Healing chain

Pharmacy chain MedPlus, founded by a doctor-turned-entrepreneur, is now the

second-biggest in the country, after Apollo.
E. Kumar Sharma

Edition:Oct 13, 2013

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Cutting costs and improving backend effi ciency is always a work in progress... We are today one of the few
retail stores that is able to make a profit: Madhukar Gangadi, Founder, MedPlus Photo: A . Prabhakar Rao

Every day, it sells around 600,000 units of medicine - tablet strips, syrups,
injections, etc. - across its 1,070 stores spanning seven states. Popular
brands, such as the vitamin capsule Becosules, or the ulcer antidote Rantac,
sell close to a million units a month from its counters. Indeed, Hyderabadbased drug retailer MedPlus has swiftly emerged the second-biggest
pharmacy chain in the country after theApollo Hospitals-backed Apollo
Pharmacy, with daily drug sales of about Rs 3 crore.
Apollo runs 1,500 stores countrywide, while other chains such as the

Guardian Pharmacy from Gurgaon or the Hyderabad-based Hetero Pharmacy

have 200 and 285 outlets respectively.
It all began in 2006 when Madhukar Gangadi - a medical doctor by training
and an MBA in healthcare management from Wharton School - set up his first
medical store in Hyderabad after returning from the US. He focused on
generating volumes, backend efficiency and inventory management. The
resultant cost savings were partly passed on to the customer. Gangadi
continues to do so, currently offering 10 per cent discount on the maximum
retail price to all buyers.
"Cutting costs and improving backend efficiency is always a work in
progress," says Gangadi. He believes in closely monitoring costs. For
instance, he deliberately chose not to have 24-hour pharmacy stores - unlike
many of his rivals - as these add a lot to manpower costs. "We found that
typically people buy medicines till 11 p.m. Thereafter they buy only if there is
a medical emergency. But in such cases, people would generally go to a
hospital. So we opted to keep our stores open from 8 a.m. to 11 p.m.," he
adds. To further trim costs and improve efficiencies, Gangadi is now focusing
on the automation of his warehouses in several cities.
The locations of MedPlus stores is also carefully chosen by Gangadi's team. It
maps regions and pinpoints places which have a high population of the
educated middle class. If a store does not achieve operational break-even in
six months, it is shut down. Thus, in the last five years, Gangadi has shut
down 100 stores, which were not working, but added many more. This year,
he plans to add another 100 to 150 stores.
MedPlus has already begun making a pre-tax profit, even though it reports a
post tax loss because of some accumulated losses it is trying to wipe out.
"We are one of the few retail stores in the country that is able to make a
profit," says Gangadi.
How does Apollo Pharmacy compare?
"We get a three per cent EBITDA (earnings before interest, taxes,
depreciation and amortisation) margin. In 300 stores, we have been able to
hit six per cent margin," says Krishnan Akhileswaran, Apollo Hospitals' Chief
Financial Officer, noting that though pharmacy retail is a low margin
business, it is not capital intensive.
MedPlus also plans to boost margins by increasing private label product
sales. It currently sells around 140 such drugs. They are outsourced from
third-party manufacturers and sold under the MedPlus brand called MHS
Pharma. "Today, the share of private labels is around 4.5 per cent of total
sales. We hope to double it in two years and move beyond just medicines to

offer a range of personal care products," says Gangadi. Why are private
labels important? "They can typically give double the margins, as there is no
marketing cost involved and one can get both the manufacturer's and
distributor margins," says Gangadi.
Investors in MedPlus, such as TVS Capital Funds and India Venture Trust Fund
(part of the Piramal group), like its business model. "Med Plus's supply chain
management is world-class and there is tight control on costs with a focus on
creating a world-class IT system," says Arun K. Purwar, ex-chairman of State
Bank of India and current Chairman of Ajay Piramal Group-backed India
Venture Advisors, which manages the India Venture Trust Fund.
The government's new price control regime for 348 essential drugs, however,
is proving a major challenge for pharmacy chains. Indeed, Gangadi is
considering scaling down the quantum of discounts offered or giving them
only to bulk buyers.
Gangadi has also dabbled in other businesses with mixed results. In 2008, he
set up a company focused on semi-customised menswear through a central
inventory model. That folded up after its investors faced financial difficulties.
But he is now re-modelling the business providing both online and off-line
versions focused on menswear and furniture.
He is also raising funds for MedPlus' expansion plans. "We have so far
invested over Rs 150 crore. For our new investments we are in the process of
raising another Rs 60 crore from existing investors through a rights issue," he
says. There is plenty of room to grow as organised pharmacy chains make up
just one per cent of the mammoth Rs 60,000 crore drug retail market, in
terms of number of stores. Their market share is slightly higher at five per
cent.
"There is room for all to grow as this is a huge market," says Ashutosh Garg,
Chairman and Managing Director of Guardian Pharmacy.