MedPlus Health Services delivered mixed first-quarter results for fiscal 2027, with revenue of ₹18,796 million beating forecasts by ₹290 million but earnings per share of $1.95 missing the $2.20 consensus estimate by $0.25 per share. The company reported operating EBITDA of ₹651 million with a 3.5% margin, while pharmacy operating EBITDA reached ₹588 million with a 3.2% margin. Gross margin declined approximately 200 basis points sequentially, attributed to lower private-label sales mix, inventory provision charges, and lost year-end supplier discounts. The stock fell 10.4% to $711 in after-hours trading following the earnings announcement.
MedPlus has implemented significant changes to its private-label medicine sales approach after acknowledging that employees may have gone 'a little overboard' in promoting these products. CEO Madhukar Reddy Gangadi stated during the earnings call that the company pushed private label very hard initially, but early adopters quickly shifted and employees may have gone too far in pushing it to every customer. The company now focuses on ensuring customers are completely served whether they choose branded or affordable private-label medicines, with private-label share currently at 20% of total revenue. Management expects private-label share to resume growth at 0.3% to 0.4% per quarter after the recent slowdown, with the company targeting around 0.25%-0.3% growth on overall private label going forward.
The company faces significant margin pressure from multiple factors, with gross margin declining approximately 200 basis points sequentially. CFO Sujit Mathur pointed to cost pressure from wages and staffing, with 60% increase in Karnataka and 25-plus in Telangana due to minimum wage changes. To address these challenges, MedPlus has implemented several cost optimization measures including reducing discounts on purchases above ₹1,000 from 20% to 19% effective July 7 and increasing private-label membership fees from ₹99 to ₹149 per year. The company expects these changes to add ₹10-11 million to annual top line with benefits flowing through to profit. Management remains confident in recovering the 100 basis points decline during the year through improved private-label mix and operational efficiency.
MedPlus continues its aggressive expansion with net store additions of 146 in the quarter, ending with 5,476 stores. The company reiterated its FY 2027 guidance for 800 net new stores and maintains its diagnostics segment growth with revenue of ₹370.8 million, up 22.4% year over year. However, the company has put two non-core projects on hold: a food park and a wellness services facility after initial market feedback. Management indicated these projects are unlikely now and will focus on core capital spending on warehouses, stores and distribution. The company's net working capital stands at 54 days and maintains strong return on equity of 77% despite current margin pressures.
Despite the earnings miss, analysts maintain a wide target range from $329 to $586 for the stock, reflecting uncertainty around the company's ability to navigate current headwinds. InvestingPro's Financial Health score of 3.49 rates the company as "GREAT" overall, supported by strong profitability and growth metrics. Management expects the company to arrest the slight decline in private-label share and resume growth at 0.3% to 0.4% per quarter going forward. The company plans to expand private-label sales through advertising and customer awareness campaigns while continuing to focus on improving employee training and customer service across all product categories.
