Please note that this conference is being recorded. I now hand the conference over to Mr. Prasad Reddy from MedPlus. Thank you, and over to you, Prasad. Thank you, Sangvi. Good evening, everyone. On behalf of MedPlus, it's my utmost pleasure to welcome you all to the MedPlus Q3 Earnings Conference to discuss the financial results of MedPlus for the third quarter of financial year 2023, which were announced on 3rd February 2023. We have with us today the senior management team represented by Mr. Gangadi Madhukar Reddy, CEO and MD, Mr. Sujit Kumar 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 the risks and uncertainties on slide 1 of the investor presentation shared with all of you earlier. Documents relating to our financial performance have been circulated earlier, and these have also been posted on our corporate website. Please note that we have uploaded the revised presentation to the stock exchanges today, including correction of a few typos on page numbers 8 and 21. I would now hand over the call to Mr. Madhukar for his opening comments. Thank you, and over to you, Madhukar. Thank you, Prasad. Good evening, everyone. At MedPlus today, we are over 21,000 colleagues. I would like to thank my team for their discipline and hard work that goes into providing the right service to our customers. As of 31st December, we cater to the healthcare and household needs of neighbors in 497 cities across 7 states through our network of 3,557 stores. We have now expanded into 43 new cities during the current quarter. We're continuing with our store expansion program. We added 1,080 stores in the last 12 months. That's net stores. In Q3, we opened 240 stores, and the highest additions were in Tamil Nadu and Maharashtra, 65 and 58 respectively. In Q3, 58% of our store openings have been in Tier 2 cities and beyond. We have 1,523 of our 3,557 stores in Tier 2 cities and beyond. These are good markets from a store economics standpoint, and MedPlus continues to expand in these markets because of the maturity of its operations and supply chain capability. There were 17 closures in Q3 versus 14 in Q2, and so overall, there are net additions of 229 in Q3 versus 348 in Q2. For the last 12 months, net additions have been 1,080. To give you an idea of the way our network is built into it, 32% of all our stores are less than a year. 17% are between 1 and 2 years, and 51% of the stores are 2 years and older. So we ended Q3 with 49% of our stores being in the less than 2 years age bracket. In comparison for Q3, that's for 2022, 36% of our stores were less than 2 years old. All stores in the below 2-year age bracket are still in the ramp-up phase, and from a financial point, they are a drag on the EBITDA. However, as they mature, we expect these stores to contribute to our profits. We closely track the time to breakeven for our new stores. For stores opened between July 2021 and June 2022, 69% of the stores achieved breakeven within 6 months of operations. To give you a sense of how rapid the ramp-up to breakeven is at the 6-month and beyond level, 79% of the stores then breakeven in the 7th month. So more than 10% breakeven is just one month after that. At the end of the quarter, our network has now grown to 3,557 stores with 2 million+ sq ft compared to 2,477 stores and 1.5 million sq ft at the end of December 2021. The average store size is 558 sq ft. To give you a sense of spread in store sizes, we have 2,474 stores within 600 sq ft and 1,083 that are greater than 600 sq ft. With our scale, we are now better poised to increase our overall share of private label, overall share of revenue from the private label side. What scale does? It allows us to add new products for which we did not have the minimum of quantity earlier, and scale also allows us to establish a brand, which makes all the products much more easier for customers to access. Our private label range is intended to provide quality products at affordable prices. MedPlus today has over 900 curated products across pharma and non-pharma. private label sales at the end of last quarter were 13.8% of our overall revenue. Overall, the trajectory of increasing share of our private labels in our customer profits dramatically continues. Within private label, our pharma range has also been gaining share. 8.6% of pharmacy revenues is from private label pharma. Our increasing presence in Tier 2 cities and beyond is reflecting in our revenue mix. Sales from Tier 2 cities and beyond contributed to 33% of our pharmacy revenues this quarter. This is up from 41% in Q3 of last quarter. We continue to extend our range of PIN codes for our online orders, which complements where we pick up physical stores. MedPlus will continue to focus on increasing the coverage of our 2-hour delivery offering. Store pickups and a share of online orders continue to maintain a higher share than home delivery, reflective of the convenience and accessibility of our store network. Our strategy on online revenues unchanged. We have not spent heavily to acquire customers online. In fact, in the last quarter, we have hardly spent or we have not spent at all, I would say, on acquisition of online customers. We continue to maintain our omnichannel as a profitable channel. The way we think of our omnichannel is when we set up a store and we enter a neighborhood, we are automatically drawing the 100 customers per day kind of footfall. And all of these people are immediately we let all these customers know that we also have the same service online. And we let the customers, according to their convenience, choose to either go online, offline, or in a lot of cases, go between both. And given that we are then distributing the products only in that particular neighborhood, for us, every single transaction becomes a profitable transaction. Neither is there cost of acquisition, nor is there extra cost of extra discounting we should give, nor do we spend too much on the delivery side. So for us, while we believe that online is a very critical part of the overall supply chain, overall selling process out there, we think that the customers will pick it based on their convenience, and there's actually no need to spend a lot of money to acquire customers, or at least to tempt customers into going online. So anyway, with that, I will actually let our CFO give you an update on our numbers. Thank you, Madhukar. Now, on our quarter's performance, our consolidated revenue was INR 11,903 million, growth of 27.5% year-on-year and 6.2% quarter-on-quarter. Our consolidated operating EBITDA stood at INR 371 million, representing 3.1%. This is a 1.2% year-on-year and 31% quarter-on-quarter improvement. Around 99% of our revenues is from our pharmacy operations. The pharmacy operating EBITDA was INR 406 million, representing 3.5%. On our store performance, I would like to update. On our stores older than 12 months, revenue from these stores in Q3 was INR 9,895 million, or 85% of our total pharmacy revenue. These stores had a store-level EBITDA margin of 10%. The store-level operating ROTE of these stores stood at 60.8%. A word here on the store-level EBITDA margin by age. While stores greater than 12 months had a margin of 10%, for stores in the greater than 24-month category, this was 10.6%, and for stores in the 13-month to 24-month category, was 7.2%. If we allocated non-store-related costs, then the operating EBITDA of stores greater than 12 months would be INR 490 million, which translates to a margin of 4.9%. On working capital, our net working capital for quarter three was 63 days. The inventory in our warehouse was 37 days. As you are aware, because of the same trajectory of new stores, their inventory turnover is lower in the first year. In Q3, the inventory level of our first-year stores was 109 days. In comparison, for a store older than 12 months, the inventory was 38 days. On our segmental data, I would like to add an important note. In page 17 of our earnings update, we have presented the business segments, which are different from the regulatory filing. For example, opticals have been grouped under other in the presentation, whereas in the regulatory filing, opticals is grouped under retail. We hope this information will be useful to you. Now, I request Chetan to update us on the diagnostic business. Over to you, Chetan. Thanks, Sujit. Good afternoon, everyone. I'm Chetan Dikshit, and I'm the Chief Strategy Officer of MedPlus. We currently have 3 full-service diagnostic centers in Hyderabad and just over 100 collection centers. Any member can avail the full range of radiology tests, for example, MRI, CT, and pathology tests at 75% discount to MRP. To recap, there are 4 differences in our model versus our typical tier. Firstly, we do not operate via franchises, and so there is no revenue sharing. Secondly, our collection centers are housed within our pharmacies, so there are only marginal incremental establishment costs at a consolidated level. Thirdly, our plan is designed such that we do not depend on the referral network for patient walk-ins. Lastly, we expect our centers to achieve scale faster than peers. As an indication, the capacity utilization for our advanced radiology machines in six months of operations is nearly twice that of a typical new center in the marketplace. Up to 31st of December, we have sold 68,000 plans with 119,000 underlying lives. In October, November, and December, we sold 250, 281, and 275 plans per day, respectively. That's our update on diagnostics. Handing back to Madhukar. Thank you, Chetan. So what can we expect from MedPlus going forward? We operate in the attractive pharmacy space and are poised for growth on the back of our store expansion. Our cluster-based network enables profitable omnichannel service, and scale allows the larger share of our financial capacity. Our diagnostic project has proven that we can use our pharmacy stores to cross-sell other healthcare solutions, and we love to explore other avenues that can add incremental change or increasing costs. With this, I'd like to open up the line for questions. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchscreen telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Our recipients are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Aashita Jain from Nuvama Group. Please go ahead. Hey, good evening. So my first question is on a number of new stores. About 69% of the stores achieve break-even within six months versus 75%-80% seen in the past. Seems like new stores are taking longer to break even. Is it to do more with the opening of new stores in Tier 2, Tier 3 cities, or it's just the competition in general? What is your take on the current competitive scenario? I would say 69% opened in the 14 and 6 months. No, I don't think opening them in Tier 2 is actually a cause for us slowing down or even speeding them up or whatever. I don't think there's any difference out there. While stores in Tier 2, the pipeline for them is slightly lower. Typically, their rents and other costs are also much lower in the share of private label, which makes for more profitable sales is actually higher. So they end up breaking in at the same time. But there is some variation once in a while, like 50 and 60, 50, 75%, and sometimes we will have an additional percent. It is just a I won't this is not something we should be concerned about. As I said in my call, if you look at, when we looked at the seventh month, the overall breakeven number actually jumped to 79%. So yeah, it's just so for us, breakeven is exactly meeting all the operational expenses of the store to the last thing. And sometimes there are a few stores which fall short by INR 500 or go over the INR 500. So I won't stress too much about that actual number. Sure. This is very helpful. And secondly, on the expansion plans, any new states that we are targeting apart from the one already disclosed on your expansion plans in terms of number of stores for FY24 and 25? Yeah. Actually, we're going to be looking at Kerala, Chhattisgarh, and Madhya Pradesh. We'll be seeding stores in Indore, Raipur, and Cochin, actually. This will either happen this quarter. We'll probably end up opening some stores this quarter or definitely in the next quarter after that. But this year, definitely, we will be looking at at least three new states to kind of start operations, take the store count, starting with maybe 20 or 30 to 50 or 60 later, and get our, I would say, feet wet in the water out there. And once we are comfortable, then we'll start expanding. That's the plan. Your expansion plans in terms of number of stores remain intact, 1,000 stores for 2024 and 2025? More or less. They will at least 2,000 stores, I would say, yeah, fall in line with our current numbers. Okay. Just lastly, on your discounts, while your blended discounts have remained the same, is there any change in the discounting buckets in any of the regions, or the ranges are same? Order value? Okay. More or less the same. We have not seen any big difference in the above 1,000 or below 1,000 kind of bill sizes, the number of bills. It is at 16, it is more between 16.5%-17% kind of percentage, but not a significant increase, I would say. We haven't changed the discount structure, yeah. Good. Thank you so much. Congratulations on the good start. Thank you. Thank you. Ladies and gentlemen, if you wish to ask any questions, please enter star and one on your phone. The next question is from the line of Avnish Khara from VT Capital. Please go ahead. Hello. Am I audible? Yes, you are. Thank you for taking my question. So if I look at the contributions from lower-tier cities, over the past 6-8 quarters, it's been slowly inching up. So what I wanted to understand is, are there any differences in the store economics in the metro cities versus the lower tiers? And we're also going to be that number is going to continuously be going up. So I do also wanted to gauge what is the psychology of consumers in lower tiers versus metro cities, and what our strategy is for those regions? If I understood you right, you're asking if there's any particular reason for us to actually go to Tier 2 and Tier 3, right? Correct. Correct. No, it is just to see, we have been in the seven states, at least in three or four states, for quite a while. We're fully established in AP, Telangana, Karnataka, Tamil Nadu, and West Bengal, where we have our main warehouses in the capital cities of these states. And I won't say we've saturated, but we have a fairly good presence in each of these cities. Hyderabad, Bangalore, and Chennai, they've got over 400 stores. In Calcutta, we are now nearing 300. So to spread the asset out there, which is our warehouse and the supply chain out there, it is right for us to actually go deeper into Tier 2, Tier 3, and Tier 4, which is what we're doing. Because once you the setting up of the warehouse is a cost. Once that is amortized, then you would want to basically do as much as possible in the state. That's the reason why we are going deeper into the Tier 2 and Tier 3. Another reason is we started the company when we said that there's a lot of fake drugs in the market. 30% of all drugs in the market are actually fake, is what I had read in a WHO report when we actually started the company. We think the value proposition which MedPlus has of providing genuine medicines and also of providing a great price driven by scale, of course, is even more relevant in a small town where there are a lot of small operators. They don't give as much discounts. And certainly, I would say it's more prevalence of non-standard or non-quality kind of drugs. So on both, our main mission of actually doing this, to the value proposition resonating with the local public, and to making the best use of our assets, I think we are best at we would be best served by putting in as many stores as possible into Tier 2 and Tier 3. Now, are the economics same? Absolutely. While the pipeline is slightly lower than a metro city in a small town, given that the rents and staff costs and the private label mix are all favorable to us in a small town, but if you did that actually in a small town, it's much better. Right. And also, I just wanted to understand that is it—I mean, from your past experience, do you think that in the lower-tier cities, it's more easy to push your private label products because they might be a little lower priced than the branded ones? Our private label is not necessarily lower priced. It is almost around the same price. No, it is easier mainly because a lot of people do come for OTC kind of drugs, and a lot of the OTC kind of medication is sold. A lot of the medication we keep selling in private label is OTC. No, it is not about the price as much as the type of customer who walks into a store in a smaller town. Right. And I'll just squeeze in one last one. So you had amalgamated MHS Pharma this quarter. So what exactly happened over there? Could you just throw some light on that? Sorry. I'll explain that. Thank you for asking this question. The amalgamation was part of an old transaction. In FY20, the company had disclosed a BT arrangement between MHS, and through a slump sale, the company had acquired the entire business of MHS. It is now only being formally amalgamated. So there is net impact. There is a payable in the books of MedPlus of INR 17.5 crore to MHS, which will be set off against this amalgamation. So net-net at a group level, MedPlus would have INR 17.5 crore of extra cash. Right. Okay. Thank you so much. That's it from my side. Thank you. The next question is from the line of Bino Pathiparampil from InCred Capital. Please go ahead. Hi. Good afternoon and congrats on continued good performance. Just a quick question on the diagnostic side. The revenue or the cash that you get by filling this membership, how is it recognized? Is it right that it recognized like suddenly or over a period of a year or so? Yeah. Hi, this is Chetan. I'll just take it up. So here's what we don't do. When we sell a plan and the cash comes into our system, we don't recognize it as revenue. So that's probably the first part I would like to say. The second is the specifics of your question, but how does it move from the balance sheet into revenue recognition? Well, there are really two buckets to it. There's a 25% bucket and a 75% bucket. The 25% bucket gets recognized on the first instance of use of the plan. The balance of the 75% bucket is then amortized over the course of one year. You see, the membership plan is a one-year plan. Yeah. So it basically gets recognized as deferred revenue. Got it. Got it. Okay. Great. Thank you. Thank you very much. Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yeah. Hi. Good evening. Just one question on the discounting. I don't know if we've already discussed, but how is the discounting being in the last few quarters? Has it improved? The pricing improved, or the discount remains very high? I hear that there has been some month-end kind of discount with increases, and then it fades away to 20%. But if you could just share some thoughts on the competitive landscape that we are seeing. Yeah. For us, of course, it's a standard discount which we operate through the year. If you change it, then we change it for bills out there in that state. As you know, we have a 10% discount for all bills under 1,000 and 20% above 1,000. For us, it doesn't really change much. So the only way the overall discount can change for us is if a higher portion of people are buying for bill size is above 1,000. And it's more or less the same for us across all the states. In some states, of course, in West Bengal, it's slightly higher, whereas in Telangana, it's slightly lower. The bill size are slightly lower here. But on the competition side, we see that competition is in the game of, I would say, offering a discount which is not really viable, which is 25% discount in the initial stage, which means they can only offer it for a certain amount of time or for a certain number of times. So either they go on saying that, "Okay, we'll give it to you on the first three bills," or sometimes they come in and do a flash sale where they say, "Okay, we'll do it on the first day or second day or third day," which is all very great. Our only problem is the amount of money required to communicate this kind of message is actually more expensive than the discount itself. And it often gets misused most of the time. So we don't see much benefit, I would say, of doing that. So ours is more like an everyday low price. We continually make the offer better and better for the customers. But we have been kind of steady at the same number for a while now, Prakash. What I understand is you're saying competition still is at 25%. There's not much of a breather there, and despite that, you're growing 25% less. The question is, is the competition still doing 25%? Yes, absolutely. In fact, we sometimes even I myself get text messages of various competitors saying that they are willing to offer 30% once in a while. So yeah, I don't think we're really let up on that. Okay. Some color on the growth outlook and margin outlook because this is the first time where your store addition has been a little softer, which in right spirit, it has also helped in improving from EBIT and EBITDA. So would this strategy be followed, and would it be at the expense of growth, or what is the right balance you want to follow from the next few quarters and years? So Prakash, if you look at our last quarter, it was around 348. This quarter is around 248. So once in a while, these numbers go up and down. The plan is to grow at the rate of anywhere between 252-300 stores per quarter. Could go up or down a little bit. A lot of times, it is last this quarter, I think, we were affected a little bit by the rate increase the licenses came in because of deferring renewal. They did not come in on time in some states. So there's a process of inspection. Sometimes the inspection itself takes a while, and then the license is issued. So sometimes it could take a while, and that's the only reason. We are not calibrating that right now. The plan remains steady between the 1,000-1,200 kind of number for the year. That's going to be the plan for next year. On the revenue side, I think we can basically say anywhere from 20%-25% is what we're thinking would be the growth, which will be our revenue estimate for the next year. Growth over this year. Okay. Fair enough. And lastly, in terms of using the cash, is there a thought of buying out some of the smaller chains? Are there actually some in the market? If you could give some color there. We come across some chains, but we have never found anyone which is priced right, honestly. Given that we are able to open mostly at the rate of around 100 stores a month, and given that the next largest chain is only around 300 stores, really don't see too much benefit of paying a big premium for that. So we have kind of shied away from that given that our ability to open stores is pretty good. Okay. And one more question, if I may, on the diagnostic side. So earlier, thought was to have the pilot and still being okay. But I mean, is there any key takeaway in terms of next 6-12 months plan of adding more pilot projects itself in Hyderabad and how to take it forward? Okay. So it remains a pilot. It is not going to go beyond Hyderabad. The pilot, of course, was an integrated radiology and a path lab kind of service. So that will always remain only in Hyderabad for now, at least. The plan is to open 12 stores, 12 diagnostic centers, 4 of which will be large ones with MRI and CT, and 8 would be smaller ones. So that continues. The plan is to actually so we need to see a certain number of subscriptions in our CT before we can take call on opening in other places. But then, of course, that is going to be I don't expect us to make the decision this quarter or next quarter on that as of now. Okay. And of the large four ones, three are already open or two are already open and running? Right now, we have three large centers open, and I think we have at least two smaller ones open out there currently running. Okay. So you have 5, and your plan is to take it to 10? Yeah. The plan is 12 overall, 4%. Okay. Lovely. Okay. Great. Thank you, and all the best. Thank you, Prakash. Thank you. The next question is from the line of Sayantan Maji from Credit Suisse. Please go ahead. Yeah. Thank you for taking the question. My first question is on other expenses which have remained flat quarter-on-quarter. I believe that the key components of other expenses are packing and forwarding charges, then debit card commission charges, and electricity charges which are mostly variable in nature. What has caused these other expenses' run rate to be the same quarter-on-quarter, and do you expect it to increase going ahead? No, I don't see any reason to think that will actually change too much out there. Well, part of it could be variable. Not all of it is variable out there. For us, the moving expenses don't really change if we add, let us say, 5 stores or 10 stores in the same territory and all. The credit card charges, of course, are a function of the number of bills which go out there. Not a significant change. It's a small percentage overall. So I don't see any difference out there, so. Okay. Okay. And my second question is on this store addition run rate. So we continue to maintain a guidance of 1,000-1,200 stores per year. So while we are entering new states, do you see enough clusters for growth in key states of, say, Andhra Pradesh, Telangana, Tamil Nadu, Karnataka as well, where we see sufficient headroom in Tier 2, Tier 3 towns in these states? Yeah. See, in 3 of our current states, we are very big in the main cities. Tier 2 and Tier 3 is completely open for us even in those states. In the other states, we're not even big in the Tier 1. For instance, in West Bengal, except for Calcutta, and even there, we only have slightly under 300 stores compared to the 400+ stores in Bangalore, Chennai, and Hyderabad. I think there is room even for growth in those cities. In almost all of Maharashtra, we are not there at the full potential even for the larger cities compared to the Tier 2, Tier 3. So the answer to your question, is there enough scope for growth in the current states? Absolutely. We're only feeding 3 new states just to make sure or not just to make sure. It's just a logical extension, I would say, of our overall growth. We're growing in contiguous states, leveraging the warehouses in the states before. We're just going to add a few, figure out how the market is, get the supply chain all set up, and then grow rapidly after that. So for us, it is not for lack of opportunity in the current states that we're doing outside. Okay. And what would be a key focus district in Maharashtra apart from, say, Mumbai and Pune? For us, we're located in two different regions. One is the overall Vidarbha region, and then there's the Marathwada region. And then there's a region around Mumbai and all, Mumbai and Pune. So in the Vidarbha region, we are pretty strong in Nagpur. We are now actually expanding rapidly into Amravati, Akola, and a bunch of other districts around that. And similarly, around Nanded, we have a bunch of new stores coming up. So apart from these two, then there are districts around Pune. Mumbai, of course, being a place where we expect that we will go very, very cautiously with slightly smaller stores and all. Yeah, there's a lot of different areas of growth for us in Maharashtra. Got it. And so what was the average store size? I missed that for this quarter. 58. Basically, the declining trend is mainly due to smaller stores coming up in Maharashtra. Smaller, not just in Maharashtra, but also in the smaller towns. We don't necessarily need a very large store in a very small town or 50-town kind of population. A lot of times, those locations are also not really available when we go into the Tier 2, Tier 3 kind of locations. Okay. Got it. And my last question is on diagnostics. So Chetan, you mentioned that you guys are witnessing a faster scale-up in operations compared to peers. So what would be the primary reason for that? And basically, a related question is, how much have we spent so far? I remember that you had allocated INR 90 crore for this pilot. So how much have we spent, and what would be the spend, say, in the next one or two quarters? All right. Thanks. So first on the why our utilization rates are more, the prices are incomparable. I mean, especially at the high-end radiology machines like MRI, CT, 75% discount when we say that it's to be comparable diagnostic centers. But if you compare it to the rates for these machines within the hospitals, it is even more so. So the price is driving the utilization. In all our three centers, we have right up to midnight, and we do have patients coming in after 9:00 P.M. So price and hours are two contributors to higher utilization of the high-end machines. Next question from your side was on. How much have we spent? Yeah. Our budgeted allocation for the financial year, April to March, was INR 85 crore-INR 90 crore, and we are pretty much on that track. I'll just check with Sujit if he wants to add anything further on the CapEx rate. No, that's it. For them, we're fine. I mean, unless you have a more detailed follow-up on this question. So this INR 85 crore-INR 90 crore is only for FY23? Yes. That was our guidance for the financial year. Only for FY23. So FY24 could have additional spends on top of this? No. Yeah. Yeah. Sorry. Really, as Madhukar said, what we have is an outlay for the project in Hyderabad. So there really is no material CapEx that is intended for FY24. But within centers, we may for example, if we have two ultrasounds or three ultrasounds, we may go to a fourth one. So think about more as regular CapEx rather than CapEx which is going to fuel new centers or expand the network. Okay. Got it. Sure. That clarifies. Okay. Thank you so much for answering the questions. I'll join back the queue. Thank you. The next question is from the line of Kunal Randeria from Nuvama. Please go ahead. Hi. Good evening. So my first question is, in the last maybe year, month and a half, you added 1,000+ stores. So I mean, have you maybe because of the scale and size now, have you started to see some procurement benefits in? See, for a while now, we have been buying directly from the companies. While there is still a small set of companies for whom we end up actually purchasing through distributors, and they're a very, very small set. And that is being and those companies, we are approaching directly now, and we will end up actually halving the 10% in the next two quarters or so. I don't think there's going to be a significant procurement benefit as far as buying from companies is going to be concerned. With that said, the scale is going to help us benefit on the private label purchase as well and also in getting in new products that were otherwise not available to us because we were not able to meet the minimum order quantity for purchase of that product. So those are all going to come in with scale more than, I would say, the purchases benefit. Going forward, as we continue to work more closely with companies, we expect with sharing of data, and we expect with looking at helping in the new launches and all, we will be able to get some kind of feed out there. We already do get a significant portion of that, but we expect to better that as we go forward. But on the direct purchase, I really don't see too much happening. Right. Right. So I mean, then would it be fair to understand that, let's say, maybe doubling size in the next 3 years, if procurement cost per, let's say, from a company remains the same despite the scale and size? Let's say procurement from a company XYZ, or that would be better? Maybe get a couple of% more discount because of the size? I'm sorry. The question was not very clear. The audio did not come through very well. Okay. So what I meant is. Yeah. Go Go ahead. Kunal, if you're speaking through the earphones, we request you to speak through the handset. No, no. Sorry. I'm speaking through a handset only. Okay. Yeah. I hope this is clear. So Madhukar, what I wanted to ask was, so maybe as you increase your size and scale, will the same company from which you are buying, will they offer you slightly higher discounts because of the size? No. I don't think anyone has any reason to offer us more because of that because, to be quite honest, we don't really influence the overall sales out there, right? It is the doctors who have to write the prescriptions. 10 companies typically end up spending their marketing money out there. But on the supply chain side, when they actually want to launch a product across the country, let's say they want to launch it across 40-town stores in certain states, we'll be the persons who they will approach. And for that, we will definitely end up getting slightly better margins on the overall thing. So in terms of managing the expiry, in terms of managing the supply chain, in terms of making sure that their products are launched across uniformly and all, I think we would be able to do a better job as we grow bigger and bigger. We will definitely be able to get a slight benefit from those companies. That's one. Second, as you may have noticed from our presentation, today, 13.7% of our overall sales is from private label. Now, here, we can definitely make as the scale continues to grow, this is where we continue to benefit from. So while the margins are good right now on these products, I see no reason why they can't be better as we continue to increase our sales. Okay. Perfect. And the second question, I think one of the comments that you made was some of the discounts given by online players are clearly unsustainable. So while I take your point, one of the online players has maybe stated its intention of adding around 2,000 pharmacies across India. So you believe the discount would worsen from here? So what are the questions? I know one of them is doing two-town stores, but what are the questions? The question is, do you believe the discounting could maybe from 16.5, do you think it could maybe go through 17, 18%, or you think this discount level is manageable? No, no. For us, I don't think so. See, today, we are close to 3,700-odd stores as of now or slightly more. We're not even, it's not as if we have taken the whole market. I don't know how addition of another 2,000 stores is really going to affect the overall market. I don't really expect with them coming in that we are starting to change. I don't think that's going to be the case at all. As it is, I'm pretty sure whatever advantages we have on scale, they will also get the same. But whatever disadvantages or whatever costs there are in running stores, everyone is going to have them. I don't really see anyone else being able to sustainably beat our prices out there. And even if they did for a little while, we are not too concerned because as far as we are concerned, the two aspects to it, every country in the world has at least two or three or four large players like USABLOG, Walgreens, Rite Aid, CVS, along with Walmart and all doing their own pharmacy and all that sort of stuff. So there's the equivalent of a superstore doing it. There's also a large chain of pharmacies. And most of these countries will require more than one. As we have been saying over the last several quarters, it is us Apollo right now. I'm pretty sure Netmeds and PharmEasy and a couple of other guys may come in. At least that'll be at least a four-player kind of thing, if not for some more superstores also coming in and doing this. So we fully expect they will come. I don't think the market will completely be upset just because one of the peers has entered out there. I don't think it will push us to do more discounts immediately. For us, given that what we're looking at in the Indian market is a shift from unorganized to organized, and given that the organized is so small, even if one or two new players are going to enter, there's enough market share for us to gain from the unorganized side. And that's what we'll be focusing on. So as long as we are ahead of the other 85% of the market, which is there in the hands of more than four retailers, I don't see any problem in continuing to actually expand the way we want it to. So short answer, are we going to expand the discount? I don't think so. Got it. Got it. And just one last one. You have around INR 320 crore of cash lying on your books. You made a negative free cash of INR 73 crore in the quarter. So I mean, to fund your expansion, you think this is enough, or maybe you need to go for frontage at some stage? So I mean, cash balance and cash in bank, the store expansion would continue in the same manner, and we would use this cash only for our store expansion the way as explained by Madhukar earlier. Good. You think it's enough, or I mean, you would need to raise some more because you're still investing in diagnostics, right? Yeah. As of date, as you are aware, we are debt-free. So we have a good headroom which requires. So I think as of now, there's no plan to take up any debt on the balance sheet. But as and when required, we will definitely consider. Got it. Thank you. Thank you. The next question is from the line of Mukherjee from Nomura. Please go ahead. Yeah. Hi. Thanks for taking my question. Kunal, on the growth that you report for mature stores, just above 10%, is that something which is sort of in line with your expectation or slower than your expectation? And are there any geographical differences that in certain geographies, this is faster than the other geographies or Tier 1 versus smaller cities? Any color you can give on the mature store growth rate? No. It is actually in line with what we actually thought. Maybe slightly lower than what we had thought at the beginning of the year last year. The competitive intensity has been fairly high out here. But other than that, now it has kind of become stable. For us, we expect to grow the rate of inflation on the old stores, and we also expect to take some market share from the local mom-and-pop retailers out there as we continue to, let's say, play on the value proposition which we have for our customers: great prices, great availability, and guaranteed genuineness. So I would say completely in line with what we are thinking right now. Is there a significant difference between small and large towns? No, not really. It will be a function of the number of stores we have in that area and the number of stores. That's all there is to it, honestly. Maybe a little bit of cannibalization in some of the larger cities where we set up for the first one month or so. For instance, if we have a store in a neighborhood and we go and open a store which is 500 meters away or 700 meters away, all the people are coming to that store from that cash front will probably shift to the new store in the first month. But after that, then it kind of settles down. So nothing which is outside of what we expected. Okay. Similar question on the private label. I mean, on an average, numbers are going higher. Again, there's something. How should we and how's the dispersion like? I mean, across your clusters and towns that you operate, this 13.7%, is there a wide variation that you see across regions in India, or it is more or less on average? Smaller towns definitely have slightly more private label penetration out there. So the nature of kind of customers who walk in and the value proposition of our private label non-pharma products resonates more sometimes with the smaller town guy. So it could possibly have slightly higher ones out there. The range, though, is most of the stores, they tend to be between let me say, let me put it this way. Very few stores have less than 88.5% overall private label. There are some stores which have as high as 20%. But the average falls in the 12%-14% kind of number. I think it's head guided for this number going up 100 basis points every year. You continue to maintain that? On the overall, I don't really see any problem at all. 100 basis points should be easy. On the pharmacy side, we'll be able to go ahead and give you a guidance maybe in the next quarter or so. On the pharma retail on the pharma private label, in the whole 13.7% is a composition of devices, FMCG, non-medical products, and medicine line. Right. Right. Okay. Perfect. Thank you. Thank you. The next question is from the line of Utkarsh Maheshwari from Reliance General Insurance. Please go ahead. Good evening, sir. Hello? Yeah. Good evening. Yes. Yeah. Yeah. Yeah. Yeah. Sir, just a housekeeping question. I mean, is there a possibility where you can share the average sales per day for the stores which are more than two years in operation and which are less than two years in operation? Right now, I think we give you as much data as we can. It's a little bit more tougher for us to share anything out there, I think. But yeah. So I believe we are in line with the other retail operators right now. We're trying to stick to the pharmaceutical currently in prevalence across the Indian retail markets. Okay. And just to reconfirm one thing, I mean, as of now, I think the diagnostics is that INR 90 crore odd which we have planned, right? Nothing beyond that has been thought about, right? Because that was a pilot for Hyderabad. Absolutely. No further CapEx outside of the routine maintenance kind of stuff is planned for in the integrated pathology and radiology kind of centers in Hyderabad in the pilot as we started it. So, I think is there, I think, the run rate of adding the new people has actually gone a little bit slow, I think, because I think we had planned for 100,000+, right, as a plan or something of that sort. And we added something 25,000-30,000 in the first month, etc. Now, we are at 67,000, 60,000-70,000 odd. So, is the accretion slow in this particular thing, the new membership additions? Not really. The addition of our so we expected to get all our 12 or at least the majority of our 12 stores up and running. That has taken slightly longer than what we expected. Probably we delayed by a month or so. I don't see any big difference other than that. The number of—I mean, what is the target for us in terms of number of members we look to enroll? The first number which we are kind of looking at is 100,000 members. Then after that, we will see depending on the pace of expansion of that number, from 100,000 to 200,000, we'll take a call on whether we plan to go to other states or yeah. Okay. Fair. Thanks. Thank you. The next question is from the line of Amit Kadam from Canara Robeco Mutual Fund. Please go ahead. Yeah. Hi. So I have two questions. Sorry if I joined late. I see the growth margin. What was that commentary that why there was a? Sorry to interrupt yourself. Sorry, your voice is really feeble. If you can just speak up a bit. I'll try again. Just a minute. Hello? Is this audible now? Yes. You may go ahead. Just with the initial commentary on the gross margin, sir, Madhukar sir, what is that particular commentary narrative that why gross margin improved sequentially? Was it a lower discount or a mix? Sorry, is the question why is the number going up to us? Yeah. Gross margin improved sequentially. So the reason for it. Yeah. It is a private label mix. We are not really reducing the overall discount. The discount is being maintained by something that has gone up slightly, I would say, by a fraction out there. But no, it is mainly the mix for us. And maybe there's possibly a slight betterment on the procurement side. But yeah, it is not to do with the reduction of discount. Because private label, what I see, this was 13.9 in Q2 FY23, which is 13.7 this time. So hence, I thought that sequentially, that can't be the reason for that particular 50 basis point of improvement when the mix or the private label is down 20 basis points sequentially. Yeah. See, private label is also a broad basket of products out there with margins ranging anywhere from 30%-90%-95%. So it is not a one-to-one mapping of 1% being exactly that. It depends on exactly what is sold in private label. That's all. Second, as I said, there could also be a small improvement in the procurement side for us. And third. Yes. The other thing was that we also had a COVID loss earlier for private label, which is no longer there this time. That has also basically increased the overall margin slightly. But sir, sequentially, that won't be the third one won't be the reason, no? Sequentially means quarter two, quarter three, or? Yeah. See, we took a loss on inventory which was already there, bought during COVID, and not sold. There's some small inventory. That happened in the last quarter. And so yeah, that could be one difference between Q2 and Q3. Q2 and Q3. Q2 and Q3. The reason yes. I just thought I'd add to Madhukar's question. If you look at slide number nine of our investor presentation, it gives the gross margin split between the consolidated business and pharmacy. So in pharmacy, from Q2 to Q3, it's only been 0.3 increase in gross margin. And that's in line with the gradual increase in private label that we are seeing. Yeah. I just thought I'd add to that. Okay. Just because I wanted to just check this aspect of the business also, one of the participants also did ask, is as this growing size, does that economy of scale or size really start benefiting us in terms of better procurement and helping us in terms of margins, in terms of gross? Sorry, was there a question? No, I'll move to the second question. So on the SSG, where you mentioned that it's 10%, I just wanted to know bifurcation between price and volume. So what would be the inflation part in that SSG? It is difficult to split the exact number between price and inflation. Inflation for pharma is typically around 4%. But. No, because this year, Madhukar sir, because WPI had been very high on a higher end, where both NLEM and non-NLEM got a good price hike for this particular year. Hence, they were all upwards of 8 or plus. Hence, I was just checking specifically for this particular quarter, what was that price and volume mix? For us, difficult to split between volume and inflation. Okay. No problem. Thanks. That's it. Thank you. The next question is from the line of Pathanjali Srinivasan from Mirabilis Investment Trust. Please go ahead. Hello. Am I audible? Yes, you are. Yeah. Sir, how do we make customers choose our own brand with respect to private label? You'd also mentioned that we are not necessarily lower price. How does the customer choose from our brand over a branded pharma? See, as you're well aware, in the Indian pharmaceutical industry, there are hundreds of thousands of marketing companies which are selling the same products. Every single molecule which we sell has got over a few thousand different marketing companies selling the product. The result is this. Despite the best effort on our side to stock the right product in the right store to meet the exact demand with our supply, we often find that out of our prescription, which has got seven or eight products, we find ourselves not having one or two of them. In the past, we would basically say, "This is a product which you have asked for. This product is from a company like Cipla or Ranbaxy or whatever. I don't have it right now, and I'll be able to give you something from Sun Pharma," or something like that. We would do that. We would just give you a substitute out there. But over a period of time, what we have started doing is basically offering a substitute of the unavailable product with our own product. Customers, because they believe us, they are able to actually just pick it up and go. And that's the one place where private label actually comes into play. And that's why we're not really looking at doing a price substitution. We're not saying that, "Take something else from us. It is actually lesser cost." We're basically just saying, "This is not available. Instead, this something else is available." That is one, of course. And second, quite a significant number of people basically come in for pure generic stuff. They basically come in asking for a headache or a cough or cold kind of medication with their OTC products. And if the customer has not asked for a medicine Crocin or Calpol, he'll always get the Paracetamol from our company. So in either case, we basically use price to sell more of our products. So what would be the mix difference in our private label between chronic and OTC? Chronic and this one would be 50/50 as of now. Yeah. And sir, did you mention some sales growth guidance during the call from 30%-35% or something for the next year? Sorry, what did you say? Did you give any sales guidance in this call? I couldn't hear you properly sometime during the call for the next year. Our overall sales for the next year could be anywhere from 20%-25% over the current year's sales. 20%-25%. Okay. And sir, what is our store mix tier-wise? Tier-wise? Yes. Okay. One second. Let me just pull it up, and then I'll give you an answer. Is there in our presentation? Mix is there. I wanted the store mix tier-wise. I think 32% of our stores are Tier 2 and Tier 3, just starting in metros and Tier 1. 32% are in Tier 2, Tier 3, and that's all Metro? If you're asking about the location of the stores, right? Yeah. That's right. That's right. Non-Metro would be 44% versus Metro 56%. Okay, sir. Okay, sir. Thank you, sir. Perfect. Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to the management for closing comments. Thank you, ladies and gentlemen. I thank all participants in this call for your interest in the MedPlus journey. Our investor relations team can be contacted at ir@medplusindia.com. Thank you. Thank you, members of the management. Ladies and gentlemen, on behalf of MedPlus Health Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.