeing a small but steady growth in both these things.
I think this is what will help us get the EBITDA up, get the overall percentage up and get the share price up.
Appreciate your detailed answers, sir. Thanks a lot and wish best luck for the coming quarters.
Thank you.
The next question comes from the line of Akash Shah with Investec Capital Services. Please go ahead.
Sir-
Akash, please unmute. Yes, now you are.
Sir, in first quarter, you had guided for same-store sales growth to remain at 9%-10% for FY 2027. Do you maintain that? Second is, you had alluded to quarter-on-quarter improvement of 30-50 bps in the share of overall private label going ahead. Just wanted your confirmation on these two things. Thank you.
Yeah. Private label, pharma, non-pharma combined, I think that should be pretty easy to get. We have already seen that in this quarter. Private label pharma, which had actually dipped for a while, has now basically started to plateau out and although it is growing in terms of absolute numbers, as a percentage, it actually dipped a little bit. But I think this is the end. We will probably start seeing a growth out there in that also as a percentage.
All right. So 0.5 percentage points improvement every quarter should be achievable in your opinion.
Yes. That ballpark number should be achievable.
All right. And on SSSG growth, sir?
On the mature stores, we continue to believe it will be between 9% and 10%, 10.5%.
All right, sir. Last question. Any thoughts on the CapEx plans that we had withheld?
No. I do not think we are going to be visiting that anytime soon. CapEx now is out of the question. Our focus will be only on opening new stores and doing that prudently.
All right, sir. Just lastly, in fourth quarter of FY 2026, you had mentioned that you would be maintaining the gross and EBITDA margins, which was back then. Should we assume that the percentages that were reported in fourth quarter could be normalized from FY 2028 and onwards?
Should be. This year also, we would have been able to do it fairly easily if not for the two events which happened. One, of course, was the huge increase in salaries across couple of states. In fact, across the board also, we had seen several different revisions to all sorts of things on a wage bill. If not for that, we should have been able to do it easily. But yeah, going forward-
Right
see.
I think for FY27, it is impacted because of that private label issue and the salaries. That is what you wanted to allude, right?
That is right.
All right. Thank you, sir. Thank you. That is it.
The next question comes from the line of Ashutosh Parashar with MIT. Please go ahead. Ashutosh, please unmute your line in case if you are on mute.
Hello.
Yes, Ashutosh. Please go ahead with your question.
Yeah. Two questions on the gross margin front. Given that the mix improvement on the private label side will largely come from non-pharma versus pharma, how should we expect that to play out in the gross margin front? Firstly, on that. On the EBITDA margin front, given that we have a huge headwind of minimum wage hike, apart from the discounting that we have reduced, what else are we doing? I have a couple more questions that last in the call.
Sure. The impact of the general side is not going to be very high, I must say. It will just help us grow the sales because that is the largest share of the wallet, private label general goods, because the margin is roughly in the range of what we actually get normally. That doesn't mean that we are not going to grow the private label pharma side. The overall growth will be around 0.5, but we expect that the private label pharma will also end up growing, and there, the impact is going to be much better for us. So that's one. I think you had one more question.
Yeah, just apart from discounting, what else are we trying to do?
I don't think there's going to be any more shocks on the wage side. I don't think we really want to do anything more out there. I think now it's just going to be improvement in the same-store sales growth, adding new stores and product mix, and streamlining our costs at the back end. These are going to basically do it. I don't think we're going to do anything on the discounting side as of now.
Okay. On the store addition side, given that we are close to around 310 in the first half, are we on track towards that 800 store addition this year and next year also, probably? In terms of the size of store, are we doing something different there in terms of new store we are opening, let's say, bigger-sized stores in order to accommodate more of the non-pharma private label stuff, et cetera? Any tweaks are we doing there? Lastly, on the diagnostic front, we have seen very good margin pickup over the last two quarters. What are the plans there, attribute?
Yeah. For us, I think we have a net addition of 340 stores, I think, overall. So that makes it around 458. We will easily get the number of 800 for this year. Next year, we will guide you maybe next quarter also. I think the number is going to be higher next year. It's not definitely 800, but I would think much higher than that. On the size of the store, we have around 100, 150 large-format stores now. What has happened is, over a period of time our size of store has actually grown significantly. So every store which we add right now has a space for us to display our private label non-pharma products outside the counter. That is anyhow happening.
So irrespective of what size, how many large-format stores we have, the non-pharma side is still going to grow. That's our edge.
Correct. Just last follow-up if I may. What would be the minimum kind of SSSG that you would need in order to keep that expansion or do-
Sorry to interrupt, Ashutosh Parashar, you're not audible. Would you please use your phone on the handset mode in case if you're using a hands-free device.
Hello. Is this right now?
Yes.
Yeah. Just last question on the SSSG front. I just wanted to understand what would be the minimum kind of SSSG that we need in order to continue that operational EBITDA margin expansion. We are currently at double digit, but that base will also get upwards for in the second half. What kind of SSSG do we expect and what would be the minimum threshold that will allow us to continue getting that margin expansion?
For us, given our gross margins and everything else, and given that the rents increase by roughly around 5% every year and salaries increase by roughly around 6%-7% at the store level, our overall growth of around 4% is enough to actually keep us steady at the same EBITDA level for a steady store.
Does that answer your question, Ashutosh Parashar?
Yes. Thank you.
The next question comes from the line of Paresh Chaudhary with Latent Advisors PMS. Please go ahead.
Yes, thanks for the follow-up. Just wanted the current quarter's number. If you could give the EBITDA margin breakup across categories, across brand-based pharma, private label, and both for private label pharma and brand-led pharma.
That is a little difficult to give right now that entire split. Maybe you can reach out to us later, and then we will get back to you.
Okay. For that I can connect offline. And other question was regarding the quantum of the one-time benefit which we got. What was it for exactly? And the amount was ₹80 million, right?
Yeah. The amount is right. It was related to the store-level retention plan, employee retention plan. Post the increase in the minimum wages and the other factors, the company evaluated. The first change was effective March 1st, where new enrollments had stopped. This quarter, there was a modification to the existing plan. For all the existing employees, the company gave an option of encashing the accrued benefit to the employees, which most of the employees exercised, and due to that, future cost related to this plan was reversed in the current quarter.
Okay, got it. Thank you.
A reminder to all the participants, you may press star and one to ask a question. The next question comes from the line of Viresh Sangwan, an individual investor. Please go ahead.
Oh, hi. I am a bit new to the company. Just wanted to know on the franchisee model. If I am not wrong, I heard you stating once we refine this model, we can grow it as a pace of approximately 3,000 franchisees a year. So just wanted to know where are we at that refining and what is stopping us to press the accelerator on that?
So as we said earlier, we will come out with the numbers maybe starting next quarter or so. But the model itself is more or less done. It will take us maybe when we guide you for the next year, we will let you know how many more franchisee outlets we can put and how fast we can actually start accelerating.
Okay. On the diagnostic business, I have been hearing we are still in planning stage, but do you want to share any developments on that? Or for how long will we stay in that planning or watch mode?
The diagnostic, I think, we had actually started this on a subscription model basis. For it to really work effectively and to get the level of returns which we want, we would have needed at least 300,000 to 400,000 subscriptions on an annual basis. So by now we should have had that. Given the fact that we are at still 216,000, we are still waiting. So the day we hit that at least 300,000 number, then we will be ready to take a call on any further investments with that. Otherwise, it is a profitable business. It is growing. But we are still figuring out what is the best way for us to go forward on that is.
Okay. Do we have any large-format stores as well? I am based in Australia, actually. The big players here, they open large-format stores which help in building the brand and the premiumness of the brand. Do we have such things or plan such thing in at least good catchment area where our sales are good?
Yeah, actually we do. Our large-format stores are roughly around 1,200 to 1,500 sq ft. Some of them are as large as 2,000 sq ft too. I think we have around 80 of these stores now functional. The plan is to basically open maybe another 70, 80 this year. We will see how it is working for us. But largely, they have been quite effective, both as being profitable ventures and also for building the brand. So we will most likely continue this format as we go forward.
Okay. Lastly, if I may, any revival of the plans for CapEx, which you highlighted last quarter, something like concierge or wellness centers?
No, we have withdrawn the plan. I don't think we are going to be doing that.
Okay. Yeah. Thanks for your-
Thank you.
response.
The next question comes from the line of Harith Ahamed with Avendus Spark. Please go ahead.
Hi. Good evening. Thanks for the opportunity. Under the franchisee model, this quarter, the net store addition I see is around 80. It is a bit lower than what we had done in previous quarters. What is the outlook here? Sujit, if you could share the revenue from franchisee stores which you had shared for the last quarter. What would that number be for this quarter? Then a related question, also, if you could provide some color on the economics under the franchisee model. What would be the revenue per store compared to our own stores and the gross margin, as well as will the EBITDA margin profile from franchisee stores, whether it is currently dilutive to the overall margins?
Sure, Harith. Thank you for the question. In terms of the revenue from the last quarter, it was ₹830 million, and current quarter is ₹1,160 million. This is the net revenue from the franchisee business. The other details, as you mentioned, we also plan to bring out these details on a regular basis from maybe next quarter. At these very high levels, as we had explained the model, the same ₹100 MRP, when we sell to the franchisee, the gross margin that gets split. If the gross margin of pharmacy business, let us say, is 24%, we retain around 13%-14%, and we pass on 10%-11% to the franchisee. I am sorry.
We retain around 10%-11%, and we pass on around 14%-15% to the franchisee, which means we recognize revenue of 85, and we have a margin of absolute 10 or 11, which translates to more or less the similar store level margin when compared to the COCO store. More details in terms of what you also asked, I have made a note of it. Going forward, we would maybe provide that on a quarter-on-quarter basis.
Just to confirm, Sujit, majority of these franchisee stores will be in the less than 12 months cohort as of today, right?
Yes.
Their revenue profile will be a bit lower on a per store basis.
Okay. The second one is on the operating EBITDA margin. Good to see the sharp improvement on a quarter-on-quarter basis. Given that we have seen the pharma private label share stabilizing now going forward and also some of the cost impacts in terms of wages, et cetera, is already in the second quarter and the first half numbers. How should we think about the margin profile, the operating EBITDA margin profile in the second half and for FY28?
Harith, whatever this thing, we have taken the hit as you said already. It is going to impact the overall EBITDA for the year, unfortunately. What we had actually planned for around ₹420 million-₹440 million and all is now going to be around ₹380 million to ₹400 million is what I think it will be. Obviously, the percentage is going to be in a similar line, 4.8%, will probably go up to 5% max. But the goal though is for us to keep going from here, both by streamlining our costs at the back end and also by increasing the private label overall in the front end. While it has stabilized, it does not mean that it is going to be there at that number. It is definitely going to start growing right now.
We are feeling very confident that we can grow the private label both on the pharma and non-pharma side. Pharma, I would say it is slightly smaller increment every quarter, but definite growth.
Okay. Thanks. Now the last one, not sure if you have explained this previously, but the increase in inventory that I am seeing in the first half, what exactly explains that?
I think on a full year basis, I think we should be taking care of it. What happened is previous quarters, at the fag end of the quarter, we had certain purchases for which there was also payables outstanding as of June 30, and therefore from a cash flow perspective, it shows an adverse number. This quarter, those payables as well as the normal payables got paid off and there is an increase in inventory. So you are seeing the net working capital increase. What I have looked into that and discussed internally also, I think going forward by the year-end, we should be again coming back to the normal level.
Got it. Thanks for taking my questions.
Participants, please press star and 1 to ask a question. The next question comes from the line of Jatin Chawla with RTL Investments. Please go ahead.
Hi, good evening, and thanks for the opportunity. My first question is on the franchisee side. When I look at your store closures, I see that franchisee withdrawn, that is a very large share on the store closures. Franchisee as a percentage of the total stores will be much smaller number than that. Is this a recurring feature? Is this something that we should expect going forward as well? Or are these kind of initial teething troubles as you are getting the franchisee model right?
I think your observation is right. This is part of the initial setup, I would say, or readjustment. So this is an initial teething issue, which we believe going forward it should stabilize the number of store closures on the franchisee part. Yeah.
Got it. This ₹116 crore revenue from franchisees that you said, how many total franchisee stores did you have at the end of the quarter?
It is around 849 active ones.
Okay. Second question, on the hit from the two states where there was a big increase in wage cost, what is the absolute amount hit that you have seen for the full year on account of that?
I think it is roughly around ₹7 crores a month.
INR 7 crores a month. Okay. So roughly around INR 80 crores-INR 85 crores for the year. Got it. You said, in terms of trying to improve your EBITDA margins, two things. One is increasing the private label share, and then second is streamlining costs. On the cost side, what are the areas where you are looking for cost reduction and over what period should we start seeing some of those benefits?
See, over a period of four quarters is what I am thinking. Two things. One, we are using AI, we are using it to do a lot of stuff on the back end to automate a lot of our work. This we are already seeing the benefits of that. Two, over a period of time, we have also grown a little haphazardly as far as our warehouses are concerned. Every time we needed to add 20,000, 30,000 sq ft, we kept on adding it. The result is that in most of the cities in which we started early, we have several warehouses. That is actually a lot of extra cost, both in terms of transportation, manpower costs, and everything else. We are now looking to basically consolidate all of them into one place each in each of these places.
We expect a lot of benefit to come from that. So both on the warehousing as well as on the overall operational costs, we expect that we will be able to use technology better and get to a slightly more rationalized cost on this side.
Got it. Over a four-quarter period, any kind of rough ballpark number in terms of what kind of cost reduction we could see?
On the entire thing, I see no reason to believe that we should not get at least a 0.5%-0.75% reduction in cost.
Got it. Thanks a lot. That was very useful.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing remarks.
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.
Thank you, sir. Ladies and gentlemen, on behalf of MedPlus Health Services Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.