MedPlus Health Services Q3 FY26: Margin Pressures Persist Despite Revenue Growth

The December quarter results showcase MedPlus's ability to drive topline expansion whilst grappling with margin compression. Net sales reached an all-time quarterly high of ₹1,806.12 crores, reflecting healthy demand across its pharmacy network. However, the company's operating margin (excluding other income) dipped marginally to 8.78% from 8.86% in the previous quarter, indicating that cost pressures and competitive intensity continue to weigh on profitability. The PAT margin of 3.20% remains relatively thin for a retail operation, highlighting the capital-intensive nature of pharmacy retail expansion.

Quarterly Performance: Revenue Momentum Meets Margin Headwinds

MedPlus delivered its strongest quarterly revenue performance in Q3 FY26, with net sales climbing 7.55% sequentially to ₹1,806.12 crores. On a year-on-year basis, revenue growth accelerated to 15.67%, outpacing the 6.54% YoY growth recorded in Q2 FY26. This acceleration suggests improving same-store sales growth and successful store additions, critical drivers for a retail pharmacy chain expanding across tier-2 and tier-3 cities.

Operating profit before depreciation, interest, and tax (PBDIT), excluding other income, reached ₹158.62 crores in Q3 FY26, the highest quarterly EBITDA on record. However, the margin contraction to 8.78% from 8.86% in Q2 FY26 signals that rising employee costs and operational expenses are offsetting the benefits of revenue scale. Employee costs surged 9.06% sequentially to ₹232.65 crores, reflecting both wage inflation and increased hiring to support store expansion.

Interest costs climbed 6.97% QoQ to ₹30.83 crores, reflecting higher working capital requirements and debt servicing as the company finances its aggressive expansion. Depreciation expenses increased 6.09% to ₹72.74 crores, in line with capital expenditure for new store openings. The tax rate for Q3 FY26 stood at 21.15%, up from 19.48% in Q2 FY26, contributing to slower net profit growth relative to operating profit expansion.

Operational Challenges: Return Ratios Signal Weak Capital Efficiency

MedPlus's return on equity (ROE) stood at 10.57% for the latest period, a marked improvement from the five-year average of just 5.80%. Whilst this uptick is encouraging, the ROE remains well below industry leaders and highlights the company's historical struggle to generate attractive returns on shareholder capital. The return on capital employed (ROCE) reached 11.34% in the most recent period, up from the five-year average of 6.52%, but still reflects suboptimal capital productivity for a retail business.

The company's balance sheet reveals moderate leverage, with a debt-to-equity ratio averaging 0.37 over the past five years. As of March 2025, shareholder funds totalled ₹1,740.56 crores, supported by reserves of ₹1,716.62 crores. The absence of long-term debt is a positive, but current liabilities of ₹576.59 crores, including trade payables of ₹298.96 crores, indicate working capital intensity typical of pharmacy retail operations.

Fixed assets stood at ₹338.47 crores as of March 2025, down from ₹364.49 crores in the prior year, reflecting depreciation outpacing capital expenditure. Current assets totalled ₹1,843.52 crores, driven by inventory and receivables necessary to support the growing store network. The company's inventory turnover ratio reached a record high of 4.91 times on a half-yearly basis, suggesting improved inventory management and faster stock rotation.

Pharmacy Retail Dynamics: Navigating Competitive Intensity

The Indian pharmacy retail sector remains highly fragmented and intensely competitive, with organised chains like MedPlus competing against both standalone pharmacies and larger rivals. MedPlus's strategy focuses on penetrating tier-2 and tier-3 cities, where organised retail pharmacy penetration is lower and growth opportunities are more substantial. The company's emphasis on affordable generic medicines and value pricing positions it well to capture market share in price-sensitive markets.

However, margin pressures are endemic to the sector. Pharmacy retail operates on thin gross margins, typically in the range of 20-25%, with operating margins compressed by rental costs, employee expenses, and logistics. MedPlus's gross profit margin of 8.09% in Q3 FY26, whilst an improvement from 7.63% in Q3 FY25, remains modest and vulnerable to competitive pricing pressures and supplier negotiations.

The company's debt-to-EBITDA ratio averaged 3.08 times over the past five years, indicating moderate leverage relative to operating cash flow generation. With interest costs consuming a significant portion of operating profit, MedPlus must prioritise margin expansion and operational efficiency to reduce financial strain and improve return metrics.

Peer Comparison: Valuation Premium Despite Weak Returns

MedPlus trades at a price-to-earnings (P/E) ratio of 49.01 times trailing twelve-month earnings, a premium to the retailing sector average P/E of 73 times but elevated relative to its own return profile. The company's price-to-book (P/BV) ratio of 5.18 times reflects investor expectations of future growth, but appears stretched given the average ROE of just 5.80% over the past five years.

Compared to peers, MedPlus's ROE of 5.80% lags significantly behind Aditya Vision's 37.54% and A B Lifestyle's 11.08%. The company's P/BV multiple of 5.18 times is lower than Aditya Vision (10.11 times) and A B Lifestyle (9.69 times), but higher than Entero Healthcare (2.71 times). This suggests that whilst MedPlus trades at a relative valuation discount to some peers, its weak return ratios do not justify a premium valuation.

MedPlus's debt-to-equity ratio of 0.37 is lower than A B Lifestyle (2.35) and comparable to Aditya Vision (0.49), indicating conservative leverage. However, the absence of dividend payments limits income appeal for investors, particularly given the modest ROE profile.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current price of ₹798.00, MedPlus trades at a P/E multiple of 49.01 times, below the retailing sector average of 73 times. The stock's P/BV ratio of 5.18 times and EV/EBITDA multiple of 18.69 times suggest moderate valuation relative to growth expectations. However, the company's weak historical return ratios and margin pressures raise questions about whether the current valuation reflects sustainable earnings power or merely optimistic growth assumptions.

The stock's PEG ratio of 0.52 suggests that MedPlus may be undervalued relative to its growth rate, with five-year sales CAGR of 15.91% and EBIT CAGR of 13.01%. However, this metric assumes that growth can be sustained without further margin erosion, a significant assumption given recent quarterly trends. The company's valuation grade shifted from "Attractive" to "Very Attractive" in October 2025, reflecting the stock's decline from its 52-week high.

MedPlus currently trades 24.15% below its 52-week high of ₹1,052.05 and 32.34% above its 52-week low of ₹603.00. This mid-range positioning offers limited margin of safety for investors, particularly given the company's below-average quality grade and weak return metrics.

Shareholding Pattern: Institutional Confidence Stabilising

Promoter holding in MedPlus remained stable at 40.29% in Q3 FY26, unchanged from Q2 FY26 but marginally lower than 40.39% in Q4 FY24. The consistent promoter stake suggests management confidence, though the lack of increase may indicate limited appetite for further capital infusion. Notably, 60.74% of promoter shares are pledged, a significant concern that raises questions about financial stress or liquidity constraints at the promoter level.

Foreign institutional investor (FII) holding increased to 16.83% in Q3 FY26 from 16.54% in Q2 FY26, reflecting growing international interest despite the company's operational challenges. Mutual fund holding remained flat at 21.48%, indicating stable domestic institutional support. Insurance holdings edged up to 2.29% from 2.24%, whilst other domestic institutional investors (DIIs) increased their stake to 2.81% from 2.79%.

Non-institutional shareholding declined to 16.30% in Q3 FY26 from 16.65% in Q2 FY26, suggesting some retail investor profit-taking. Overall, institutional holdings of 43.41% provide a solid anchor for the stock, though the high promoter pledge remains a red flag that warrants close monitoring.

Stock Performance: Underperformance Amidst Bearish Technicals

MedPlus has delivered a one-year return of 9.32%, marginally outperforming the Sensex's 7.18% return by 2.14 percentage points. However, the stock has underperformed significantly over longer periods, with a three-year return of 24.82% compared to the Sensex's 38.27%, resulting in negative alpha of 13.45 percentage points. The four-year return of -27.34% versus the Sensex's 43.83% highlights the stock's volatile and disappointing long-term performance.

The stock's six-month return of -14.47% versus the Sensex's 0.97% gain underscores recent weakness, with the stock trading below all key moving averages—5-day (₹780.61), 20-day (₹808.35), 50-day (₹805.18), 100-day (₹796.50), and 200-day (₹831.11). This technical setup indicates a "mildly bearish" trend, as classified by technical analysis, with immediate resistance at the 20-day moving average around ₹808.35.

MedPlus's high beta of 1.35 suggests the stock is 35% more volatile than the broader market, with annualised volatility of 31.95% compared to the Sensex's 11.21%. The stock's risk-adjusted return of 0.29 over one year is significantly lower than the Sensex's 0.64, indicating that investors are not being adequately compensated for the elevated risk. The stock's classification as "HIGH RISK MEDIUM RETURN" reflects this unfavourable risk-return profile.

Investment Thesis: Mixed Signals Across Key Parameters

MedPlus's investment case presents a mixed picture across critical evaluation parameters. The company's near-term financial trend is classified as "Positive," driven by record quarterly revenue and net profit. However, the quality grade remains "Below Average," reflecting weak historical return ratios and modest capital efficiency. Valuation is assessed as "Very Attractive," with the stock trading below sector multiples, but technical indicators signal a "Mildly Bearish" trend.

The company's proprietary Mojo Score stands at 46 out of 100, placing it in the "SELL" category. This score reflects concerns about technical weakness, below-average quality, and limited margin expansion despite attractive valuation. The score downgraded from "HOLD" to "SELL" in October 2025, coinciding with the stock's bearish technical trend shift.

Key Strengths & Risk Factors

Outlook: What to Watch

Looking ahead, MedPlus must demonstrate that its topline expansion can translate into sustainable margin improvement and enhanced return ratios. The company's ability to leverage its growing store network, negotiate better supplier terms, and control employee costs will be critical to achieving operational leverage. Investors should monitor quarterly margin trends, promoter pledge levels, and institutional shareholding patterns for early signals of improving fundamentals or emerging risks.