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MedPlus Health Services Ltd
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Ladies and gentlemen, good day, and welcome to the MedPlus Health Services Limited Earnings Conference Call. [Operator Instructions] Please note that conference is being recorded.
I now hand the conference over to Mr. Srinivas. Thank you, and over to you, sir.
Thank you. Good evening, everyone. On behalf of MedPlus, it's my utmost pleasure to welcome you all to MedPlus Q2 FY '25 earnings call to discuss the financial results of MedPlus for the second quarter of FY '25, which was announced on 12th November '24. We have with us today the senior management team represented by Mr. Madhukar Reddy, 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 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. We are pleased to share that as of September 30, we have been serving community in over 680 cities across 12 states through our network of 4,552 pharmacy stores. Also, the company operates 4 full-service diagnostic centers, 8 Level 2 centers and over 100 collection centers offering essential diagnostic services at affordable rates.
In terms of the update on our network, over the past 12 months, we have added a net total of 463 stores, grossed 561 store additions with 132 stores opened during quarter 2 and 198 stores opened during the first half of the current fiscal. In the second quarter, 59% of our store opening where in Tire 2 cities and beyond. At present, out of our 4,552 stores, 2,102 stores are situated in Tire 2 cities and beyond. We continue to acknowledge the growth potential inherent in these markets.
Throughout Q2, there were 24 store closures. Taking into account both openings and net of closures, we achieved a net addition of 108 stores during the quarter compared to 37 stores added in quarter 1. In terms of our store network age, around 30% of our stores are operational for less than 2 years, and the remaining 70% of our stores have been operational for 2 years and 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 towards profitability.
As a guardrail, we closely monitor the time frame for our new stores to reach breakeven. For stores opened between October '23 and March '24, approximately 59% of them achieved breakeven within 6 months of operation. As a cohort, all stores combined reached breakeven in just 5 months.
In terms of the store size, as at the end of the quarter, our network has grown to 4,552 stores with 2.4 million plus square feet compared to 4,089 stores and 2.1 million square feet at the end of September '23. The average store size was 529 square feet. To give you a sense of spread in store sizes, we have 3,357 stores less than 600 square feet and 1,195 stores that are greater than 600 square feet.
In terms of 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 1,100 carefully selected SKUs, spanning across pharmaceutical and nonpharmaceutical category. Private label sales for Q2 constituted 18.4% of our total revenues.
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 revenues in the current quarter, marking an increased 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 16.3% during the current quarter. The increase in the private label GMV share indicates a positive reception from customers and validates our commitment to delivering high-quality products under the MedPlus brand umbrella.
Now on our quarter's performance in terms of the financial numbers. Our consolidated revenue was INR 15,762 million with growth of 11.9% year-on-year and 5.9% quarter-on-quarter. Our consolidated operating EBITDA stood at INR 739 million, representing 4.7% pre-Ind AS. Around 99% of our revenue is from our pharmacy operations. Revenue from pharmacy operations grew by 18.4% year-on-year on GMV basis and by 11.9% year-on-year on net basis. The pharmacy operating EBITDA stood at INR 770 million, representing 4.6%.
Our store performance, I would like to update on our stores older than 12 months. Revenue from these stores since Q2 was INR 14,438 million or 94% of pharmacy revenue. These stores had a store level EBITDA margin of 10.2%. The store-level operating ROCE of these stores stood at 58.1%. A word here on the store-level EBITDA margin by age. While stores greater than 12 months had a margin of 10.2%, this was 10.6% for stores greater than 24 months and 7.7% for stores in the 13 to 24 months age bracket. If the allocated non-store related costs, then the operating EBITDA of stores greater than 12 months would be INR 752 million, which translates to a margin of 5.2%.
On our Diagnostics segment, Diagnostics revenue grew to INR 283.1 million in quarter 2 compared to INR 181.5 million in quarter 2 of the last fiscal. Diagnostics segment recorded an operating EBITDA of INR 21 million, 7.4% compared to a loss of INR 29 million in Q2 last year. However, central level operating EBITDA stood at INR 62 million. This quarter, we did a restructuring of our legacy diagnostics operations in Nagpur, Bengaluru and Vijayawada. This has resulted in an onetime expense of INR 19.7 million, of which INR 11.3 million is non-cash in nature. The net operational savings from closure of these centers is around INR 7.5 million per quarter. If we exclude the onetime expenses from Q2, then the revised operating EBITDA will be 11.1% or INR 31.5 million instead of the 7.4% mentioned earlier.
An update on our working capital. Our net working capital for Q2 was 61 days. The inventory in our warehouse was 38 days. In Q2, the inventory level of our first year stores was 95 days. In comparison for our stores older than 12 months, the inventory was 40 days.
Now I request Chetan to update on our Diagnostic business. Over to you, Chetan.
Thank you, Sujit, and good afternoon, everyone. Q2 is a seasonally positive quarter for Diagnostics. In July, we sold 459 gross plans per day. In August and September, this was 466 and 461, respectively. As on to 30th of June, we had 141,000 active plans and 270,000 underlying lives. As on 30th September, we had 148,000 active plans and 299,000 underlying lives. Our current observed on-time renewal rate was 25% in Q2 versus 24% in Q1.
That concludes our update for the quarter. I request the host to open the line for questions.
[Operator Instructions] We have the first question from the line of one minor Prakash Kapadia from
A couple of questions from my end. As we scale our private label and expand stores, what kind of working capital cycle can we envisage because if I see last year's inventory days have been around 83 days on an average and payable days is 18 days. Is there a scope of improvement on this? If yes, then how will that happen? That's my first question. Private label contribution has been increasing. So if you could give us some more sense. Is it scaling across pharma, wellness, FMCG, all parts of the business? What is the margin improvement trajectory if this contribution increases? And lastly, of the 600 stores which we are planning to add, is it all leased? Is there franchisee of the current 4,500 stores? What is on lease or franchisee? And incrementally, how do we look at free cash flow generation this year and, say, next year considering our expansion plans? So these were my three questions.
I'll take the first two questions. I think the first one was on the overall --
Yes, inventory and payable and working capital.
Yes. So inventory levels are also a function of the number of new stores. Then, let's say, 200 stores in a quarter, each store is going to have at least 18 months [indiscernible] And given that the sales in the first quarter are going to be less, it's going to look a lot of inventory days for the amount of sales on that day. We haven't opened as many stores in the last 2 quarters. So working capital would have gone down slightly. As we go forward, obviously, that is not the only thing only lever on the working capital. We also have been optimizing inventory in the warehouses as well as in the stores. And that is something which we will continue to improve. But that said, one should remember that MedPlus has with any pharmacy the success of such a store depends purely on the rate. Or your reputation of getting price rate. So you can't cut it too fine and not have enough stock at fall other customers. The cost of lost sales is far beer in the cost of inventory. So we're always mindful on that. So we try to optimize it, we can try to make sure that fill rate is right. So that's one.
The impact of private label on the other hand is going to be really good, but it will take a while for it to happen. The reason is that the private label will basically cost us on a product or on a typical product which costs INR 100 in MRP. Fuel cost is roughly INR 12, versus branded formal was around INR 6 to INR 8. So if you were the -- the branded form our sales by private wire pharma sales for a period of time. You would definitely see a huge increase in the working capital. But we are not in the stage as of now. We started only last year in June. And in fact, across the country, we will be launching in October or November. So right now, whatever private level we have is in addition to the branded pharma. So we really don't know which -- while you know what category you are selling, you're selling around 700-odd products. And for the top 100 products, we have a significant effect for almost everything which we have, we probably are the largest sellers in that category. But we don't know -- we're probably taking up sales of all the 10 brands which are out there. So we can't really stop stocking any of those. It will a while before we understand and we get to a newer model in which we can decrease the inventory. So the impact of private label and inventory, while it is going to be there, it's going to take a while for it to actually play out.
And would that margin trajectory be gradual from here on as private label contribution increases?
No. Sorry, what was the question? Are you saying that in the rest of the products gradually decrease as the private level increases. Was that the question?
Yes. My question was private level contribution will increase over a period of time. So what could be the margin trajectory for us with increased private level...
Sure, sure, sure. So private label is two components. One is the pharmacy side. I think that the 17% which you see out there, that is on net sales. Pharmacy component would be around 10% or 10.5% and the [indiscernible] non-pharma part, which is 10.5% and 7.5%. That's the split for private label right now. 10.5% is private label pharmacy and 7.5% is the FMCG products out there. Both of them are going up. We expect that on a net sale basis, this will increase by maybe around 0.5% to around [ 0.5% ] every quarter. And the additional margin which you get on that is 50%. So if you increase it by 0.7%, you probably increase your margin by 0.3% or 0.35%. The margin on private label is 50%.
Now -- but we also look at these numbers on an MRP basis. The reason is that a product which we would otherwise sell at INR 83 on INR 100 MRP where we give a discount of INR 17 and sell it at INR 83, now the same product is getting sold at INR 45 on a discount of 50% or 55% out there. So obviously, the net sales is going to be lower when you do this, so the percentage goes slower. But to get an apple-to-apple kind of comparison, we usually do MRP thing. And right now, I think we have by the MRP discounts the volume is at around 16%. We ended the quarter with a 16% sale, and we expect that we will grow this by 1% to 1.25% every quarter. So that's on the pharmacy side. And obviously, every quarter, you're going to see a small increase in margin because of this.
The second thing is on the general goods, while we are increasing the overall sales, the margin on those is actually the same as the rest of the company. So it is not hugely margin accretive. The way we see it is it adds to our customer base. There are a lot of products which we sell, which are not -- it's obviously, it's our own brand and our strategy in that area is to make sure that we sell those products at a price which is unavailable in the market. For instance -- and the reason we do that is because we feel that a customer has got several different options to go and buy soap or shampoo or toothpaste from. We do -- and the reason they would actually pick it up from our store is because, a, it is convenient, they come to us; and b, if they pick it up, we want them to come back for the product. We don't want it to be a onetime purchase. And we want them to come back because the product is great and it is available at a price which no one else sells. So our private labels actually sell at a price which is lesser than any other private label in the market. So much lesser than the brands. And that's one reason why it has been growing. But there, it brings us customers, loyal customers. It adds to our top line, but the margin is still 20% or 21%. So it really doesn't add too much to the margin.
Understood. Understood. And lastly, the free cash flow and the operating metrics in terms of franchisee or lease stores, how do we look forward? And what kind of free cash flow can we expect this year and in the medium term?
So all our stores are leased. A very small portion of our stores are franchised. We don't know how that will play out. We will see as we go forward. But in the past, we have basically franchised out stores only in locations where it was difficult for us to reach and service the place. So we would actually do it in smaller locations, but we are now trying it out in smaller -- some of the larger cities, too, but it is a very small portion of our overall stores. Every one of our stores is leased. And on the free cash flow, I'll actually let Sujit answer that question on how the free cash flow is going to play out.
I think based on our deck what we had presented, you would have observed INR 1,425 million for the quarter. And this has the components of two things: one, less number of new stores open. So that has helped us accrue cash. But otherwise, at least a significant portion of this will continue to accrue as we move forward.
Okay. Okay. So we would expect better cash flow despite this year is what we are saying?
[indiscernible]
I'm saying you alluded to cash flow being better because of slightly lower stores, which were added during the quarter. If I were to take the broader annual guidance of, say, around 600 stores, will this free cash flow accretion happen despite the addition is what we are saying?
So I said with lower additions, we were able to do this. If we continue with the planned additions, this will be a bit lower.
[Operator Instructions] We have the next question from the line of Yash from Stallion Asset.
My first question is that you've seen almost 200 basis point gross margin expansion, right, to 23.7%. So is this number sustainable going forward?
See, this is on the back of a growth in private label. I don't see any reason why it should not continue the gross margin.
Okay. Got it. And how many stores in terms of percentage are able to do the less than 2-hour delivery?
Like right now, it is across 3 or 4 cities, Hyderabad, Bangalore, Chennai and Calcutta. But we have been facing a little bit of a problem getting people as delivery boys and all. So we have actually decreased it to a little -- to a small extent in some of the cities. So I think what we typically do is have roughly around 30 to 40 hubs in each city, around 10% of our stores, and these are designated as delivery hubs. And from there, we do the 2-hour delivery. I think I will have to get back to you, but we may have decreased a few hubs in the recent past.
Right. Okay. And since you've opened sort of slightly less number of stores, so any sort of guidance on what would be the store opening run rate going forward? Are you satisfied with the number of stores that you've opened this quarter? Or will this sort of be maintaining...
So we opened around 145 stores. We shutdown around 30, 35. So that would mean around 108 kind of stores, which we opened net this quarter. And I think the overall thing for this year is probably around 145 right now. We had actually guided to a 600 store number, but we could not achieve our usual number in the first quarter because of elections and a couple of other things. So that will be lost. We will most likely in this year, do a store count of anywhere between 400 to 450 stores of net addition. That's the plan for us.
Sure. And last question, the tax rates have been very volatile. So is there some sort of a sustainable tax rate number that you can sort of let us know?
I think the tax rate what we are talking this quarter will sustain.
Okay. Okay. Because I think -- so 19% is something that's sustainable going forward?
Yes. That's a factor of the extra deduction what the company claims on Section 80JJAA, which is directly linked to the additional number of employees which we hired for our store opening. And that's been a factor of our new store openings as well.
We have the next question from the line of Jatin Chawla from Investments.
My first question is, you spoke about the fact that on a GMV basis, your private label share is 16%, and you see scope for a 1% increase every quarter. Till what level do you see this scope? How do you see this evolving, let's say, 18 to 24 months from now? Do you see it going to like over, let's say, 8 quarters, 24%, 25%?
Yes, I see no reason why it should not. 1% is a fairly conservative kind of estimate, I would think. Today, we have substitutes for roughly around 75% of the products which we sell as medicines. We will try to increase this a little bit. But more importantly, we are finding that all the -- some of the small towns and all filed a little late. But with all of them coming on board and then some of the newer states, obviously, where metros is not as well known, we saw that the uptick was not as high. While the rest of the country, there are places where we have as high as 20% private label contribution on MRP basis. We saw some of the newer states at around 8% to 10% and all. We are putting in efforts to get the whole message out about the brand and everything else in those places. We see as they also continue to pick up over a period of time, the overall number will definitely go up. And 8 to 10 quarters, 1% each, I think obviously, difficult to say that far out, but I see no reason to believe that it will not be...
Got it. And it's been a year now. So what are your learnings on this, your hits and misses? And any areas of improvement on this? And second question related on the subscription price that the customer pays for getting private label. So any thoughts on how that could shape up?
Sure. So we were always reasonably sure that the chronic patients, the guys who are buying medicines for their chronic elements will actually buy the use, and that has been actually proven. But we're also, I would say, pleasantly surprised by those who would otherwise buy -- not buy only, they also are buying in reasonably large numbers. So across the board, sales of our products are reasonably high. For us, I think the only thing we need to do is to just make sure that the product is available in every one of our stores, and we continue to increase the range of products available. Today, I think we are probably around close to 700, but we could add another 150 products as we go forward to increase the overall percentage. On -- I think the second question was on...
Subscription price and how do you see that?
Subscription price, we started off at INR 49 in Telangana. And I think a couple of months back, we increased it to INR 99 in Tamil Nadu, INR 99. So we left it there. We will -- so this quarter, we have added a couple of places. But yes, we're going to slowly experiment with this increasing the subscription price as we go forward.
Got it. Got it. Just one last question. On the sustainability of margins that we have seen this quarter, so when I look at your last few years of results that you have shown, 2Q to 3Q, it's not as if the revenues go down materially. They are like either flattish or marginally up and then 4Q is normally seasonally a very strong quarter. So going forward, looking out over the next 2 quarters, do you see this 2Q kind of margin sustainable? Or are there some one-offs that you would like to call off -- call out?
No, no, I don't think there's anything out there. The gross margin is going to be equally good, if not better. I see no reason for it to come down. And the sales, as you mentioned, should be flat or slightly up. No reason for it to be any worse than the second quarter.
[Operator Instructions] We have the next question from the line of Umakant Sharma from Space Enterprise.
Sir, I had a few questions. Firstly, could you just throw some color that many of these quick commerce companies are planning to enter the pharmacy retail space. So could you just throw some color as to how do you plan to compete with them? And do you also have any plans to establishing an online presence for you? Secondly, in terms of brand building standpoint, could you just highlight what activities are we undertaking in terms of getting that brand -- building that brand awareness, brand recall and all of that? First two questions.
So I don't think we'll actually do anything on the quick commerce side as of now. We want to wait and watch and see how that comes along. So we have been online for a long time since 2014. 7% of our business now, I think, comes from online side. We have not given any additional discount or given any additional benefit for online buyers. Hence, it has been where it is.
On the quick commerce side, if pharmacy is tough for e-pharmacy for Internet side, I think it will be even more tougher for quick commerce, but we will see. We're waiting how that plays out. Honestly, we don't want to really jump on to anything right now.
On the brand building side, no, actually, whatever we are doing, we're doing in the stores. We're actually creating a little bit of testimonial kind of thing. We're trying to give as much information as possible to the customer. We're talking about the fact that 90% of all medicines sold even in a country like U.S. are generic and what we have in India is all generic. So we believe that our best bet is for people to get educated on the whole aspect. We're not really doing anything on -- no extra spend for us outside of that.
But are we picking up any marketing efforts from our side to educate them about the private labels and all of that?
We're doing a little bit of the influencer stuff, some podcasts, a lot of information going out to our regular customers, very pinpointed kind of thing, but nothing ATL. I don't think we spent anything. I think we spent around INR 1 crore or so last quarter. So I don't see us spending a little more than that, a couple of crores last quarter. So that's going to be the extent of the effort for us.
And sir, on our private label pharmacy side, could you just -- like you said on a GMV level -- on a GMV level, we are at 16% right now, correct? So could you just split that number between the discounted private label and our non-discounted private label?
So everything is discounted. But yes, some of it is to members who are -- and that is the 50%, 55% discount. And that is roughly around 14.6% and the others is probably around 1.5%, 1.6%.
Okay. And sir, would it be -- like I believe you mentioned that incrementally, we should see like the scaling up of the private label discounted piece going up incrementally as well. Could you share some insights, let's say, from the stores which we had launched very -- in the very initial stages, what would be the level of penetration within those stores, let's say, in Hyderabad, Telangana side, what would be our private label penetration within those stores?
I think in Hyderabad, it's probably north of 17% and Telangana it is over 20%.
Telangana, we are north of 20%?
Yes, rest of Telangana.
Okay. Got it. Got it, sir. And sir, just one bookkeeping question, which is rental cost per store, right? So last [indiscernible] and per month, I'm talking about per store per month. And this quarter, it has gone to about [ 43,800 ] level. So is there any one-off? Or is there -- could you just throw some color on those rental costs?
No, there's no one-off, but we will look at it and come back to you if there's anything...
We have the next question from the line of Shah from RCL Investments.
My question is the MedPlus brand, which you are primarily selling only at your stores. Can you expand it to other stores like primarily the stores which are not chain and they are like mom-and-pop stores?
No, we're not thinking about it right now. We'll give it a thought. But -- no, I believe people have access to different kinds of generics out there. They probably buy from -- one of those other anywhere. The MedPlus brand is sold at a 50%, 55%, 60% discount, right? And most of the small independent operators sell generics at full cost, and that's how they survive. They have low throughput, INR 3 lakh or INR 4 lakh a month. They sell 50% of their stuff at a full margin of 60% or 70%. Now if they were to take MedPlus product, and that is openly available in MedPlus stores and we advertise it extensively as being available at a 50% to 80% discount. That won't really work well for independent operators. So I doubt if anyone would actually take it up.
Okay. Got it. And sir, secondly, I mean, see, quick commerce has shown a lot of success across many categories. So what would you be looking for in quick commerce to actually onboard -- I mean go on that platform? So how would you -- I mean, what are the data points which will convince you decisively that whether you should be on that platform or not?
We'll see how the customers are responding to it because there is a friction of prescription. Someone has to upload a prescription, right? And that takes a while. And that doesn't really make it possible for people to deliver in 10 minutes. So that automatically increases the time. And then again, the range of products required in medicines are far too many. They're not like the generic 500 or 1,000 brands, which are -- or 1,000 SKUs, which are sold in quick commerce across all locations. So for us, it is several hundred brands and each one, each zip code has a different one. I would think -- and fill rate is a very critical thing for a lot of the people. So if you're buying medication for your monthly needs, then your long list of medication, every one of them has to be there. Otherwise, they don't really go out there and they're not really looking for that very quickly. The only guys who are looking for that really quick 10-minute delivery would be a guy who's probably suffering from heavy diarrhea. And they are all mostly product. Another issue if the need for quick commerce is as high as it is when you are missing a critical component or something you're looking out there in your home or some But that said, we'll look at it. We don't know. We could be surprised by how the customers take care. So we're monitoring it closely. We'll see what happens.
Yes, sir, just I mean, being a customer for my parents, one of the things which we find is that they don't want to -- I mean, they can't go down many times. When you are sick, you don't want to go down to the medical store. Even the medicine definitely comes in 30 minutes, it is a really good proposition because most of the local stores do not deliver even in 30 minutes, and you have to call them so many times. So it actually -- the delivery of medicine for sick people and older people might be a very good proposition.
Absolutely. We'll see how that goes...
We have the next question from the line of Raghavendra, who is an investor.
Congrats on very good set of numbers. Madhukar Reddy sir, so a special question for you regarding diagnostics. So in one of the conference calls, you have mentioned that you are exploring B2B channels for diagnostic penetration. So now given the OPD policies are common across IT employers and as well as how are the TPAs, any plans of seeing collaboration with the TPA and ITS employers for the diagnostic -- it's very complicated...
Yes, we are exploring all options, including working with brokers, insurance brokers, insurance companies, TPAs and going directly to companies and having this as an add-on product to whatever they have. So typically, an OPD product costs around INR 5,000 to INR 6,000 for each company. A lot of companies find it very difficult to pay that money given that their overall outflow on the basic insurance now is around INR 25,000, and that's quite an expense. And the OPD then is either a hit or miss in the sense that there could be some people who use it and they could use it to the extent of INR 10,000, but what they're seeing is a large portion of people don't use it at all. So it's actually a loss-making proposition for the employer who pays that money.
So I'm not sure how many people are really taking it up at that expense. There are obviously some very, I would say, profitable companies who will do it. But we feel that if we were to offer our product, which is which actually cost INR 2,000 for a family of 2 plus 2 to get a 75% discount on every single diagnostic test they can think of for the year. And that INR 2,000 is also converted into wallet points, which they can use at a full price MRP. If that product were to be available to companies maybe at a discounted price of 30% to 40% or even 50% discount for -- depending on the size of the employer and all that, we feel that there will be a pretty good reason for companies to actually buy. We have approached a bunch of them. We have a pretty decent set of small- to medium-sized companies based in Hyderabad who have actually taken it up and have given that option to their customer -- to their employees. We think as we go forward, more and more people will sign up.
Okay. So to follow up on this. So on the Diagnostic full service centers, we still with OPG. So -- and only for the OPG, for example, myself, I'm a subscriber, so I need to not be other competitors do. So is there a plan of -- when you actually say it as a full-service diagnostic center, so is there a plan of actually launching the OPG also going forward?
Sorry, what is OPG? Sorry. Yes, we may -- it's -- we're looking at that, but yes, not an immediate thing.
Okay. So a follow-up, sir. So during a schedule that we found that majority of the interiors are actually done by your own company, custom furnish. So just wanted to understand the relationship between custom furnish and as well as MedPlus? And how much we are actually paying as competitive pricing per square meter, et cetera?
I was a founder of Custom furnish. I'm a majority shareholder in that company. And that company used to supply a lot of the furniture needs for MedPlus at a time when we were not growing at that space. Now MedPlus has set up its own furniture making unit. It's a small unit, but it supplies all of MedPlus' needs. And going forward, it will also supply all of the diagnostic needs. So I'm not sure exactly what is the value, but I can tell you this for sure. The price at which custom phone is sold MedPlus is not a price you can find anywhere else in the market. It is the least possible listing out there.
We have the next question from the line of Mehul Sheth from HDFC Securities.
Yes. So sir, one question on gross margin side. So when you are saying that you will be able to sustain the gross margin. So should we consider that as a H1 gross margin or the Q2 gross margin?
No, the Q2 gross margin should be -- I don't think it's going to go down.
Yes, this is Chetan. So look, historically, as you know, we've used to talk about 21%, 22%. Currently, this is 23-plus. If you want to be conservative, you could take the average for Q1 and Q2 as H1. But if you want a management sense, we are actually optimistic above the H1 number.
And sir, one more question on your private level. When you say you have around 16% of GMV contribution, can you split between acute and chronic side? Even it's chronic can be more of like a stick in nature. So can you split between that two?
Chronic is actually 50% or more. And the reason why that is, is while one would expect that people who are buying medication for a long-standing kind of disease are a little less open to changing over. The fact of the matter is they are the people who are actually spending a lot of money month-on-month. And they're probably coming to our store regularly, and they know our store employees well. And so when we talk to them about the product and the fact that it is made in the best factories, and it is exactly the same as everything else out there. And given the fact that their spend is much higher per month and they can save a lot more by switching, they are the ones who actually listen, who take the time to actually understand and basically switch. So the chronic for us is actually slightly more than 50%. Yes. So that's where I guess that's the big part.
On the margin, the question before the 22.7% is actually split into the MedPlus Pharmacy and the diagnostic margin. So I don't know if the diagnostic margin can go up much further mainly because we already are optimized out there. Now it's just going to go on the top line. The MedPlus split on that is, how much? So MedPlus is actually 22.7%. So you will see the pharmacy component continuing to grow.
Okay. And sir, one last question on your expansion. So from your presentation, we can see you have recently opened a store in Uttar Pradesh. So are you looking to expand it further in that state, given it's much larger state.
No, no. This was -- we actually opened 3 stores, 1 in Delhi, 1 in Noida and 1 in Gurgaon. So it is really NCRs. While it is in UP, it is more mainly the NCR area. So we're just testing it out. We're looking to see how well they grow and everything else and all. Delhi is the last of the remaining big 7 cities in which we are not there in the top 7 cities. So we said, okay, let's just open and figure out how things are right now and all. All the 3 stores are actually doing well. We will monitor it a little bit more and then maybe do 4 or 5 or 6 stores in each of those regions to slowly start gaining, let's say, a foothold in that area.
Two reasons actually. One, it is the last of the big cities in which we are not there. And second, as we -- at some point, whenever we decide to do ATL, if at all, we decide to do ATL for MedPlus brand, we want to make sure that we are there in every one of the capitals so that we can supply online in that state. So being in Noida, if we were to get an order from anywhere in UP, allows us to tie it with the courier and send the MedPlus products out across the state. So that's the reason for it. But yes, we're not really immediately looking to expand in any big way.
That was the last question. I would now like to hand it over to the management for closing comments.
Thank you. I'd like to thank all the 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. On behalf of MedPlus Health Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.