Entero Healthcare Solutions Limited — Q4 FY25 earnings call

Call held 28 May 2025

Management summary

Entero Healthcare Solutions Limited reported a strong Q4 and full year FY25, achieving significant milestones including crossing ₹5,000 crores in revenue and ₹100 crores in PAT. The company demonstrated robust organic growth of 16% for the full year and expanded its EBITDA margins to 3.4%. Management provided optimistic guidance for FY26, targeting over 30% revenue growth and 4%+ EBITDA margins, alongside a commitment to positive operating cash flow for the full year.

Highlights

  • FY25 Revenue crossed ₹5,000 crores, reaching ₹5,096 crores, a 30% YoY growth.

  • FY25 Organic growth was 16%, outpacing IPM growth by 2x.

  • FY25 EBITDA rose 53% YoY to ₹172 crores, with operating margins expanding to 3.4%.

  • Q4 FY25 EBITDA margin stood at 3.7%, an 86 basis points improvement YoY.

  • FY25 Profit After Tax (PAT) was ₹107 crores, growing nearly 2.7x from the previous year.

  • The company turned operating cash flow positive in the second half of FY25.

  • Working capital cycle maintained at 60 days in Q4 FY25, with ROCE improving to 11.6%.

Key financials

2 periods

Q4 FY25

  • Revenue
    ₹1,339 Cr
    YoY +29%
  • Organic Growth
    11%
  • EBITDA Margin
    3.7%
  • PAT
    ₹31 Cr
    YoY +48%
  • ROCE
    11.6%
  • Working Capital Cycle
    60 days

FY25

  • Revenue
    ₹5,096 Cr
    YoY +30%
  • Organic Growth
    16%
  • EBITDA
    ₹172 Cr
    YoY +53%
  • EBITDA Margin
    3.4%
  • PAT
    ₹107 Cr
    YoY +170%

What they filed

Q1 FY27: revenue up 38.2%, net profit up 73.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,301 1,359 1,339 1,404 1,571 +21%1,707 +26%1,910 +43%1,940 +38%
EBITDA42 50 49 50 62 +48%68 +36%86 +76%97 +94%
Net profit26 29 31 30 37 +42%34 +17%45 +45%52 +73%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Revenue

  • Revenue Growth Revenue · FY26 · High confidence more than 30%
    next year also we are targeting more than 30% growth.

    — Prabhat Agarwal, Managing Director & CEO

Margin

  • EBITDA Margin Margin · FY26 · High confidence 4% plus
    On EBITDA margin basis, know on a full year basis, 4% plus EBITDA margins for the coming year.

    — Prabhat Agarwal, Managing Director & CEO

  • Long-term EBITDA Margin Margin · Beyond FY26 · Medium confidence close to 5%
    So, for example, I have said that next year is 4% plus, and earlier I had told about we should be targeting close to 5%, right? So the year beyond we should reach towards that or move towards that.

    — Prabhat Agarwal, Managing Director & CEO

Working Capital

  • Net Working Capital Days Improvement Working Capital · FY26 · High confidence 5%
    See, our net working capital days on a quarterly basis is close to 66 days in Q4. There's definitely 5% improvement that we are planning for next year.

    — Prabhat Agarwal, Managing Director & CEO

  • Long-term Working Capital Days Working Capital · Near term (2-3 years) · Medium confidence 60 days
    I think long term is very long, but in near term it is 60 days. Yes. I mean, next two-three, two years we should target that 60 days.

    — Prabhat Agarwal, Managing Director & CEO

Organic Growth

  • Organic Growth Rate relative to IPM Organic Growth · Ongoing · High confidence 1.5x to 2x
    So, organic growth rate is independent of inorganic, right? So based on our value proposition, based on our right-to-win, based on this fragmented nature of the industry, we expect that our growth rate will exceed the industry growth rate by 0.5x to 1x. [Clarified as 1.5x to 2x of industry growth rate]

    — Prabhat Agarwal, Managing Director & CEO

  • Organic Growth Rate Organic Growth · FY26 · High confidence 15% to 16%
    8% IPM growth, 15% to 16% organic growth.

    — Prabhat Agarwal, Managing Director & CEO

Industry Growth

  • IPM Growth Industry Growth · FY26 · High confidence 8%
    8% IPM growth, 15% to 16% organic growth.

    — Prabhat Agarwal, Managing Director & CEO

Acquisitions

  • Full year impact of FY25 acquisitions Acquisitions · FY26 · High confidence around ₹1,000 crores
    Full year impact would be what around Rs. 1,000 crores, right, somewhere around that.

    — Prabhat Agarwal, Managing Director & CEO

  • Acquisition Multiples (EV to EBITDA) Acquisitions · Ongoing · High confidence 5x to 7x
    The guidance that we give is the multiples are between 5x to 7x times of EV to EBITDA, so within that range.

    — Prabhat Agarwal, Managing Director & CEO

Profitability

  • Long-term Return on Equity (ROE) Profitability · 5-6 years · Medium confidence 15%, 20%
    Yes, once we are able to reach those margins that we spoke about, that working capital target, we should be 15%, 20% ROE.

    — Prabhat Agarwal, Managing Director & CEO

Tax Rate

  • Corporate Tax Rate Tax Rate · FY26 · High confidence 25%
    See, corporate tax rate is 25%. So corporates make an effort to optimize on tax rate through more tax efficient strategies. But for the time being, you can take the guidance of 25% corporate tax rate.

    — Prabhat Agarwal, Managing Director & CEO

Market context

  • Operating Cash Flow Operating Cash Flow · FY26 · High confidence positive
    And operating cash flow positive for next year, which will be a combination of both, reduction in working capital days and also higher margins.

    — Prabhat Agarwal, Managing Director & CEO

Risks & concerns

  • Slowdown in the overall pharmaceutical industry growth rate

    medium

    Historically, the industry grew in double digits but has slowed to single digits (7-8% in last two quarters of FY25); company expects to outgrow industry by 1.5x-2x.

    Management acknowledged

  • Potential impact of OTC healthcare policy allowing distribution through kirana stores

    medium

    If OTC sales shift from retail pharmacies to kirana stores, Entero's current addressable market might shrink, requiring a new strategy to reach kirana stores or facing a smaller market.

    Both acknowledged

  • Complexity of Indian market hindering consolidation to US levels

    low

    India's fragmented market, vast customer base (1 million pharmacies vs. 65,000 in US), regional complexities, and high SKU count (branded generics) make consolidation challenging compared to the US market.

    Both acknowledged

Areas of evasion (1)

  • Exact acquisition payout details (citing confidentiality)

Q&A highlights

3 direct
Organic growth adjustment and its impact on reported Q4 growth Direct
Yes. We had a change in agreement with one of our companies where we are providing super distribution services to them. And earlier we were recognizing the full revenue, now we are recognizing only the gross margins on that agreement. So this 11% is after adjusting for that.

Clarifies the reported 11% organic growth for Q4, indicating it would have been higher (32-33%) without the accounting change, which is crucial for understanding underlying performance.

Asked by Chintan Sheth

Peerless acquisition valuation and its apparent high cost Direct
So Chintan, basically when we did this Peerless deal, there was a subsidiary of Peerless which was actually commercially not part of the deal. So during the year, we have actually kind of sold that subsidiary and whatever proceeds were there from that sale, that had come into the Peerless. And as part of this tranche, we have actually transferred the money that came in. If we exclude this one-off, the valuations are very much similar to what was done at the acquisition stage.

Explains a seemingly high valuation for an incremental stake, clarifying that a subsidiary sale complicated the reported numbers and the underlying valuation was consistent.

Asked by Chintan Sheth

Impact of potential OTC healthcare policy on business Direct
So, as of now our customer base does not include kirana stores, okay. So we are focusing only on the on the retail pharmacies and hospitals, right. So, if part of the sales of OTC moves away to retail pharmacy to kirana stores, either we will have to prepare a plan to reach out to kirana stores or the industry size will become smaller for us. Our addressable market will become a little smaller for us.

Addresses a potential regulatory risk that could alter the company's addressable market and distribution strategy, showing management's awareness and initial thoughts.

Asked by Binoy

3 min read 7 chapters

Detailed narrative

Q4 & FY25 Financial Performance Highlights

Entero Healthcare Solutions reported a strong close to FY25, with Q4 revenue at ₹1,339 crores, a 29% YoY growth. Organic growth for Q4 was 11%, while acquisitions contributed 22%. Gross profit margins improved by 81 basis points YoY to 9.8%, and EBITDA margin expanded by 86 basis points to 3.7% in Q4, reaching ₹49 crores. For the full year FY25, revenue crossed ₹5,000 crores to ₹5,096 crores, marking a 30% YoY growth, with organic growth at 16%. EBITDA for FY25 stood at ₹172 crores (3.4% margin), and PAT was ₹107 crores, growing nearly 2.7x from the previous year. Return on Capital Employed improved to 11.6% in Q4 FY25, and the working capital cycle was maintained at 60 days.

Strategic Playbook & Growth Drivers

The company's strategic playbook focuses on organic scale-up in underserved markets, expanding geographic footprint and product segments, and enhancing customer experience through technology. Entero now serves over 95,300 retail pharmacies and 3,600 hospitals across 500 districts in 20 states, with a product portfolio of over 80,600 SKUs. Organic growth is complemented by disciplined inorganic growth, with 10 strategic acquisitions completed in FY25, contributing ₹792 crores in annualized revenue and expanding into new segments like medical devices and specialty pharma. These acquisitions are margin-accretive and enhance the company's overall margin profile.

FY26 Outlook & Financial Targets

For FY26, Entero Healthcare Solutions is targeting more than 30% revenue growth, with organic growth expected to be 15-16% (outpacing IPM growth of 8% by 1.5x-2x). The company aims to exceed 4% EBITDA margins on a full-year basis and achieve positive operating cash flow for the entire year. Management also expects a 5% improvement in net working capital days from the Q4 FY25 level of 66 days. The full-year impact of FY25 acquisitions is projected to contribute around ₹1,000 crores to FY26 revenue.

Acquisition Strategy & Integration

Entero continues to pursue disciplined inorganic growth, having already announced six new strategic acquisitions for FY26, expected to add over ₹400 crores in annualized revenues. The company emphasizes acquiring high-quality regional players that are margin-accretive and expand geographic reach or product segments. Unutilized IPO proceeds provide flexibility for attractive opportunities. The company clarified that acquisition valuations are typically between 5x to 7x EV to EBITDA, and the Peerless acquisition valuation was consistent after accounting for a subsidiary sale.

Working Capital Management & Capital Structure

A key focus area for Entero is improving working capital management to ensure positive operating cash flow. While the company was OCF positive in the second half of FY25 (around ₹50 crores), it was negative for the full year due to first-half performance. Management is targeting to be OCF positive for the full year FY26, driven by margin expansion and working capital improvements. The long-term target for working capital days is 60 days. The company does not envisage any immediate new fundraise, relying on existing IPO proceeds and internal accruals for organic growth and acquisitions.

Industry Dynamics & Consolidation

The addressable healthcare distribution market in India is valued at $33.2 billion, expected to grow at 10-11% CAGR over the next five years, with an accelerating shift towards organized distribution. However, the Indian market is significantly more complex than the US, with 1 million pharmacies (vs. 65,000 in US), regional complexities, and a high volume of branded generics. This fragmentation and complexity make consolidation challenging but also provide a strong right-to-win for organized players like Entero. The company's value proposition includes a wide product range (one-stop-shop) and faster delivery times, addressing retailers' fill rate challenges.

Potential Impact of OTC Healthcare Policy

Management addressed the potential impact of a new OTC healthcare policy that might allow distribution through kirana stores. Currently, Entero's customer base focuses solely on retail pharmacies and hospitals. If OTC sales shift to kirana stores, the company's addressable market could become smaller, or it would need to develop a strategy to reach kirana stores. This would involve evaluating the economics, as average order values from kirana stores might be lower.

This is an AI-generated summary of a publicly available earnings call transcript.
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