Medplus stake sell-off hits retail FDI hurdle

Concern over valuation remains another hurdle. The Rs 1,200-crore Medplus is looking at a valuation of Rs 2,500 crore

The uncertainty over foreign direct investment (FDI) in the Indian retail sector has impacted one more deal. Medplus Healthcare, the second-largest retail pharmacy chain India, has seen no buyers for its stake owned by private equity (PE) investors. The reason is largely ascribed to the fact that the government is yet to finalise its policy on FDI in multi-brand retail.

According to people in the know, a clutch of PE investors, including Mount Kellett Capital Management, TVS Capital Funds, and Ajay Piramal's India Venture Advisors, kept their stake on the block for a while. However, uncertainty over the new government's FDI policy has discouraged strategic investors from buying the stake. Besides, concern over valuation remains another hurdle for closing any sell-off in Medplus.

The Rs 1,200-crore Medplus is looking at a valuation of Rs 2,500 crore. Earlier, the PE firms mentioned above had appointed o3 Capital to find a buyer, and it is learnt the mandate has been expired. According to informed sources, one of the largest global drug retail chains has been in talks with PEs for the past six months, but nothing has materialised yet.

Mails sent to Madhukar Gangadi, founder and CEO of Medplus and the management of Mount Kellet did not elicit any response.

Medplus had raised its first investment in 2007 from the PE arm of Bahrain-based Arcapita Bank, which bought a minority stake at a valuation of Rs 290 crore. In March 2011, a group of investors led by Mount Kellett, TVS Capital and India Venture Advisors acquired the 34.2 per cent stake held by Arcapita in the company for Rs 410 crore ($90 million) at a valuation of Rs 1,200-1,400 crore.

It was in 2006 that Gangadi started the business by opening the first store in Hyderabad. At present, Medplus has a chain of 1,050 pharmacies across India. The company is said to service about 150,000 customers a day.

Medplus runs business under four divisions - pharmacy, medplusbeauty.com, Pathlabs and RiteCure, distributor of medical and surgical supplies to hospitals. MedPlus is the second-largest pharmacy retail chain in India after Apollo Hospitals-backed Apollo Pharmacy, which runs 1,600 stores across India. The other popular chains include Gurgaon-based Guardian Pharmacy and Hyderabad-based Hetero Pharmacy, both of which run 200-250 outlets each.