MedPlus Health Services Ltd
NSE:MEDPLUS

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MedPlus Health Services Ltd
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Earnings Call Analysis

Q1-2025 Analysis
MedPlus Health Services Ltd

MedPlus reports 15.9% revenue growth and plans 600 new store openings in FY '25

MedPlus saw a 15.9% increase in revenue year-on-year, reaching INR 14,888 million, with consolidated operating EBITDA at INR 435 million (2.9%). The company added 37 net stores in Q1, aiming for 600 new outlets. Private label products now comprise 15.8% of total revenue, up from 7.9% last year. Diagnostic revenue grew to INR 242 million. Store-level operating EBITDA margin for stores older than 12 months stood at 9.3%. MedPlus maintains a 20% revenue growth guidance for FY '25, attributing Q1 performance to seasonal factors and strategic investments.

Company Overview and Market Position

MedPlus Health Services Limited operates a vast network of pharmacies, with 4,444 outlets serving communities across 650 cities in India. The company has positioned itself strategically by focusing on expanding its presence in Tier 2 cities, where it sees significant growth potential. Currently, 45% of its stores are located in these emerging markets, which are contributing increasingly to revenue, showcasing a shift from 34% to 36% year-over-year.

Earnings and Revenue Growth

In the first quarter of FY '25, MedPlus reported a consolidated revenue of INR 14,888 million, marking a year-on-year growth of 15.9%. Although this revenue remained flat sequentially, key segments within its business, particularly pharmacy operations, demonstrated impressive expansion, growing 24% year-on-year on a GMV basis. The company maintains a confident outlook with guidance for top-line growth exceeding 20% for the fiscal year.

Private Label Strategy and Performance

A defining feature of MedPlus's growth strategy is its expanding private-label product line, which now contributes approximately 15.8% of total revenue—up from 7.9% a year ago. This shift correlates with rising consumer acceptance and positions MedPlus to offer high-quality products at competitive prices. The current share of private label in GMV for FY '25 was registered at 15%, up significantly from 13.5% prior.

Operating Margins and EBITDA Insights

The consolidated operating EBITDA for the quarter came in at INR 435 million, translating to a margin of 2.9%. The pharmacy segment alone achieved an adjusted EBITDA of INR 527 million, a margin of 3.6%, after accounting for a one-time special marketing expense of INR 95 million—a substantial uplift from the reported 3%. Store-level performance reflects more positively as stores older than 12 months registered an operating EBITDA margin of 9.3%, indicating a healthy maturity of the older store base.

Impact of Marketing Spend

MedPlus's marketing strategy involved a substantial spend of INR 95 million in Q1, primarily aimed at promoting its private-label products in Tamil Nadu and West Bengal. Despite being a one-time expense, the effectiveness of this marketing push is yet to be fully measured, but initial indications suggest a robust acquisition of new customers and increased private label sales. Going forward, the marketing spend is expected to scale back to a maintenance level of around INR 10 million quarterly.

Store Expansion and Network Growth

The company opened 66 new stores in Q1, contributing to a net increase of 37 stores, although this number lagged behind the previous quarter where 174 stores were added. MedPlus is maintaining its guidance for 600 new store openings for FY '25, indicating confidence in the operational strategy, even in light of temporary setbacks due to market conditions and hiring challenges.

Diagnosing Business Performance

The diagnostics segment also reflected growth, with revenues increasing to INR 242 million compared to INR 139 million year-on-year. The operational EBITDA from this segment has improved, indicating a move towards profitability after previously posting losses, reinforcing the notion that MedPlus's diversified health services are gaining traction.

Working Capital and Inventory Management

In terms of working capital efficiency, MedPlus reported a net working capital cycle of 69 days in Q1, a key area of focus as the company seeks to optimize inventory levels. The average inventory holding for older stores was much lower at 47 days, compared to 104 days for newer stores, suggesting effective inventory management as the stores mature.

Earnings Call Transcript

Earnings Call Transcript
2025-Q1

from 0
Operator

Ladies and gentlemen, good day, and welcome to the MedPlus Health Services Limited Q1 and FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. [ Srinivas ]. Thank you, and over to you, sir.

U
Unknown Executive

Thank you, Sara. Good evening, everyone. On behalf of MedPlus, it's my utmost pleasure to welcome you all to the MedPlus Q1 FY '25 earnings call to discuss the financial results of MedPlus for the first quarter of FY '25, which were announced on 2nd August 2024. We have with us today, the senior management team represented by Mr. Madhukar Reddy Gangadi, CEO and MD; Mr. Sujit Mahato, CFO, and Mr. Chetan Dikshit, CSO.

Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties on Slide 1 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. Thank you, and over to you, Sujit.

S
Sujit Mahato
executive

Thank you, [ Srinivas ], and a very good evening to everyone on the call. We are pleased to share that as of June 30, we have been serving communities in over 650 cities across 10 states through our network of 4,444 pharmacy outlets. Also, the company operates full-service diagnostic centers, 8 Level 2 centers and over 110 collection centers, offering essential diagnostic services at affordable rates.

I will now brief upon the openings and closures of our outlets. Over the past 12 months, we have added a net total of 469, gross [ 568 ] store additions, with 66 stores opened during quarter 1. However, planned new store openings for FY '25 remain at [ 600 ].

In the first quarter, 44% of our store openings were [ in Tier 2 ] cities and beyond. At present, out of our 4,444 stores, 2031, representing 45%; are situated in Tier 2 cities and beyond. We continue to acknowledge the growth potential in inherent in these markets. Throughout Q1, there were 29 store closures. Taking into account both openings and closures, we achieved a net addition of 37 stores during the quarter compared to the 174 stores added in Q4.

In terms of our network, the age of the network at -- around 36% of our stores are operational for less than 2 years, and the remaining 64% of our stores have been operational for 2 years or more. It is noteworthy that all stores in the less than 2 years age bracket are still in the ramp-up phase. As these stores mature, we anticipate a positive contribution to our profitability.

As a guardrail, we closely monitor the time frame for our new stores to reach breakeven. For stores opened between July [ 2023 ] and December '23, approximately 64% of them achieved relative within 6 months of operation. As a cohort, all stores combined reach breakeven in just 4 months.

In terms of our store size, as at the end of the quarter, our network has grown to 4,444 stores, with [ 2.3 ] million-plus square feet compared to 3,975 stores representing 2.1 million SFT at the end of June 2023. The average store size was 529 SFT. To give you a trend of trend of spread in store sizes, we have 3,269 stores less than 600 SFT and 1,175 stores that are greater than 600 SFT.

On our revenue mix, we are strategically positioned to increase our revenue share from private-label products. Our private label range is crafted to provide customers with high-quality products at competitive prices. Presently, MedPlus offers over 880 carefully selected SKUs, spanning across pharmaceutical and nonpharmaceutical categories. Private label sales for quarter 1 FY '25 constitute 15.8% of our total revenue.

Moreover, our growing presence in Tier 2 cities and beyond is significantly impacting on our revenue mix. Sales from these markets comprised 36% of our pharmacy revenue in the current quarter, marking an increase from [ 34% ] in the same period last year.

The following is the impact of the launch of MedPlus-branded products across our network: In quarter 1 FY '24, prior to the launch, the share of private-label pharma stood at 7.9% of total GMV compared to 15% during the current quarter. The increase in the private-label GMV share indicates the positive reception from customers and validates our commitment to delivering high-quality products under the MedPlus brand umbrella.

Now on the financial numbers. On our quarter performance, our consolidated revenue was INR 14,888 million with growth of 15.9% Y-o-Y and remained flat quarter-on-quarter. Our consolidated operating EBITDA stood at INR 435 million, representing 2.9%.

Around 99% of our revenue is from our pharmacy operations. Revenues from pharmacy operations grew by 24% year-on-year on GMV basis and by 15.3% year-on-year on net basis. The pharmacy operating EBITDA stood at INR 432 million, representing 3%. The pharmacy operating EBITDA adjusted for special marketing spend of 95 million stood at 527 million, representing 3.6%.

Now on our store performance, I would like to update on our stores older than 12 months. Revenue from these stores in quarter 1 was INR 13,604 million or 94% of pharmacy revenues. These stores had a store-level EBITDA margin of 9.3%. The store-level operating ROCE of these stores stood at 46.1%.

A word here on the store-level EBITDA margin by age. While stores greater than 12 months had margin of 9.3%, this was 9.7% for stores greater than 24 months and 6.8% for stores in the 13 months to 24 months age bracket. If the allocated nonstore related costs, then the operating EBITDA of stores greater than 12 months would be INR 525 million, which translates to a margin 3.8%.

On Diagnostics number, Diagnostics revenue grew to INR 242 million in quarter 1 FY '25 compared to INR [ 139 ] million in quarter 1 of FY '24. Diagnostic segment recorded an operating EBITDA of positive 3.3 million compared to a loss of INR 46 million in quarter 1 FY '24. However, center-level operating EBITDA stood at INR 31 million.

Working capital. Our net working capital for Q1 was 69 days. The inventory in our warehouse stood at 40 days. In quarter 1, the inventory level of our first-year stores was 104 days. In comparison, for our stores older than 12 months, the inventory was 47 days.

Now I request Chetan to update on our Diagnostic business. Over to you, Chetan.

C
Chetan Dikshit
executive

Thank you, Sujit, and good afternoon, everyone. As we know, Q1 is a seasonally [ weak ] quarter for Diagnostics. With that context, in April, we sold [ 406 ] gross plans per day. In May and June, this was [ 408 ] and 442, respectively. As on 31st March, we had 133,000 active plans and 247,000 underlying lives covered under our plans. As of 30th June, we had [ 144,000 ] active plans and 270,000 underlying lives. Our current observed on-time renewal rate was 24% in Q1 versus 21% in Q4.

That concludes our update for the quarter. I request the host to open the line for questions.

Operator

[Operator Instructions] The first question is from the line of Tanmay Gandhi from Investec.

T
Tanmay Gandhi
analyst

The quarter looks relatively weaker one. And I understand that this is a relatively weaker quarter on a seasonal basis. But...

Operator

May I request you to please use your handset?

T
Tanmay Gandhi
analyst

Am I audible?

Operator

Yes, sir.

T
Tanmay Gandhi
analyst

Yes. Sir, my question is that whether do we need to revisit our guidance? Or are we reiterating our guidance of 20%-plus top line growth and maintaining 4Q-level margins?

U
Unknown Executive

No, I don't think we need to change anything there. As we mentioned earlier, Q1 is typically slow, and that's what it is. I don't think there's anything more to look beyond that, obviously.

T
Tanmay Gandhi
analyst

Sure. And the 16% growth looks very weak, given specifically if you look at pharma companies growth, right, even the largest players had to put it almost [ 16% ] year-on-year growth. So just wanted to understand that have we flatted out in terms of market share against, given our [ Q2 ] sales growth also looks a little [ flatted ]? So I just wanted to understand that. Is it something -- is it a market-specific trend? Or are there some one-offs in our numbers?

U
Unknown Executive

No, it's actually 23%. Given that a significant portion of our sales is now coming from MedPlus private level, and these are all selling at half the price of our regular brands, right? So any growth in this is going to definitely affect the overall top line. So if you look at in MRP to MRP and if you compare like-to-like out there, our growth is actually 23%.

T
Tanmay Gandhi
analyst

Understood. So GMV growth is 23%. So the 20%-plus growth which you have guided for, that is for our reported revenue or that is for GMV revenue?

U
Unknown Executive

No, that's actually for normal reported revenue for this year.

T
Tanmay Gandhi
analyst

Understood. And sir, our store generics are relatively better in terms of gross margin, right, but still, we have seen a good 50 bps decline sequentially. Just wanted to understand that, is there any inventory write-off during the quarter?

U
Unknown Executive

See, while private label margin is definitely better than the regular branded margin and all, the two things happening here: One, we are cannibalizing into the old private label, which had a slightly higher margin. And this one, as you know, while it is better, it is not as like the old private label. And we actually have 52% to 55% overall discount on this product, so the margin is not going to be as accretive.

So if you look at the INR 100 MRP equivalents for private label and for a branded generic, [indiscernible] if after the discount, a branded generic will get something like [ 13.13% ], 13% or something like that. On the new private level, we end up anywhere from 23 to 26, right? This is on the INR 100 MRP. If you look at on the net sales, it is going to be around [ INR 60, INR 65 ]. So it's not going to be as accretive.

On the inventory [ overall ], I'll let actually Sujit answer that to see if there's any [ readjustment ]. As far as I know, the private label growth is definitely accruing to us, the margins.

S
Sujit Mahato
executive

Yes. In addition, what I would like to highlight is since we are speaking on the sequential quarter, Tanmay, in terms of other business income and the data [ feed ] which we had recorded in quarter 4, we had also highlighted during that time that to the extent of 0.3% of the gross margin, there is a shortfall, which means that, that was a Q4 event, which we also expect during the current fiscal. To that extent, it has impacted our gross margin. And some amount of inventory provisioning has also impacted, which is another 0.3%.

Operator

The next question is from the line of [ Adriv ] Chaudhry from Nomura Financial Services and Securities. Please go ahead.

U
Unknown Analyst

Hello. Good evening. I was just trying to gauge the baseline margin performance of the stores. So what I'm looking at is in 1Q FY '24, the overall Retail Pharmacy had an operating EBITDA margin of 2.7%. And on a like-for-like basis, if I look at 12-month-plus operating EBITDA margin that is reported in this quarter, that's 3.8%. So that's roughly like 110 bps of increase on these stores, the baseline stores, excluding the stores that were not [ added ] particularly.

So I was just trying to understand if you could qualitatively let me know how much of this 110 bps is just your efficiency in terms of margin profitability? And how much is it just a ramp-up of a lot of stores that were on the platform at 12 months? Or if you could just give me a number right, how much is the operating EBITDA margin for 24 months-plus stores as of now?

S
Sujit Mahato
executive

Yes, sure. So in terms of year-on-year, the way we have to look at it is due to the change in the private label pharma mix, which has increased from 7.98% to 9.5%, there was an additional margin. Net of the cannibalization of our old private label, we were able to increase the gross margin by 60 basis points.

Additionally, we had an impact, what I just mentioned to Tanmay a few moments ago. We had an unusual inventory provision, around 0.3%, which impacted our gross margin.

In addition to that, on our private label non-pharma products, due to the mix change from [ 5.7% ] up to 7%, we had a positive in gross margin impact of another 25 basis points. So with this, you will be able to broadly reconcile the year-on-year gross margin.

U
Unknown Analyst

Okay. So what is your sense, just to follow up quickly, that out of this 110 bps increase that we are seeing on the baseline stores, how much could be attributed to just organic margin improvement and how much will be attributed to the ramp-up of the new stores that were there on the platform last year? So if you could let out of the 110 bps, is there some sort of attribution that could be done?

S
Sujit Mahato
executive

I think we'll take that offline, please. I don't have that handy.

U
Unknown Analyst

Okay. And just finally for me, could you share the private label MRP growth for the new and old?

U
Unknown Executive

Yes. So as of last quarter, the private label stands at 15%. This is on GMV. I think it moved from 13.5% to 15%. So the growth over the quarter was -- yes, [ 1.47 ].

U
Unknown Analyst

And like a Y-o-Y growth, could there be a Y-o-Y growth in the private label in new and old?

U
Unknown Executive

Last year, it stood at 7.9% overall. And now, it stands at [ 15% ].

U
Unknown Analyst

Okay. And how much of this could be the new one, the new private label? And how much is old? But are you already talking about the new product level because it's obviously cannibalizing this quarter.

U
Unknown Executive

Yes, I think this -- I think -- yes, the old private label is at around 1.8%, and the balance is new private label.

Operator

The next question is from the line of Madhav from Fidelity Investments.

M
Madhav Marda
analyst

I wanted to understand that given that there is a big product mix category [ exchange ] which is playing out in the company, is it more accurate to look at the company on a per store, like should we look at EBITDA per store or gross profit per store, would that be a better reflection to profitability?

Because if you look at the special marketing spend, which we are doing of INR 9.50 crores in quarter 1, [ should ] we assume that what -- you are not going to be a recurring expense? Because EBITDA per store, in my understanding, probably improved quite well on a year-over-year basis. So okay, am I thinking in the right direction? If you could share your thoughts there, please.

U
Unknown Executive

Sure, Madhav. See, as we had said earlier, we were running a pilot in Tamil Nadu in that [indiscernible] INR 9.5 crores. While it is -- we did get what we expected, I don't think we're going to go and spend any more money or at least at this level in the next -- in the coming quarters. So there's not a recurring expenditure. So if you take that out, definitely from a -- I think from a 3%, it goes up to 3.6% for MedPlus pharmacy, the EBITDA.

And as to your question about should we do it store-by-store, that -- yes, we can take it offline. I don't think -- we don't have the data right now. But yes, that would be one way of looking at it.

M
Madhav Marda
analyst

And then just the second question was, I think you said that the GMV growth was about 24% versus 15%, 16% on a sales basis. So that 24% basically looks like volume growth at the network level, right? Is that how we should read into it?

U
Unknown Executive

Absolutely, absolutely. Yes. It is just a delta between 83, which is the selling price for us at INR 100 MRP for a branded generic versus INR 42 to INR 43 which is for the Medplus [ world ]. So every time you do that, the percentage of these drugs which are sold at INR 42 MRP and INR 100 MRP are going to be reflected in a slightly higher GMV growth.

M
Madhav Marda
analyst

And just the last question on that. In some of the stores like in Tamil Nadu for West Bengal, where the network private label mix has probably -- like it's higher versus some other popular network. So maybe it's not now, maybe in the quarter 2 call, if you could give us some more color in terms of how the profitability is in those stores, given that you would have like probably good product mix change that played out? So just like we know directionally how the network would look [ 2, 3 ] years out for the company as the private label [ scales up ].

U
Unknown Executive

We will try and do it as we go forward. But right now, while the growth has been very encouraging and it is something which we are banking on, I can give you the exact numbers [ on that model ]. But certainly, we can [ report the news ].

Operator

The next question is from the line of Vinod Chandra, who is an individual investor.

V
Vinod Chandra

I have two questions. One is, generally, if you have noticed about our stores [ suspensions ] and there are a lot of notices about [ counting ] a month. So is there a specific reason behind those stores [ suspensions ]? Or can we not control [ valuing ] advance before receiving these notices? So that is the first question.

U
Unknown Executive

Do you want to go into second -- yes.

V
Vinod Chandra

Okay. The second question is about like I know like you are reporting and showing the store-level operating EBITDA, right? Our ROCE, you say, are around 46%. So is it like something -- if you can give us a ballpark figure about like what would be the store-level ROE figure rather than operating ROCE? So these are the two questions I have.

U
Unknown Executive

Okay. In answer to your first question, see, the suspensions, unfortunately, some of them are at least a part of the business.we have a large network of 4,444 stores. And as you know, health care, especially pharma retail, is a highly regulated business. And there is always some small issue or the other, for which we received a small suspension.

For us, it is not material. And it never came up earlier because it is not -- any nonmaterial [ suspension ] is not supposed to be. We were not asked to report any nonmaterial kind of events. Now of course, we are [indiscernible] doing everything out there. But again, I can answer, they were largely documentary issues. Documentary issue is something which we try to actually keep this and try to reduce them.

And the other thing is in a bunch of the [ suspensions ] which we received, which are slightly higher [ number of days ]; we've actually gone to the court and got [ amnesty ]. So I don't think that's going to really impact us too much. We will find that and I get it out [ in the act ].

It is, I would say, unfortunately, something which we have to [ name it ] not material, and we are trying our best to basically keep it under control as much as possible.

We will definitely evaluate the store-level ROE figure. We will be trying to come back to you. Right now, we have -- we are in a [indiscernible] war. We see [ RPO ] supporting right now, but we will consider this when we come back.

Operator

[Operator Instructions] The next question is from the line of [ Akaan ] Shah Gupta from [ Solidarity ] Investment Manager. Please go ahead.

U
Unknown Analyst

Yes, Yes. So my question is around the gross margins. Could you please give us the breakup of the gross margin segment-wise, that is the private label pharma, the private label non pharma and branded pharma and branded FMCG businesses?

S
Sujit Mahato
executive

Yes. As a veteran for branded pharma, we will guide between 13% and 13.1%. Private-label pharma, which was our old private labels, in the range of 74% to 76%, the newly launched network store-level brand in the range of 64% to 66% gross margin, branded nonpharma products in the range of 10.5% to 11% and private-label nonpharma products in the range of 16% to 18%.

U
Unknown Analyst

Okay. That's all from my side.

Operator

The next question is from the line of Harith Ahamed from Avendus Spark.

H
Harith Mohammed
analyst

In terms of store additions, this quarter seems to be on the lower side, while we had guided for around [ 500, 600 ] stores for FY '25. Are we still maintaining that number?

U
Unknown Executive

Yes. So there's no change in guidance. If you have seen in the last couple of years also, we usually do slightly better in the second, third and fourth quarters, usually. This year, Q1 was unduly, I would say, depressed for a couple of reasons.

So one of the main reasons was elections, I would say. We actually had a lot of attrition, we had a lot of [ leak ], and we were finding it a little difficult to [ hire ] for right kind of the people during that month. And so almost everything, due to various things, actually, it got a little delayed. But and I've already mentioned that overall focus on MedPlus brand has increased a lot and -- while that is not the main reason, that's where the company has been focused.

For us [indiscernible], one. We are looking at our complete network. And in addition -- so this year, while the net will remain more or less the same, we will have a few more closures than usual because we have added quite a few stores in the last 3 years, could be anywhere from [ 30 to 50 ] more than usual, but looking at the entire network out there. And so that will change the number a little bit, but I don't think the addition itself will be affected too much.

H
Harith Mohammed
analyst

Okay. And this [ 15% ] GMV share of pharma private label, how should we think about this number progressing over the next few quarters? And probably, where you see this reaching the effect in [ '26 ]?

U
Unknown Executive

I think we'll probably be able to see the trajectory a little bit more clearly after this quarter. When we started initially, obviously, there were a lot of early adopters that came in immediately. And after that, it has been moving steadily at around 1.5% to 2% per quarter.

If you look at it, I think last quarter was at around 13.56%. And today, it is 15%. That's 1.44% growth. We expect as we go forward, it'll maintain at this level and also go up slightly. But I will come back with the guidance on growth quarter-on-quarter maybe in the next quarter or so. In the next quarter, probably have most clearer idea.

H
Harith Mohammed
analyst

One question for Sujit. In the slide where you show the [ retail ] adjustments in the interest income line for the quarter 3, the [ interim ] adjusted interest income is lower by around INR 2 crores versus the reported interest income of around INR 4.3 crores. And that means the adjustment -- could you give some color?

S
Sujit Mahato
executive

I would say these adjustments are from the [ exhibit ] deposits what we have placed for the [ leased ] property. But I'll just look into this and give you the details offline, Harith.

Operator

The next question is from the line of Aejas Lakhani from Unifi Capital.

A
Aejas Lakhani
analyst

Sir, firstly, could you just call out what was the entire ad and marketing expense for the quarter versus the same thing last year and last quarter?

U
Unknown Executive

Sure. This year, we ended up spending around INR 9.5 crores in this quarter versus -- Q1 of last year was INR [ 1.3 ] crores.

A
Aejas Lakhani
analyst

Okay. And sir, what was the same number for the previous quarter?

U
Unknown Executive

Previous quarter was INR 8.5 [ crores ].

A
Aejas Lakhani
analyst

Okay. So I just want to understand that you made the spend in the time frame when you just said on call that elections and there were some challenges and delays and attrition on account of that. So how do you measure the effectiveness of the spends?

U
Unknown Executive

No, no. So I said the store openings did not happen because of that, [ so that ] effect. That has nothing to do with the [ effectiveness of the spends ].

A
Aejas Lakhani
analyst

Okay. But sir, could I understand that when you think of these larger spends, which is normal course of business, how do you measure the effectiveness? And then what is the outlook for this line item for FY '25?

U
Unknown Executive

We're not going to be doing any more of this in the next 2 quarters for sure. We actually spent this money in two different states. One was in West Bengal and the was Tamil Nadu. Largely, the money was spent in Tamil Nadu.

And for us, we are internally looking at a couple of things. One, the number of new customers we have acquired and the growth of private label -- MedPlus brand private label. So those two would be the key criteria for us to actually decide if the [ ad ] is worth spending on or not.

But obviously, we only get the -- I would say, we can only assign so much value to the immediate growth, the benefit to the brand and the benefit to the MedPlus brand, that value is going to come over a period of several quarters, much more difficult to actually -- much more difficult to measure it.

A
Aejas Lakhani
analyst

Got it. And sir, the private label pharma, which is 9.1, could you just tell me that what is the split of 9.1 in old and new?

U
Unknown Executive

Sure. The 9.1 which you're talking about is the net [ flow ] number. I think the old one is around 1.8 on the balance -- the balance [ growth will move up ].

A
Aejas Lakhani
analyst

Okay. And sir, when do you expect this runoff of the 1.8? I mean, do we expect that during the course of FY '25? Or do you expect a sharper rundown?

U
Unknown Executive

We will most likely see a slightly more sharper rundown as we go forward. Maybe in the next 2 quarters, it should actually go [ down ]. But it'll probably be [indiscernible] to some extent. But from now, I think it'll probably end up going to slightly under [ 1 ] in the next 2 quarters.

A
Aejas Lakhani
analyst

Got it. And sir, I just wanted to understand more at the strategy level that why the decision to rundown that old brand and replace it or -- replace it with MedPlus? Because as you would -- there has been an impact on margins on account of this entire movement. And why not just introduce the MedPlus brands and let that automatically or naturally rundown or progress with time? Why have we done this intervention, which has been sort of forced to run that down and increase the MedPlus? Could you just help me triangulate that at a strategy level?

U
Unknown Executive

No, no, it's not a question of running it down intentionally. We always had 2 different brands. But when customers want them and they saw the entire -- see, the customers who are buying that old private label, [ they ] are people who are willing to take a substitute. The customers who are willing to take new one, are also the same set. Now, given that there is an alternative rate, they can get a discount for a small membership fee, most of them have chosen to go there.

A
Aejas Lakhani
analyst

Got it. Okay. Got it. So sir, from hereon, you are expecting your growth guidance is 20% for -- on a reported basis for FY '25, correct?

U
Unknown Executive

That's right.

A
Aejas Lakhani
analyst

And sir, operating margins, what is the outlook there?

U
Unknown Executive

So we'll continue to grow from here. Q1, typically, is a slowest second quarter, normally. So it should definitely will be better than what it was last year. So that is how I can tell you.

Operator

The next question is from the line of Kunal Randeria from Axis Capital.

K
Kunal Randeria
analyst

Just one question. Continuing on the previous participant's question, [indiscernible] do you expect a sharper impact from cannibalization of your private label brand the next 1 or 2 quarters and after that, that impact should come completely [ go ]?

U
Unknown Executive

I think so, Kunal. It'll be there for a while because we have inventory that our customers are willing to buy. As you remember, as we've told in the past, our previous set of private label also has the full set of chronic medicines, too. So some of them where people were on drugs like [ Atindra, Teavana ] and all, they'll probably continue. We have the stock, they'll probably [ shift ] over to this at some point of time or they'll themselves basically ask for this.

So in that part, the tail stuff will continue. But most of the acute stuff will probably end in the next 2 quarters or so. But for us, whatever the impact may be of cannibalizing this slightly more profitable portion of the business will most likely start coming down in the next 2 quarters as we continue to grow this.

But this is also accretive to us. This also gives us more margin. But as long as it comes at the cost of branded generics, it is good for us. If it comes at the cost of our old private label, not obviously. So that impact, I think, will be around in the next 2 quarters.

K
Kunal Randeria
analyst

Sure. And just the older private labels, have you changed the discounting process? Or is it still trying to get in line with MedPlus or something or still older [ rates ]?

U
Unknown Executive

My -- sorry, you're talking about the old private label? In the greater [indiscernible], the old private label has always been sold at the same price as MedPlus, as the new one. But in the rest of the states, we have actually continued to sell it at the old rate out there. So there was some confusion. We'll probably end up taking out some of that, and we're doing it in the [ mix ] side as we go forward. Was that the question, Kunal?

K
Kunal Randeria
analyst

Yes, that was the question. Basically, I just wanted to understand whether on the old label also, are you giving us a [ 60% ] to 80% kind of what discount as you have given it on [indiscernible].

U
Unknown Executive

Yes. In Telangana, yes, we are. We started on that note -- We started with that value proposition earlier to the customers. But in the rest of the country, while we started with maintaining the old private label at the old discount, there are some products, maybe -- I don't know [ 600-odd ] products, probably around [ 200-odd ], which will end up actually moving to the new pricing, the MedPlus pricing.

And this is just to expedite overall sale of inventory and to make sure that doesn't go into [ expiries ]. So for us, obviously, we have both the inventories. We want to make sure that everything sells in the [ electric ] pattern end of the day. And so part of that will be moving to a new price.

Operator

The next question is from the line of Vilina Jain from Perpetuity Ventures.

V
Vilina Jain
analyst

In your opening commentary, you mentioned INR 95 million of special marketing spend. Could you elaborate on that? Also secondly, you have been talking about Q1 being seasonally weak. If you could highlight some of the reasons for the same?

U
Unknown Executive

Sure. The 95 million was spent in Tamil Nadu and West Bengal, largely in Tamil Nadu, I think around [ INR 7 crores, INR 7.5 crore and 2 crores, INR 2.5 in West Bengal ]. This ad expenditure was spent on -- mostly on newspapers, some within TV, where we [ ad-ed ]; some on radio and a little bit on the social media, YouTube and everything else and a little bit on podcasting and [ inferences ] and all those other things. That's one.

And I think, yes, on the seasonality side, typically, April, May, the sales actually fall for two reasons, people end up actually leaving large cities in which we are largely based, they move on to [ other ] locations, they go out of town and everything else and all, even especially [indiscernible] who are actually in the 50s also end up going back to [ other towns, other location ] start for kids, that's one.

And second, in general, the overall burden of, I would say, diseases on the infection side is much, much less. And so that whole set of antibiotics and [ chemicals ] and fever tablets and everything else, which are [ used ] normally throughout the year and especially so in June, July and August; are almost in [ plan ]. And that's why Q1 is usually weak.

V
Vilina Jain
analyst

Okay. And sir, regarding the marketing spend, is this more to do with the private label increase that is happening? And going forward, how should we see the marketing spend increasing?

U
Unknown Executive

So we're probably bringing down to a maintenance level of around 1 -- 10 -- something like [ 10 million ] a quarter, which is INR 1 crore, INR 1.2 crores. But yes, all the money has been spent on private label only.

So the whole idea is we're trying to get to get -- educate customers as been as -- as [ been ] as possible to kind of make them aware that all medicines sold in India -- MedPlus medicines sold in India are just generics. We're just [ branding ] them under the different brand names. MedPlus now makes the same medicines.

And because MedPlus [ doesn't ] have any marketing spend or any, let me say, the channel spend, we sell it through our stores, we're able to offer this with stock. And that's the value proposition for the customer, and that's what we've been pushing, and that's something which will continue, albeit in a much, much lower level.

Operator

The next question is from the line of Vinayak Mohta from Axis Bank.

V
Vinayak Mohta
analyst

I just have this one question on the store numbers for the greater than 12 months. So accounting for the INR 9.5 crores of advertise expense, onetime advertisement expense, if you remove that, then is it fair to assume that the operating margin for the greater than 12-month stores would be more towards the 4.5% to 5% range, like from the 3.8% that you have reported in the current quarter?

U
Unknown Executive

I think, it'll grow up by [ 0.6% ].

V
Vinayak Mohta
analyst

Sorry?

U
Unknown Executive

It'll go up by 0.6%.

V
Vinayak Mohta
analyst

Understood. 0.6%, so [ 4.4% ], okay. And sir, is it fair to assume that -- so when we look at the metrics on stand-alone basis from what the quarter has been reported, they'll look to be [ disorienting ]. While would it be fair to assume that of those onetime expenses and considering how the quarters would pan out going forward, on a Y-o-Y basis, we should continue to see an improving trajectory on the margin trend for the stores -- on a store level, that would be a right assumption to have?

U
Unknown Executive

[ Definitely ].

V
Vinayak Mohta
analyst

Understood. And understood. And so just wanted to understand from a longer-term perspective, while your aspiration would be to be at 100% own brand, maybe, maybe not. But just wanted to understand over the next 3 to 5 years, where do you see this own brand for [ yourselves ] settling down in the entire mix of your business? What's your aspiration out there for us to be able to visualize how could the MedPlus as a whole look like maybe 3 to 5 years forward from respect to private brand specifically?

U
Unknown Executive

See, it is not yet 1 year since we have launched the brand across the country. We're already at around 15% overall. I feel very confident that this number will go up significantly.

But to give you the actual trajectory, I think we'll have to wait a couple of quarters. So it's possible that the early adopters have all come in and basically bought, where we're seeing the increase -- while you're seeing a gradual increase every quarter, I just want to wait for a couple of quarters before we can predict that.

But just to give you an answer, while it looks like store brands and all are typically capped at around 20%, 30%, 40% and all, the one number we should actually bear in mind is that even in a country like U.S. and places like Walgreens and CVS and all, 90% of what the store actually fills, prescriptions, are generic.

And these are all -- there's the [ laws ] that allows them to actually substitute. And the store when they are feeling, decides whether it wants to do its own private label or it has a preferred player, which is also a generic -- a generic brand, right? So the aspiration would be to go to that level over a period of time.

But that will mean a lot of education of customers. And maybe at some point in [indiscernible] changes a little bit for [indiscernible]. But yes, even if it we were not to go to that number, I see no reason why you cannot settle somewhere in the 30s-odd -- 30%-plus kind of number. But again, I will reserve the overall [ listing ] for at least another couple of quarters where I actually can make prediction earlier on that.

And the reason why we are super excited about the whole thing, we are making slightly lesser margin than our own private label, but please bear in mind that people are now buying the MedPlus brand. We have seen it, it's not a substitute, it's not something else which we are just giving them. It is the MedPlus brand.

And now, as they get used to it and as they start buying it now and all, we have in our hands an ability to change MRPs every year, the government don't allow us to do that. We are allowed to be it in by 5% or 10% [ odd ]. And we also have a chance to remove the discount around a little bit to make it closer to 50. Today, its 50 to 80. We can move closer to 50 or we can even shift it. So for those two reasons, we feel the entire thing, it's going to be based around this whole strategy of private label.

V
Vinayak Mohta
analyst

Understood. And is there any reference in the global context, wherein a pharmacy has been able to replicate what you are trying to do? Because, please do correct me if I'm wrong, from what I had read a couple of -- on a couple of pharmacies, none of these pharmacies were able to cross the 20%, 22% mark on the private label side.

So do you have any reference on the similar company that I might have missed out? Or maybe my data is not correct, so if you could just help me on that?

U
Unknown Executive

Okay. So two things here. So one is the usual store selling it on its own name, right? Then, yes, maybe 20, 30 probably is the number while doing the [indiscernible] do that much, and I'm pretty sure other pharmacies across the world also have at least that much.

But the number to actually bear in mind is that while these people may not sell on their name, when the patient walks into the store and hands in the prescription, all the pharmacist is asking in is, okay, your insurance says it has to be -- it can be generated or you doctor have written -- the [ dispense ] is written. If the doctor have dispense as written, then it is exactly given -- the brand is given, but then the copay is very high and all that sort of stuff.

But in 90% of the prescriptions, the pharmacist is filling a generic only. And the generic is not, let's say, X company generic or Y company generic or Z company generic. It is the generic which is chosen by Walgreens. And as far as the customer is concerned, it is the store generic only. It could be made by whoever it is, right? It is a store generic.

So yes, you could actually go all the way up to 70%, 80% also in such cases.

V
Vinayak Mohta
analyst

Got it. Got it. And one last question. Have we in the recent 1 year faced any kind of regulatory problems or something on the MedPlus brand products, like any complaints or any action on that front, on the products part?

U
Unknown Executive

Obviously, what we are doing is -- doesn't go very well with thousands and hundreds of thousands of mom-and-pop retailers. So they have all complaints, they [indiscernible] has come, they pick up the samples, they've tested them, everything is fine.

So for us, obviously, we are disrupting a big market. It is going to have some people who are not going to be super happy about it. So we're having people who have been calling on us and checking over all the things and all. But yes, that's about it because whatever they're doing is [indiscernible] pressure.

Operator

Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Madhukar for closing comments.

M
Madhukar Gangadi
executive

Thank you. 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.

Operator

On behalf of MedPlus Health Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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