Entero Healthcar

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.

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.

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.

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.

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.

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.

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.