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Mumbai: The founder and CEO of India’s second-largest retail pharmacy chain
MedPlus Health Services Madhukar Gangadi, along with a clutch of private
equity investors in the company, have put it up for sale.
Investment bank Credit Suisse has been appointed to look for strategic buyers
and buyout funds which can acquire a controlling 5174% stake in the
Hyderabad-headquartered chain. With revenues of .₹ 1,200-1,300 crore,
investors and promoters are expecting a significant premium of two times
sales, valuing the company at about .₹ 2,700 crore, said three persons with
direct knowledge of the matter.
MedPlus was earlier looking to raise fresh capital but now the mandate has
changed to a potential outright sale, one of the persons mentioned above said,
adding domestic players and buyout funds have already been approached.
Started in 2006, MedPlus has about 1,250 retail pharmacy outlets in more than
12 states. The company is, however, seen as a predominantly South-India based
company and needs to have a pan-India presence like its rival Apollo. It plans to
have 10,000 stores by 2020, and hence, is looking at bringing in a strategic or
big global investor with deeper pockets to fund its expansion plans.
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9/27/2017 Mercury Reader
“Investors want to exit. There will be some primary issuance of equity as well.
After this, the promoter’s stake will come down to about 26%,” another person
aware of the developments said.
Analysts feel even though PE in- vestors are expecting two times sales to justify
their returns, valuations of 1-1.5 times sales seem more likely. “Typically, in this
business, the average capex per store is around .₹ 25-30 lakh; could be more in
metros. Initially, the average store does around 40-50 lakh /annum which in
mature stores exceeds .₹ 1 crore / annum. Historically, most analysts have been
comfortable valuing the Apollo Pharmacy business at around 1.25-1.5 (x)
revenues,” said Navroz Mahudawala, founder of Candle Partners, a
Mumbaibased boutique investment bank. “The company management has
decided not to respond to queries,” the company spokesperson said in an
emailed response to queries from ET. Gangadi too did not want to respond.
Medplus is a multi-brand pharmacy retail company and will attract the existing
restrictive FDI laws. However, experts say most multibrand companies in India
have managed to get FDI /dollar PE investments in India through a dual
company structure which is “FDI compliant”. The business is typically split
into 2 entities — a frontend company which signs all the
RANAMEHTA
frontend store leases, has in-store employees and pays lease rentals, and
another backend company which does the main business of sourcing and
selling.
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9/27/2017 Mercury Reader
All major costs, including key employee costs, are in the backend company. The
backend company also carries the inventory. Typically, the front-end company
retains a very small mark-up and all accounts are maintained in such a way that
both entities are perceived as independent. Most PEs, or global players, have
invested through this route; a structure blessed by the Big 4 firms.
“The company has already sought clarification from the government and after
being assured, the deal has started again,” another person involved in the deal
said.
Helped by the growing healthcare needs and spends in the country, the retail
pharmacy industry has been growing well in the last decade. With increasing
number of organised players entering the market, the mom & pop stores are
facing tough competition.
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