Zota Healthcare Part II | Value Seeker

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Things are learnt about the business –

  • There is customer stickiness – Once customer buys in from generic pharma stores, they always come back because of they see themselves there is huge cost saving.
  • Government generic stores don’t have proper supply chain establish – you can find all the medicines all the time, Thats the problem private chains like Zota etc trying to solve.
  • Per store revenue initially is low but over two years it grows > Rs 2 Lac per month, 20% margin – store owner can make Rs 40,000 per month.
  • Not sure what Zota margins are per store basis lets say – 10% for out calculations.
  • These stores works really well if you open near lower middle class communities, near villages etc as the branded medicine stores don’t see these areas as potential hunting ground – because of affordability issues.
  • There is already lot of competition in the space – companies like

At current run rate how big Dawa india going to be 5 years from now.

Today they are opening 5-6 stores per week , meaning 20 – 24 stores per month

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means around 240 – 250 stores a year.

If zota makes Rs 2 lac per store per annum when they mature over two years, then by 3 years from now these 250 store will be adding Rs 5 Cr to net profit.

Lets say they open same number of stores every year – 250 each , meaning 5 Cr incremental revenue on 4th yr, 5th yrs and so on.

that comes down to Rs 30 Cr by 2030.

So, what i am looking for is high number of stores opening per week, They missed their IPO target of opening 3000 stores by 2020, they ended by opening only 500 and current run rate is not encouraging.

A lot can happen, the growth in number of store addition doubling per week to 10 stores will be very encouraging to support the current Mcap of 370 Cr.

If you want to get zota’s other business at Rs 0 then stock is not trading cheap, If try to price in other business then i see stock is adequately priced, Unless we see 10+ weekly opening up of stores.

Opportunity size is huge – There is new market to gain by selling affordable medicines to poor class , who due to affordability issue never completed the treatment and there is market share to gain from branded generic shops.

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Overall because you sell medicines at 50-90 % discount, the Volume growth more than 2x as to compensate for the store owners to switch from non-generic pharmacy to generic. Which i believe is difficult as people won’t start consuming more just because medicines are cheap.

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Dhruva Pandey

Dhruva Pandey

Dhruva looks for companies with a durable competitive advantage that are run by honest people, and available at a price that makes sense to him. His interests include technology, investing, markets, psychology, and chess.
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