Pls dont delete as these are very relevant point on business and good for future reference or anyone reading them have better insights can comment further. As investors we cannot be myopic on just Medplus numbers alone. We need to understand the complete ecosystem. Thanks for bringing these to notice.
Disc: Not invested, Tracking. Not a buy/sell recommendation
This brings me to an interesting thought on this pharmacy business - a pharmaceutical company can also go ahead and buy significant stake or launch their pharmacy chain as they can be lowest cost sellers for their own medicines.
So I would not be surprised if Cipla one day forays into pharmacies…Lupin has already done it in diagnostics
If anyone wants to understand basics of pharmacy ecosystem this article is helpful
Actually a must read ::
Lot’s of misconceptions will get cleared
And what about that generic medicines that are sold in jan aushadi center. In jan aushadi center medicines prices are very lower mostly in the range of 10-50 compare to price of branded medicines range of 50-150.
So these jan-aushadi center run by state government are much cheaper than even Zeno.
I don’t compare that medicine prices which are shared above like cipcal,etc.
But I compared that medicines that my grand parents consumes that are cheaper than zeno.
The difference is not much but still cheaper than zeno.
For ex in zeno they are giving x medicine of 110 mrp at 25 rs customer sees a huge discount but in jan aushadi center that medicine have only mrp 15rs.
The X medicine u also got from a small retailer shop but maybe they give at 50rs,60 rs depends on him. But from zeno u got in 25rs that’s the benefit of Zeno. But the jan aushadi medicines u only got from jan aushadi center and even cheaper than zeno.
Ps : jahan se jo sasta milta hai lelo
In this entire discussion, I fail to understand that how can a medicine which can be sold at 15 rs in Jan aushadi center and 25 rs at Zeno be even allowed to sell at 110 rs in leading pharmacies (I presume that these are same branded generics at all three places in this example, as cited by @Aniesh7 in earlier post as well)
This looks like ideal case for government intervention, if not already for pricing controls? Any insights welcome
Also, assuming pricing control does happen over medium/long term, then bigger impact would be for the manufacturers? Pharmacies can still protect their margins as they already run on low margins…
They can protect further by acceptance of their own private labels in a world which opens up to unbranded generics…thoughts welcome
not same branded generic
In medplus,apollo types stores branded generic medicine is sold of 110 mrp at 20% discount where original manufacturer is Cadila brand
In zeno stores unbranded generic medicine sold that have same salt sold at 25 rs but manufacturer is different . Some small company
In jan aushadi center that medicine same salt have logo of jan aushadi sold at 15 rs manufacturer government knows.
People who have great knowledge and beleive also on that medicines they will buy.
But government and zeno like comapnies create awareness and slowly slowly more people go towards generic medicines.
Still there is a demand for branded generic also because big comapniea know there sales were affected. So they keep the patent for more years and discover new versions and give to doctors. So they will promote and the new medicines will not available in unbranded generic shops.
Unbranded generics were made only when a branded generic medicine company have no more rights or patent to make that medicine in only in it’s manufacturing unit. If no rights or patent they have after that anybody can make that medicine.
There already exists pricing control. Retailers can sell products on MRP , nothing wrong in it .
Few are selling below MRP even that’s fine as that’s their business model…
Pharmacies actually derive good margins from generic medicines , so they won’t be able to give 80-85% discount .
The above article explains everything .
Q3 numbers looks disappointing. Revenue is up 16% YoY, PAT is down 25% YoY. At the first look, PAT drop does not look to be because of any one time cost. There is considerable increase in employee benefits, deprecation and other costs. Have to wait for investor presentation/conf call to understand the details.
Disagree with the basic premise. Higher discounting is a short-term threat to players with no deep pockets. How is it a threat for players making profits and having free cash flow?
Also discounts won’t be permanent so discounting won’t be a permanent moat for any organised pharmacy.
The moat at the end of the day would be (imo) - fast delivery, genuineness of product, availability of product and backward integration through getting doctors on board (docon portal of pharmeasy)
EDIT – Let me put it this way actually. Ultimately organised pharmacy is a data play. Better your tech capabilities - better data you can capture - better your bargaining power with big pharma - can help pharma cos with production planning and also with trials etc etc later on.
As in concall
They are also doing diagnostic business as a pilot project. Diagnostic is also a high margin business. They can use that profit in medplus advertisement also.
So let’s wait how things will changed.
Not exactly or necessarily- it should help in the long run - in pharmacy business especially in India - let’s take a case where one got home and came to know that his kid/parent/or any family member is sick - may be cough, cold fever, general thing - No one thinks to order online. They simple go to their near by pharma shop and buy medicine. As Simple as that - Because situation demands to act. The same thing happened/happening in Developed markets in general medicines. This is acute medicines - around 40% of business. This business may always stay with physical stores.
Same is happening now in India for this third Covid wave doing self treatment for all low/mild symptoms - home treatment, even in Pandemic times.
This is the exact point discussed by the MD, saying no chance for only online pharmacy business to beat them in long run, during his IPO interview with money purse, where omni channel businesses beats online guys and obviously these omni Channel guys also will deliver online orders in couple of hours because of their network and shear physical presence/proximity. He is US returned and understood the general pharmacy setup from there and started this business here.
Another important point to note is physical stores advantage - can make rapport with chronic medications people every month and can ask them their well being every month, how they are doing which is where they develope trust, once it is done people buy from same store for similar price points. Some time extend credit also in difficult financial situations. This chronic business is 60% of business.
Appllo pharmacy and Medplus are front runners in omni channel presence with brand pull/names.
This whole pharmacy omni channel business is all about economics of scale, when Medplus business payable days reaches 60 days, which covers store inventory and other expenses and business can run without additional capital and open infinite stores. Presently payable days are 20.
The above video is in Telugu.
There is a listed generic pharmacy retailer, Zota healthcare, which released it’s investor presentation recently. Have a look , https://archives.nseindia.com/corporate/ZOTA_17022022182211_InvPre17022022.pdf
Though the company operates in 3 different segments, i.e., domestic, exports and it’s generic davaindia stores, company has spent lot of effort to highlights it’s work on the generic store front. From the mgmt commentary it seems the FOFO store model isn’t working out great and they want to focus on COCO model, which will perhaps mean higher capex. Slide 23 has some important details on how the Pradhan Mantri Bharatiya Janausahi Pariyojana (PMBJP) scheme is working on ground.
Now is this diversification or diworsification when already omnichannel pharmacy may need cash to expand physical store channels…also diagnostics is equally cluttered with all types.of players…
I think it would make lot of sense to understand how things played out in US …today they have kind of duopoly with CVS and Walgreens…others all, if any, came in between … perished…any insights most welcome!
The plan/statergy for this business is, as of now their stores are already being used as sample collection points. General chronic medicines costumers (They have huge data base) require regular/monthly/quarterly check up, simple BP, DIABETIC and other regular tests. So once the pilot project is successful, they setup one big diagnostic centre to run tests and setup doctor/patient Tele medicine routine and connect/close the whole gaps in the present system at the lowest cost and achieve economics of scale.
I went through the concall transcript. I was surprised to see that only the CEO was on the call. No other manager replied to a single query. A few concerns:
Disc: Not invested. Will keep a watch to understand how this pans out.
My cousin is a highly recommended surgeon running a 100 bed hospital in Maharashtra and he wouldn’t give the in-house pharmacy to the best of his friends because the margins on the medicines sold is pretty high (30% to 40%). Medplus could negotiate for even better price since it buys in huge quantities. I don’t have any source to support this though.
In Bangalore where I live, for every 15 to 20 shops there is one pharmacy, dental clinic, beauty salon and vegetable shop. This is just my observation. Within 2 km radius there are 5 medplus, 4 Apollo pharmacy, 1 Aster and plenty more other individual pharmacy shops. Medplus generally have more footfall than the others.
My chemists give me discounts of 18-25% on mrp of most meds, so 30%+ margin is assured I suppose!
Think I remember reading somewhere that medicines is high volume and low margin business…for Apollo, it’s pharmacy used to be lowest margin business among all its businesses… maybe in single digits, if I am not wrong…surprised to see such big number
…30%. is this for all medicines or only certain types?
Any particular reason for more footfalls in MedPlus compared to others like Apollo?
“A retailer/Pharmacy margin is approx. 16-22% percent at branded medicines and 20-50% at generic medicine. Along with margins they also get benefits of scheme and offers provided by companies. Retailers/pharmacies also enjoy credit facilities provided by companies and/or stockiest.”
Source:
Given that most of the medicines sold are branded generics, 30% to 40% seems possible. Moreover in-house pharmacy won’t give any discount and sell at MRP. In the last 3 years most other shops/businesses shut down but i don’t see any individual pharmacy shop closing down even though a lot of competition in the form of pharmacy chains and online pharmacies came up. So I doubt if pharmacy is a high volume, low margin business.
One reason could be, if I go to a medplus store most often I get the medicine I’m looking for and with a good enough discount without giving them a OTP (Apollo pharmacy). Even if a store doesn’t have the medicine they immediately tell which other medplus has that in stock. This is a big plus since I don’t have to go around hunting for that medicine that too at the time of distress. This is lacking with Apollo pharmacy and not possible in individual pharmacy. Also I’ve seen medplus store have more counters/employees than a comparable sized Apollo pharmacy so the waiting time is less.
Pharmacy is a high margin business be it inhouse or roadside. Thats why you see Pharmacy every corner of the street.
In first case, Pharmacies in major areas, nearby hospitals do high volume. And in second case pharmacies in smaller towns and in some small streets will sell at low volume, that is the reason even today you see small roadside pharmacies which rarely has any footfalls still survives.
but in first case do remember pharmacies are doing high volume, high margin on selling a product which is ditto similiar to what nearby pharmacy sells, kinda of commodity retail. High volume, high margin - attracts competition - how you differentiate yourself - ‘discounts’. Now it becomes high volume, low margin business. I remember discounts started at 5%, now they are giving 20%.
