MedPlus Health Services Limited (MEDPLUS.NS) Q1 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the MedPlus Health Services Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. D. R. N. Srinivas]. Thank you, and over to you, sir.

Thank you, Sagar. Good evening, everyone. On behalf of MedPlus, it's my utmost pleasure to welcome you all to the MedPlus Q1 FY '26 Earnings Conference Call to discuss the financial results of MedPlus for the first quarter FY '26, which were announced earlier. We have with us today the senior management team represented by Mr. Madhukar Reddy Gangadi CEO and MD; and Mr. Sujit Mahato, CFO. 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 was 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.

Thank you, Srinivas, and good evening, everyone, on this call. As informed earlier, we continue to strengthen our back-end operations and infrastructure to support long-term scalability and ensure seamless execution. We remain focused on optimizing our existing network while laying a strong foundation for opening new stores across the 13 states in which we operate. As an update, out of the 10 additional warehouses, 6 warehouses have become operational. This disciplined approach will enable us to drive sustainable growth and enhance value for all stakeholders. In terms of our network, we have opened 124 new stores during the current quarter. Over the past 12 months, we have added a net total of 369 gross additions of 456 in terms of new stores. Throughout Q1, there were 23 store closures. Considering both openings and closures, we achieved a net addition of 101 stores during the quarter compared to the 100 stores added during the last quarter. Store closures also include 8 franchisee conversions. We continue with the outlook of adding 600 new store additions in fiscal '26. In terms of our store network age, around 21% of our stores have been operational for less than 2 years. And the remaining 79% of our stores have been operational for 2 years or more. At the end of the quarter, our network grew to 4,813 stores with 2.5 million plus square feet compared to 4,444 stores and 2.3 million plus square feet at the end of June '24. The average store size is 527 square feet. On the revenue mix, presently, MedPlus offers over 1,350-plus carefully selected SKUs spanning across pharmaceutical and nonpharmaceutical category. Private label sales for Q1 FY '26 constitute 21.5%, pharma being 20.8% and non-pharma 8.7% of our total revenue. On GMV basis, during the current quarter, the share of private label pharma sale stood at 20.4% compared to 7.9% in Q1 FY '24, prior to the launch of MedPlus branded pharmaceutical products. On our financial numbers, our consolidated revenue is INR 15,426 million for the quarter. Our consolidated operating EBITDA stood at INR 728 million, representing 4.7% for the quarter. Around 99% of our revenue is from our pharmacy operations. Revenue from pharmacy operations grew by 6.6% Y-o-Y on GMV basis and 3.3% Y-o-Y on net basis. The pharmacy operating EBITDA stood at INR 690 million, representing 4.6%. Update on our stores performance, I would like to update on our stores older than 12 months. Revenue from these stores in Q1 was INR 14,188 million, representing 95% of pharmacy revenue. These stores had a store level EBITDA margin of 10.9%. The store level operating ROCE of these stores stood at 59.8%. A word here on the store-level EBITDA margin by age, while stores greater than 12 months had a margin of 10.9%, this was 11.1% for stores greater than 24 months and 6.9% for stores in the 13- to 24-month age bracket. If we allocated nonstore related costs, then the operating EBITDA of stores greater than 12 months would be INR 727 million, which translates to a margin of 5.1%. An update on our working capital. Our net working capital for quarter 1 was 59 days. The inventory in our warehouse was 36 days. In Q1, the inventory level of our first year store was 97 days in comparison for our stores older than 12 months, the inventory was 39 days. An update on our Diagnostics business. Diagnostics revenue grew to INR 302.9 million in quarter 1 FY '26 compared to INR 242.4 million in quarter 1 of fiscal '25. Diagnostics segment recorded an operating EBITDA of INR 41.3 million, representing 13.6% compared to INR 3.3 million in quarter 1 of the last fiscal. In April, we sold 457 gross plans today. In May and June, this was 468 and 520 plans, respectively. As on end of June, we had 1,64,000 active plans covering 3,40,000 underlying lines. As on 31st March, this number was 1,57,000 plan covering 3,27,000 underlying lines. Our current observed on-time renewal rate was 24% in Q1 versus 27% in the last quarter. That concludes our update for the quarter. I request the host to open the line for questions.

[Operator Instructions] Our first question comes from the line of Sanjay from Bastion Research.

So my first question will be our growth has been quite lackluster in the last 5, 6 quarters. And in terms of SSG, it is degrown. I understand we have scaled our private label revenue and therefore, the growth has been quite lower. But can you explain me a bit more on that side when we expand the growth to come forward? And that degrowth in the revenue is not just able to kind of think on that side. So can you explain more on that?

See, as we explained in the last call also, there were some issues out there on the supply chain and also on the warehousing and a couple of other things out there on the manpower and all. Most of them are getting addressed. And as we go forward, we will see a growth in sales. We are already seeing that right now. Second, see, you also have to see that we grew from 7.9% to 20.1% by GMV on the private label. And that has actually driven our margins -- gross margins from something like 22%, 23% all the way to 26%, right? So it is, I would say, definitely, there's a small trade-off out there. Whenever our employees go in and push this very actively, we want to see some customers who may not want to switch and may even get put off a little bit and go. So that is something which we are addressing right now. But we were aware that something like this would happen. It is a trade-off, as I said. We'd rather take slightly flattish sales and going for 2%, 3% extra private label is what we thought originally and that's what happened. Now we are tempering the whole thing and basically holding the private label at that number. We probably still continue to grow going forward at around 0.5% to 1% every quarter. We -- although we did promise 1% every quarter, I think most of it has already achieved in the Q4 for at least a couple of more quarters. So we're going to be holding it out there adjusting the overall incentive and everything else to our employees, aligning it -- in line with the overall company objectives of increasing top line, at the same time, growing the private label. So for us, not too concerned about this at this point. We just continue to focus on profitability and getting the stores to breakeven and all all rapidly.

Sir, the other question will be in the last con call also, you said that -- and you also alluded to right now as well, we will see private label to grow by 1% quarter-on-quarter. But when we see this quarter, the private label share has been beeping down and therefore, the margin has also been dipped for the quarter. Is this -- there is something to read on that line? Is this one-off? Or we will see for a full year as you alluded that margin will improve 50, 60 basis point from here on? Is that trend continue? And how should one think on that line?

See, last quarter, I did say that we would actually have a slight dip or flattening of sales in private label because Q4 had actually taken a lot of sales from the forward. So their employees are heavily incentivized. They were all sorts of plans and they ended up actually doing a little bit more on Q4. So Q1 was always going to be a pull back, and that is just the reason for that. Maybe Q2 will also be slightly flattish and everything else. But for us, there's nothing more to look into it. As I said, it's a trade-off. If I continue to push in private label, the sales will be flat, we don't want to do that. So we will have 1% kind of growth. By the way, 1% growth or whatever is on the overall GMV sales, which means it's on the MRP value. Otherwise, the net sales value will always be around 0.5% growth quarter-on-quarter. So I think most likely, I would say this quarter will probably be flattish or something like that. But beyond that, we'll again continue to grow.

Great, sir. Sir, another question. We can see in breakouts of store closure, which time that the aged stores which have been converted to franchisees. So what is the strategy regarding how we are identifying which existing stores to convert to franchisees? Are these less performing stores or the strategy regarding franchising model? So in the coming year, what proportion of stores can we expect from this model like 4, 5 years down the line?

See, for us, some of the existing stores where we feel that a franchisee can do slightly better in some places where these are in slightly secluded kind of locations where they have to be, I would say, we'll probably benefit from a franchisee who comes in and does the informal kind of labor thing in which he stays longer hours and everything else where we think there'll be benefit, we will most likely give it. There's no particular model out there. But going forward, though, while -- this year, of course, as I said, we will only be doing piloting on the franchisee stuff. While going forward, that is the plan for us, I don't see any major changes. We will have some more conversions, but not to a major extent. We will -- once the pilot is done, maybe in a quarter or 2, we'll be able to guide you on the future, which is how many -- what percentage will you end up actually going as franchisees versus company-owned stores. Right now, it's still not yet -- I would say, the numbers are not yet closing.

Sure, sir. Sir, my last question would be, we have seen that our Diagnostic segment has been ramping up, and we are making losses at operating EBITDA level a year ago. And now we make 13.6% operating EBITDA level. So is the plan to not grow this business still intact? Or we can expect some expansion in this segment, at least in the states we are already operational?

No, no, we don't really expect to grow this at all at this point of time. While -- we were never in doubt that this would actually get to profitability and all. That is not the criteria which we have set ourselves -- or at least, that is not the metric which will decide whether we end up expanding or not. The metric is the membership numbers. They are still at only 164,000 as of now. We need them to go beyond 200,000 and preferably closer to 250,000 members before we decide on expanding into new states or new cities.

Our next question comes from the line of Sudarshan Agarwal from Axis Capital.

So on the branded generic side, I think during the last call, you did highlight that your incentive scheme on the private label side was kind of affecting the branded piece. This quarter, obviously, the decline has dropped a little bit to around 3% Y-on-Y. Could we expect that the branded piece to grow going ahead in future quarters?

No, no, I don't think so. I don't think the percentage of private label is going to dip any further or will go down too much. So it will be there. But we expect as I go forward as the incentives of the employees are aligned, not just for private label growth, but also for top line growth, we will see an overall increase in top line. The absolute numbers of branded generic may go up with the overall increase in top line. But yes, I would expect that they will end up being higher at the cost of private label.

Got it. Got it. And on the SSG front, I understand that it is better versus last year -- last quarter, sorry. But when do we expect us to be back to, let's say, high single-digit kind of SSG growth by?

I think couple -- maybe 1 quarter or 2. I think we still need a lot of work to happen at the back end for us to actually really take advantage of whatever we have in the front end. So that is slightly -- has been slightly slower than what we expected although we did open some warehouses. We still need more. And so we are getting that done, maybe a quarter or 2, is what I think, 2 quarters...

Our next question comes from the line of Lakshminarayanan K.G. from Tunga Investments.

A few things. First is that how the branded fill rates have actually have taken place in the last 2 quarters because you mentioned that there were some incentive schemes. So just wanted to check if the branded generic or the branded pharma fill rates dropped in those 2 quarters? And if so, was it the employee at the front end who did not do the fill rate or the company took a choice of actually pushing the private? What actually took place? And how do you track the brand fill rates and where are we now?

No, it is actually nothing to do with the brand fill rate. While the fill rate is definitely important criteria, it is more a function of the warehousing as well as the logistics and purchasing department out there. The employee has nothing to do with it out there, one. So as I said, we had a little bit of a challenge on the back end and hence, the fill rate was particularly affected in some of the places, especially in the slightly more distant places from the main city. So that was one challenge. The employee part comes in only where they're getting incentives only for, let us say, a private label. And so their interest then is only in selling that and nothing else. And so in some cases, we have seen them almost being disinterested in some other products. So that has changed. So on their side as long as the product is there, and which is not their work, the product being there in the store is the work of the supply chain guys, they will now basically be more than enthusiastic. At least we're not as enthusiastic about selling nonprivate label products.

Fair enough. And the second, if I just look at your omnichannel sales because the last 2, 3 quarters, it has been either stable or it has actually declined. And why is that so? Is it a conscious choice? And I just want to understand how many orders do you actually do? What is the number of bill cuts that actually happened? And is it decline in the per value of the bill or what has taken place there?

So I think as a percentage, it may not have gone down too much, but it has not been growing. We are now taking steps to make sure that we are able to do this. We are revamping some of our software in order to get this whole thing done. That's all internally done. So I think maybe a quarter or 2, we should be ready with a plan and all that. Right now, no, we're not doing anything. So the only thing which we don't do like most of the other companies out there is that we don't have any special discounts or we do any promotions in all. We have found that the cost of acquisition of customers is way too high. It's not really the incremental business, so we have not done much on that. But I think just by -- there may be a gap in some of our service levels, and that has come out of huge demand for delivery boys across all the cities in which we have not maybe kept up with the salaries are or whatever is the thing which has to be given to the delivery guys. So some of those things are being addressed and I expect that as we go forward, we'll definitely increase our sales. But no, we are conscious of the fact that some of the customers will want to go online. But we are not, I would say, against selling or we have nothing against the online channel.

What is the average bill ticket for the online?

The average bill value for us is north of north of INR 1,500 per bill because we have a 20% discount above tolerance. So a lot of the people who come to us are people who have chronic ailments and all and they will tend to buy slightly on the higher side. So yes...

You introduced the platform fee or some standard charges. So does it -- is it meaningful? Or is it just -- or you intend to increase that out?

No, no, I don't think we'll increase it. The platform fee, I think, has been on all the online bills. That is in line with most of the other companies. I don't really expect to increase that in any way.

Our next question comes from the line of [ Sidharth Srikumar] from iThought.

Sir, my first question is you said that going forward, you are foreseeing only 0.5 percentage growth per quarter for your private label. Does that mean that the percentage of private label in your overall sales will come down, and therefore, gross margin will also be not 26% going forward?

No, why do you say that? I said we'll grow from here, right? So if I'm growing from here by 0.5% every quarter, it should either be -- it should actually grow. It's not going to come down.

But you are saying that 0.5 percentage, it's the volume growth or is it like the share in your overall sales?

Share in our overall sales.

Okay. It's not the growth number. Okay. Second question I have is regarding -- like when I went for a lot of -- been to a lot of your stores, the one thing which was visible was that they don't have all the branded generics, which are not your brand, and therefore, some customers are not buying from the store. So do you plan to address this issue in any way?

As much as possible, it is almost impossible to have 100% fill rate. It'll take several crores of inventory needs to do that. So our goal is to be the best in the market out there. I believe we are still much better than most of our competition. But it is possible that in some places, in some stores, maybe some brands we may not have. We -- it's a continuous process of improvement actually, and we continue to get better and better.

Okay. So one more question I have was regarding the warehousing. Like at pan-India level, how many warehouses do you have? And like how -- what -- how many stores can one warehouse cater to effectively without actually pressuring your supply chain?

Sure. So around 40 warehouses is what we are currently having, including the 10 which we have recently added. Roughly around 350 to 400, 450 max we can sweat each of the warehouse to service our stores in that region.

Okay. So 40 is the overall number of warehouses across the country and one warehouse can service how many stores, 300 stores?

350 to 450 range. Again, some of the warehouses are purely only pharma, some cater to the FMCG products as well. And that's how we think for our current network, this would service at least -- in some areas, we sped up to 500 stores; in some areas, this is between 300, 400, which means there is sufficient capacity even to grow new stores in those areas.

Our next question comes from the line of [ Raman KV ] from Sequent Investments.

So I have -- it's more like a clarification. My understanding is, as your private share of private label increases, your revenue -- MRP revenue -- sorry, store-level MRP decreases mainly because the average cost of private label medicine is comparatively less than branded generics. Is my understanding right?

That is right.

So if we are growing the private share label, there will be 1, 2 things. There won't be -- the same store growth will be very hard to achieve and the store level MRP growth will decline -- will be declining in trend. So how are you planning to address this? One is that. And a follow-up on that is you initially mentioned that you -- the employees were incentivized to push private label products. So -- and now you have talked about that the strategy has changed. What's the change in the strategy? How are you planning to bring same-store growth across all the stores of MedPlus?

Okay. So first of all, let us say the private label is sold more, even if the top line actually goes down, the absolute amount of money you make is much higher. So if you are making let's say, X, on a brand after the discount, you actually make 2x on this, not as a margin or not as a percentage, but actually in absolute terms. So it is actually good if you were to do it. So they're in nothing wrong in it. But all the -- so that is not the intention, though, right? The intention is not to make private label 100% and not supply the customers what they want because not everyone wants our private label, there will be people who want the brands. So the goal is to basically be a multi-branded guy, keep offering our private label and show the benefits of it and keep convincing some people to switch, that's all. Now on the employee incentive, so where the earlier incentives were only aligned towards increasing the private label, now they have a mix where they are supposed to also grow the top line for them to get the private label incentive. So it is different in different places. I can't go into the full details, but yes, that's what it is generally. So they are no longer linked only to one part of their performance.

Okay. And sir, with respect to CapEx per store, what is the CapEx per store for us?

Typically INR 7 crore to INR 8 lakh per store. It, of course, depends on the size of the store. The rental advance is around 2 lakhs to 3 lakhs. So you could say INR 10 trillion lakhs overall.

And sir, with respect to the -- you said now you will be aiming for [indiscernible] every year, increase in private label share products by 0.5% every quarter. So -- which is effectively a 2% increase from current 13% to 15% by the end of this year. So I just wanted to understand how will the gross margins and operating margins will improve?

Yes, it's a little unlikely that this quarter will also grow. So mostly the quarter after that it will start going. The reason I say that is because we kind of achieved the growth of 2 or 3 quarters in last quarter, and we are stabilizing there in Q4. So after that, we will continue to grow. So it is going to be a function of the growth of private label. 0.5% on net sales value or 1% on MRP value, which is what we have been saying.

Yes. So how -- if you're increasing 0.5 percentage on net sales value, how much will your gross margin improve by? Any ballpark number?

Every 0.5 percent will probably give you around 0.2%.

Our next question comes from the line of Madhav from Fidelity.

Just one question. I joined the call a little late, sorry about that. Maybe it's a repeat question. But just wanted to understand, thinking -- going ahead, how is the management thinking about balancing the margins and the growth? I guess margins have been very strong and it seems like we still have levers to grow the private label which means gross margin should remain strong going ahead. But how do we think about just the top line and the gross margin or EBITDA margin equation for the next sort of few quarters or 1 or 2 years? That will be great, sir. I just want to understand that.

So a couple of things. One, the margin can come down if the number of new stores we open are probably very high. The overall margin. I don't mean the gross margin, right? But we expect to open only 600 stores, so it's not going to be a huge impact on the overall EBITDA of the company. Now on the gross margin, we -- obviously, this is very beneficial for us to continue to grow the private label, and we are doing that. But at the same time, we don't want to put off customers who are coming for brands. And so that will be counterproductive. So we are going to -- as I said, we have already realigned some of the incentives this month. So we expect that if not this quarter from next quarter onwards, we'll continue with the same kind of growth, which is either 1% on MRP sales or 0.5% on net sales.

Okay. Sir, but the mix part is quite clear, actually. Just on getting the top line growth back because I guess if you can balance that with the gross of the EBITDA margin, then sort of earnings growth becomes pretty strong for the company. Even now, it's quite good. But just to get the top line moving, yes, how do we set that equation?

Sure, sure. So we're doing a couple of things. One, making sure that the back end is strong, it is able to supply in time and it's able to also do the fill properly and all. And also, we are learning our employees into doing a little bit more of the top line sales and everything else. So both those will help us catch up on the SSG. I don't think it's going to be a big concern. So yes.

Got it. And sir, just on the EBITDA margin side, now that Q1, we've done about 4.5%, 4.6%. And I guess this is seasonally the -- one of the weaker quarters for the company, correct me if my understanding is wrong, please. So is it fair to assume that for the full year basis, our EBITDA margin should be north of 5% for sure and maybe moving closer to 6% in coming times, is that how we should think? Or that's being a little too optimistic?

I think the latter may be a little too optimistic. I think it will definitely grow from here as we go forward, especially, Madhav, since last year was a very, very strong growth year for us on the private label. And as I said, we want to balance it a little bit and grow slightly more moderately at around 0.5% or 1%, depending on how you look at it. I think the growth may be not as high as that. And last year also, we added only around [indiscernible] stores. This year, we plan to add at least 600. So yes, that could also be a slight...

Got it. Sir, any guidance on the top line growth there? Any guidance there for the full year? How that could end up for us?

Not right now, we'll come back.

Our next question comes from the line of Aradhana Jain from B&K Securities.

I have 2 questions. The first is if you see the total amount of inventory that we have as of June, it would be the lowest that we have seen in the last 7, 8 quarters now. While we understand the upward push to the level of inventory should be the new store addition and downward push is the shift from branded generic to PL. But if you could help us understand what is the level of inventory you hold in a store? And where do you see the inventory settling? And would there still be room to see decline in absolute inventory in spite of new store openings? Yes, that's my first question.

See, new store opening will basically increase the number of days of inventory, that's all. In the absolute terms, it's always going to be around INR 17 lakhs to INR 18 lakhs of inventory per store. So that's going to be the number. But when you -- every time you open a store, you have to open it with a buffer inventory out there. Buffer, meaning you really don't know what the customer wants. There is a set of products which have to be there in the store. And initially, since the store usually starts at around INR 3 lakhs or INR 4 lakhs or INR 5 lakhs per month, you are going to see a much higher number of days of inventory. So that's one. So that's not going to change. Second, on the private label, will it push down the inventory and all? It's still early days because we are not really looking to -- so we are actually carrying both private label as well as our own right now. At some point, we may get a slightly better idea of which private level -- sorry, which branded generic to drop or which not to stock. And then maybe you will see -- start seeing the decrease of inventory days out there or at least a value, if I would say so for us as we go forward.

Understood. And the second question is, how is the acute versus chronic mix currently under PL? Is it similar to the historic levels of chronic more than acute of 60-40 ratio? Or has there been any change there?

No, it's always been chronic higher. Mainly because chronic patients usually have a much higher need of medicines. They are also -- since they spend so much more, they are going to be affected a lot more by increase or decrease of discount. And so we expect those guys to actually come in and that's been the cost -- that's been the case actually. Chronic is always higher for us.

Our next follow-up question comes from Sanjay from Bastion Research.

Sir, my question is when we say back end and supply chains are challenging for us. So what does that mean? What is the challenges we are facing on back end? You also mentioned that you are doing some work on supply chain side, so opening warehouses, what else we are doing on that side? If you can explain in detail it would be really great to understand going forward how things will change from here?

Yes. So it's largely what you said earlier, it's on the warehousing side. Tamil Nadu basically had one warehouse and it was supplying 1,000 stores. And from Chennai, you're supplying all the way down to Madurai and Deep South. And that became a problem out there since -- until we set up the Madurai warehouse. Now Madurai warehouse is slowly coming to speed and so we will see some of those problems going away as we go forward. Similarly, in Karnataka, we had one warehouse in Bangalore and in supplying all the way to Bangalore and Udupi. Now we have set up one more warehouse in Hubli. So, a, obviously, when you have something closeby, you're able to -- so that is one. Just the distance along will basically come down significantly when we have a local warehouse and you are able to supply every day. Second part, since we had actually opened a lot of stores very, very quickly, the warehouses themselves were of physical constraint. They were overflowing out there, and so we were not able to just put in enough stock and have it retrieved on time to send to the stores. These are getting addressed. Some of it is done and some of it continues to be there. So we hope in the next 1 quarter or so, it should be all streamlined.

[Operator Instructions] Our next question comes from the line of Omkar Hadkar from Mirabilis Investment Trust.

[indiscernible] like for example, insulin or others, like say, GLP drugs, et cetera...

Sorry to interrupt. Omkar, sir, we could not hear your question earlier. If you can please repeat the question.

Okay. Is my line clear now?

It's a bit clearer, sir. Yes, please go ahead, sir.

Okay. Okay. Yes. So my question is on the private label. So at this point in time, I just wanted to understand in terms of availability of private label across the store network in terms of what your SKUs we launched. Is it fully available? And the second part is, are there any other kind of missing categories like, for example, either insulin or GLP drugs or some other things, where there is an opportunity to kind of further introduce private label in the overall network? So some color on that would be appreciated.

Sure. So today, I would say, 80% of everything which sells in our store, we would have a substitute for that. The balance would be some of the patented drugs. A lot of the me-too drugs, ATR, I would say, 75, lot of the me-too drugs would be the vitamins and small -- I would say, very little sold combinations, which have bought either a small change in the strength of one of the combination products or which has additional mineral additional kind of vitamin, multivitamin kind of complex -- kind of product. So those, I would say, we have equivalents. We don't have the exact equal and we'll probably never have. But other than those products, I would say, we probably have everything other than insulins. Insulins, we haven't really found very good -- I would say, a reliable supplier for us to go forward on that. That's one. And is there scope for newer product? Definitely. I think GLP-1 -- GLP, I think both [indiscernible] going to come of patent next year and we are getting ready to launch it in one month -- first one month or so after the product comes off patent.

Got it. Sure. And I have a question on the Diagnostic business. So I saw that right at this point in time, you're adding about 7,000 -- 8, 000 kind of lives per month -- per quarter. So just wanted to understand maybe the underlying phenomenon there because I guess you would be also start -- you would have started renewal cycles of some of the older subscribers. So broadly, what are the retention rates like for that kind of business? And also to reach our kind of stated goal of 2.5 lakh subscribers, at this current run rate, it looks like it might take a while to get there. So are you kind of working on any strategies to accelerate the net additions in that business?

Yes, we're looking at a couple of times, a little early to say. But basic listing is going to be around B2B. And once B2B kicks in, then having, let's say, 5,000 or 10,000 per month is not a big deal or even more if we get a large company on board. So B2B has to be the way we have to go, and that's why we have kind of put off all expansion plans till we can convince people to come on board. On the renewals and all, I think within the first quarter, anywhere from 24% to 27% is the usual renewal rate for us. And after that, see, if it is B2C, people are going to come and renew when they need it. They're not going to renew immediately. A lot of the people are chronic customers. A lot of them may have gotten their test done in the last one month of their membership, and they're going to wait for one quarter or more till when their next cycle of test starts for them to come and renew it. But the renewals have been fairly steady.

Okay. Okay. And I missed part of the call, but if I can just summarize what you said about the inventory. You mentioned that the overall warehouse level inventory has come down because of the opening of new warehouses and making it more efficient. And the store level inventory is more a function of the pace of the opening of the stores. Is that the right inference on the way inventory...

No, no, no, the second part is right. The inventory level is not going to come down because of opening of new inventory. It is just going to be a split between, let's say, Chennai and Madurai where earlier it was only in Chennai. So that's not going to come down. It's just -- it's going to go faster into the stores and hopefully, with better results and everything else as we go forward.

Okay. So at the various level, the turnovers have increased, that is what is reflected in the days. And at the store level, the metrics are pretty similar, there's not much change, right?

Yes, yes. It doesn't change much in the first one year of its opening. It's always going to have a very high base of this thing out there, but the real metric to see is the inventory of stores, which are more than 1 year, and that has usually been constant at around 35 to 40 days. It's around 39 days, I think, right now.

And your old private label inventory, has that largely been cleaned up one way or the other?

More or less, I think there's a very small, I would say, not a material amount still left, and this all fully provided for.

Our next question comes from the line of [ Sidharth Sreekumar ] from iThought.

You said that most of the private label sales is for the chronic side. So I just want to know what would be the -- like out of the customers you have in that segment, how many customers do repeat?

Almost everyone. I mean, I'm sure there are some customers who don't. We don't have the exact numbers for it. But anyone who comes and takes a chronic medication just want to repeat. We haven't seen -- I would say, when we looked at it, it is not dissimilar to any branded product out there.

Understand. One more question I have is you have said that 80% of whatever drugs you sell in your stores, you have your own brand for it. So the 80 percentage of the branded generics, right? How many have you taken off from your stores?

How many branded generics we removed?

And replaced with your own brand?

No, no, that's not how it works. We don't replace any of the branded generic actually. The assortment and the depth of that is completely a function of the sales of the product. Only if the sales goes down completely, does it actually go off the shelf. Otherwise, we don't take it off proactively.

Okay. Understand. So if I can squeeze in one more, like a qualitative question. Is that -- what are the technical learnings for you since the introduction of the private label?

So I would have wanted the adoption to be much, honestly. I thought we would right now be at close to 30% by GMV kind of terms. It is only at 20% out of 80% right now, so which is around 25% of the overall sales. It probably -- the early adopters after they moved in, I think the rest of the naysayers out there will take a little while to come on board, and we are seeing that happen gradually. So slightly slower than expected. That's all.

Our next question comes from the line of Neelam Punjabi from Perpetuity.

Congratulations on the margin execution that we have demonstrated over the last 12 months. My first question is that on a GMV basis overall, how was the growth Y-o-Y for the quarter for the Pharma business?

Just hold for a second. I think on a GMV basis, it is around 6% is what I remember 6.8%.

Got it. Okay. And on the overall growth, so while historically, we were growing at a high double-digit and in the last 4 to 5 quarters, we have slowed down to about mid- to high single-digit growth. And you've mentioned that this is because of private label going up, which is at a steep discount to brand in generics. However, given that this higher private label is now in the base, can we expect the growth to pick up and go back to the double-digit growth as we had historically, let's say, in the next couple of years?

Yes. Definitely. It's going to be a function of 2 things. One, the number of stores we had; and two, the overall growth itself. I fully expect that we will start growing out there. The -- see, one of the things is there's definitely, I would say, a trade-off between margins and growth, which is between private label and -- private label which basically accounts for the gross margin and just growth, which is going to come from selling branded products. So we chose to go the private label way. We wanted to really expand the market, take a -- form a solid base and from there, grow private label slightly in a slightly more consolidated fashion, but again, refocus on the branded stuff. So we will now start growing because of that. But for us, it is a conscious call. We really wanted to expand the margin and take it to at least 25%.

That makes sense, sir. But what I'm trying to understand is that while that has happened in the last, let's say, 12 months or so, is this now a pivotal or an inflection point where we'll be able to grow at a better rate compared to the last 1 year with keeping the margins at this current healthy rate? Like what is that inflection point? Is it today? Is it 6 months out where the growth would start picking up along with maintaining the kind of healthy margins that we've already demonstrated?

Sure. So 2 things. One, of course, the reshifting of focus to or realigning the incentives of all the employees to make sure that they sell both branded as well as private label, one. Second, as I said, streamlining of the overall supply chain and everything else, which will take a quarter or 2 completely to happen, that will also help us increase the fill rate and increase our sales. So both those things will start happening, and they will result in a top line growth.

Understood. Got it. And just one last question. In terms of our target of 600 store addition, what would be the broad split between the franchisee stores that we will be opening and our own stores?

I'm thinking at least 100-odd stores will be franchisee. We're trying to see if we can do more, but we want to make sure that the pilot and all are going well before we really take off on that.

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

I thank all participants on this call for your interest in the MedPlus journey. Our Investor Relations team can be contacted at [email protected]. Thank you.

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