Ladies and gentlemen, good day, and welcome to the conference call of Polymedicure Limited to provide an update on the proposed acquisition by the company of PendraCare Group. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Gautam, President, Corporate Strategy and Development at Polymedicure Limited. Thank you. And over to you, Mr. Gautam.
Thank you, operator, and good evening, everyone. Thank you for joining this call to discuss about the proposed acquisition of PendraCare Group. Some of you would have seen the announcement yesterday that we made along with the press release and the presentation, which is uploaded on the exchanges as well as the company's website. This is about the acquisition of Pendacare Group, a well established cardiology consumer business based in Europe. Over the next ten minutes, I will just walk through about the company, our strategic rationale why we did it, some financial overview and the transaction structure.
And post that, we will open it up for any Q and A. So just about the group, Pendulkar Group is very unique and strategic asset in the international cardiology space. It's one of the few independent players which in this operating in this space, which is otherwise dominated by large medical devices companies. It's located in Leak, Netherlands and serves the global markets with product registration in the regulated markets of Europe, United States and over 60 other countries. The portfolio of product includes interventional cardiology products, specifically guiding and diagnostic catheters, which it sells under its own brand as well as supplies to large global medical devices companies.
Some of these relationships have spanned for over ten years, which very clearly indicates the quality of the business. In addition to the existing products that they have, they're also in the process of developing multiple other products, which potentially open up large sort of opportunity for market expansion as those products become commercialized. In terms of production capacity, the company has almost 3,800 meter square of total capacity in the sort of area under operation currently across three locations with a capacity of close to 1,500,000 units per year. The current production is between 700,000 to 800,000 per unit, which provides enough headroom for growth without requiring any significant capital investment. The company has also sort of signed a new lease agreement, which will combine all the three different locations under one roof, which will bring operational efficiency.
And the facility has almost 1,100 square meters of clean room available. These facilities also approved by FDA and is also ISO certified. So it's very high quality facility based in Europe, which we have been able to acquire as part of the transaction. Moving on to a little bit on the financial performance. In calendar year 2024, the company did close to EUR 9,900,000.0 of revenue, EBITDA of 1,400,000.0 and PPT was about EUR 800,000.
The gross margin of the business is 74%. As you would note that the gross margin of this business is higher than our current overall group business, which is something we have called out in the past that as we move up the technology curve into higher end products or higher sort of regulated products, the gross margin should expand, which is clearly reflecting in this business. In terms of the revenue mix, guiding catheters contribute close to 75% to 80% revenue and rest coming from diagnostic catheters or angiographic catheters. Again, a fairly well diversified revenue mix in terms of drug free presence. They supply to over 35 plus countries with 50 plus distributor relationships, and these are markets include Europe, Middle East and Latin America.
We expect good amount of synergies between both the businesses, combining the might of Polymath R and D, engineering, manufacturing and distribution capabilities. On top of the regulatory approvals and R and D capabilities of PentaCare Group, we expect that over the course of next three to four years, we should be able to generate 3,000,000 to $4,000,000 of incremental EBITDA from a synergy standpoint as a group. Moving on to the rationale for acquisition. This is very much part of our core strategy to grow into cardiology, something which we have been doing over the last twelve to eighteen months. Within India, we've obviously launched multiple products, including our own desk, and that's doing well.
So it's sort of a very interesting bolt on acquisition for us to expand our cardiology business on a global basis. As I said, it's a strategic asset, very unique, very few independent players of this size and scale in the space that we have acquired. If you recall in the past, we have called out the fact that the cardiology ancillary consumer business is very strategic and has lesser competition as compared to that which has obviously multiple players operating. So in a way, it gets becomes part of our core strategy to grow the cardiology business. The second strategic rationale is the fact that it's operating in markets which are highly regulated.
The products are approved under MDD and MDR in Europe as well as the FDA approval for the guiding catheter. Just to sort of let you guys know, it's now become extremely challenging to get approvals in Europe because of the new EU MDR regulations. So having a product in that market with the necessary approvals becomes highly valuable. It gives us a sense of manufacturing footprint in Europe with a distribution across multiple geographies, which becomes extremely useful as we think about sort of expanding our cardiology business products out of India into those markets. It clearly becomes a platform for global expansion for us in for the cardiology business.
Looking at the regulatory approvals that the company has, the R and D capabilities as well as manufacturing footprint, we have the ability to now launch our products in those markets at a much shorter time frame than what we would have done otherwise. As I also said, there are significant synergy potential between both the companies. This entails across manufacturing, R and D, engineering, distribution as well as procurement, right? As we with the mind of Polymed Group from a manufacturing and procurement perspective, we expect good amount of synergies to be realized over a period of time. I think we had also mentioned earlier that cardiology in the cardio space, we have already taken baby steps towards globalizing our offerings.
We have started the process of clinical trial for our desk, which is happening for 2,000 patients in India as well as Europe. And the plan there was to clearly launch our products in the regulated markets of Europe and other areas. And with this acquisition, we'll be able to commercialize that as soon as the regulatory approvals are in place. So it gives us direct access to European market with regulatory approvals available for core cardiology products, which becomes highly valuable over a period of time. Moving to transaction overview.
We are acquiring the group consisting of Pendacare Holdings and Willing Medical from Willing Holdings Limited. The ultimate beneficial ownership of this company is with the founder, Floris Alkamit, who's 80% owner and Sander Hartmann, who is the current CEO, and he has 20% stake in the company. We'll be acquiring 90% of the group for an upfront equity consideration of EUR 11,000,000. And we'll be taking over inter loan inter group loan liabilities of EUR 3,200,000.0, which we will be paying off at closing. So acquiring the upfront payment consideration is about EUR 14,200,000.0.
In addition to this, we're taking over a net debt of close to 2,900,000.0. On these values, we are able to have acquired this company on a EBITDA revenue of about 1.8 x and on an EV by EBITDA basis at 13x. In addition to this, we are also going to making certain earn out payments, which are very well defined milestone that the company has to achieve over the course of next four to five years, which will be paid as and when those milestones are achieved. The balance 10%, which is held by Sander, who continues as a CEO of the company going forward, will be acquired in 02/1930. This is the actual EBITDA that the company generates in the year 2029.
And this is calendar year 2029 because the company follows the calendar year from a reporting standpoint. Just sort of summarizing the last thoughts, right? It's a very strategic acquisition, becomes core part of our global expansion in the cardiology space. And we are very excited to have the company as part of the Polymed Group and really looking forward to building the business together. With this, I will hand it over to operator to open up for Q and A.
Thank you very much. We will now begin the question and answer session. Our first question comes from the line of Rashmi from Daulat Capital. Please go ahead.
Yeah. Thanks for the opportunity. While the gross margins are higher compared to the Polymedicore, but the EBITDA margins are pretty low at around 14 to 15%. So to know what are the cost or the operating cost which you feel is involved that is leading to this lower EBITDA margin? And what kind of efficiencies which you can bring in?
I mean, this number of 14 to 15%, how it can move in next two to three years for this particular brands?
It's a good question. And you're right. I think the you know, there are two parts to this. There are two parts to the answer to this question. I think from a overall scale perspective, it's fairly a small asset, it's about EUR 10,000,000.
And as the expansion of revenue happens, the operating leverage of the business will flow through and increase the EBITDA margin. The other part is, obviously, the European cost of operations are significantly higher when you compare to Indian cost of operations. And we expect that with our manufacturing capabilities, we should, for a period of time, reduce both the fixed cost, which will expand the gross margin, but importantly, reduce the cost of operations in terms of processes, which are significant have significant manual intervention to be able to increase the EBITDA margin of the business going forward.
Okay. So basically, you're saying that the manufacturing cost as well as the employee cost is pretty high in this business, which can be worked on.
Yes. European business in general, if you look at it, have higher cost of operations, including people cost. As this is a product which does have fairly good amount of manual intervention. Certain parts of the processes can be outsourced to our India operations, which will help us in reducing the cost of manufacturing.
Okay. And the current plant plants are the three units, right, in Europe for this particular business?
Sorry. Can you please repeat that question, miss Tak?
The plant location currently are at three places. Right? Three units are there. Right?
They have three different facilities, but, you know, manufacturing happens at one place. And at couple of other places, they have r and d unit and warehousing space, which is getting consolidated under one roof. You know, there's a lease agreement that's already signed.
Understood. So in future, I mean, you know, if you plan to outsource, you know, these brands also manufacturing it from our own Indian facilities, You will be looking to still keep this plant or you're planning to close it in the future? And all the manufacturing will be done in India itself.
No. No. We will keep the plant. Obviously, there are there is future growth that's going to happen in the company. Right?
So, you know, I think we'll keep the plant. It's an important part of the acquisition that we have done to have fully FDA certified plant in Europe. So we'll keep the plant and only process which has significant value intervention can will move to Indian operation.
Okay. How large would be the gross block for this company as on CY '24, if you can give that figure?
The net I have a net number, which is about 650 thou on gross clock number, we can come back to you.
$650,000, you said?
That's correct.
Okay. Okay. Okay. My second question is on, basically, your own portfolio of cardiology, which you are planning. You know, so we are also targeting other countries.
So, you know, how this this particular business can actually bring synergy gains, you know, to our current cardiology portfolio. Also, you know, whether this can really help, you know, some of these products will be launched in India too.
Yeah. So that's part of the plan. You know, currently, the the company does not have significant presence in India from a distribution standpoint, and we have obviously very large sales team direct in India. So we will be it's one of the things that we'll be doing to launch those products in India and have our team sort of create demand for it. So that's clearly one advantage.
To your other question on how this will be a platform for our global expansion, as I mentioned, we have started the clinical trial for our test, right, or the drug leading stent, which means that once we have the regulatory approvals, we would want to sell them in markets of Europe and other geographies. Given this company already has existing distribution network in those markets, our ability to sell those that product becomes that much better. So and obviously, we have multiple other products within the interventional cardiology segment, which we will take necessary regulatory approvals and then use the distribution pipe to go sell in those markets.
Thank Our next question comes from the line of Rahul Deshmukh from LKP Securities. Please go ahead.
Yes. So I have one question on synergies. Could you please just quantify, I mean, how much revenue potential is there through cross selling opportunities or maybe any improvement in financial metrics where operational efficiency? Could you just quantify those things?
I think we've not called out the steps a part of the synergies. We as I said, I think, in our communication, we said we're gonna we're gonna create additional EBITDA synergy of between 3 to 4,000,000 between amongst you know, between the group. This will be of multiple components. It's too early to quantify that number. But we believe that 3,000,000 to $4,000,000 EBITDA upliftment of the business is possible on a consolidated basis.
Okay, sir. Thank you. That's it from my side. Thank you. Our next question comes from the line of Rashmi from Daulat Capital. Please go ahead.
Yes. Thanks for the opportunity again. Just one question. Will you be able to give the geographical split in terms of sales for Europe, US, and, you know, LatAm, Middle East, and other markets?
No. We don't give that information. So, you know, as a group, that's a policy, so we won't be able share that.
Understood. But is it fair to assume that the majority of the sales is basically from Europe only, and then it could be followed by Latin, Middle East, and US?
It's a fairly large component, and Europe is a core market of the business.
Okay. Okay. Thank you. Thank you. That's it from my side.
Thank you. Participants, if you wish to ask questions, you may press star and one on your touch tone telephones. To ask a question, ladies and gentlemen, you may press star and one at this time. Our next question comes from the line of Rahul Jivani from IIFL Securities. Please go ahead.
Thanks for taking my question. Sir, can you comment in terms of how has this business grown over the past, let's say, three to four year period? And what kind of growth trajectory would you be targeting for this business once you have it under your hold, given that there are some of these cross leveraging opportunities available for the combined entity?
So Rahul, I think it's a very interesting asset and a very interesting scale at this point of time. There are two parts to this run. The existing product is getting deeper into markets, including existing client relationships, plus they're opening up new distribution centers in markets where they were not present in the past. This obviously there is going to be an overlay of the fact that Polymed distribution strength will be brought to the table to get into the spaces where they haven't gotten into in the past. The second part is that there is a very interesting pipeline of products, which are under development.
And those are products in high end technologies of neuro as well as structural heart. And once those products are commercialized, we'll open up a completely new market and we'll expand the market potential of the company serving too. So if you just look at the core business, we expect which is existing product portfolio, we expect it to grow in low to high double digits. In terms of the product market expansion and the new product development that's happening, we expect that if those play out and the necessary regulatory approvals come in place, this business can get to close to $25,000,000 in revenue by the year 02/1930. So that's the kind of growth that we're expecting in the company over the course of next few years.
Okay. Sure, sir. So this EUR 25,000,000, which you are, let's say, targeting for 02/1930, this is largely the organic growth which Penda Care can achieve on an organic basis. And on top of that, whatever synergies you can drive in terms of the common portfolio.
This will also obviously include the impact of what PolyMet brings on the table. So I'm talking about as an overall business, post the acquisition, including the synergies that we bring on the table, we will get them to that kind of number.
Okay. Sure, sir. And sir, my second question is with respect to the EBITDA synergies of this 3,000,000 to $4,000,000 which you talked about. So the cost synergies would essentially be driven by operating leverage? Or do you see scope to further improve gross margins of Pindar?
No, sir. It's a good question, and we do expect that the gross margins could better. We believe that the procurement strength that Polymed brand brings on the table for the group could really help them reduce the cost of material and cost of procurement for PentaCare Group. And that will certainly help them increase the margin. So I think the level of synergies will happen across revenues, direct cost, indirect cost over a period of time.
And that's why we are very excited about this opportunity because we see significant value add that the group can bring on the table and vice versa. We know that some of the things that the group is doing could be very useful for some of the product development that we are undertaking.
Sure, sir. Thank you. That's it from my side. I will join back in the queue.
Thank you. Our next question comes from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.
Sure. Thanks for taking my question. Rahul and team, congratulations on the acquisition. My first question, I see that the own branded mix for tender is much higher versus what we do in Europe. So do you see, possibly, over the next few years that more of the business will happen directly with the hospitals instead of via the distributor channel that India and D2 used to do? That will be my first question.
No. So I think, David, I think the own branded sales are also happening through the distributors, right? The company does not have direct sales teams on the ground like Polymed has, right, in India, where we have direct sales team talking to the hospitals. The current business of PendraCare is happening through the distributors even under their own brand. And I think there is a strategic rationale behind it.
If you think about it, the current company has limited portfolio with the interventional cardiology. At this scale and with this product portfolio, it does not make sense to build a direct sales force. This is an opportunity which Polymed Group can over a period of time bring on the table as we complete the product portfolio and have a comprehensive product portfolio for this space. At that point, it probably makes sense to have direct sales force focusing on the cardiology space.
That's helpful. And second, are there any limitations to sort of scaling this entity? Because, I mean, you anyway have a clear manufacturing advantage here in India. So any limitation in terms of pushing more products or introducing more products in those markets? Because I see you have also got approvals as well.
So just trying to think in terms of scalability over a period of time, are there any limitations to that?
You mean from Polymed portfolio perspective?
No. I I I say whether it be from Pender's perspective or say the sales that are happening to Europe via Pender as well, which may be manufactured here in Polymedical's perspective. Just trying to think through if there are any limitations to scalability there.
I think see, on their own, PendraCare on its own was obviously a small company with limited resources and manpower, right? Now as you bring in the Polymed strength, which has strong deep engineering and R and D capabilities, I think we can very well integrate and expand and expedite the process of new product launches, right? We see interventional cardiology, fairly large space with a lot of product that can be brought on the table. Obviously, key sort of timeline, which is always relevant in Europe is the product approvals under the new UMDR regulations. And that remains a constraint for medical devices company in general.
And obviously, because this is another big advantage that we have got, because we have a company now which understands the regulatory landscape locally for cardiology products. Our ability to launch some of the products that we are developing and we will co develop along with vendor care will become faster from a time lines perspective.
Sure. Thank you so much, and all the best to the team.
Thank you.
Thank you. Our next question comes from the line of Suraj Paramar from NX Wealth Management. Please go ahead.
Yes. Thank you for the opportunity. Just one thing you have given in slide that you may be shifting the lease facility from 3,800 to 2,300. So is, like, there will be any cut short in the capacity or the capacity will remain the same?
No, no. Think there is there will be no reduction in capacity. What has happened that the company had three different location in which they were operating. And whenever you have that situation where operations are split across multiple geographies, it does tend to lead to inefficiency of usage of space. And again, company has grown a of time where they have added new areas and supply lines.
So with new new areas that we are bringing in, we are able to keep the same capacity that we currently have, just make it more efficient, which will help us reduce the area that we need and, you know, subsequently the cost of lease as well under that facility.
So these will be in Netherlands only. Correct?
Sorry?
The these land will be in Netherlands only.
Yeah. It'll be in Netherlands. That's correct. Yeah. It's it's very close to it's in the same region. It's in leak.
Okay. Okay. So, like, the approvals, whatever you have that for facility will be shifted to the new lease new lease land facility also. That is the for the plant. Correct? Not for the
That's That's correct. Correct. You need to undertake the necessary approval that you need to take for for this new facility, and that's the process that will be done once that lease is sort of made active.
Okay. So so again, the approvals you need to take, you are saying that?
Absolutely.
So it will take, like, how much time?
Oh, it's tough to say at this point of time. But given the company has been operating in in Europe for a long time, we expect the team should be able to get it done quickly, but it's tough to give us specific time line on it. But it will be done in parallel just to ensure, just to sort of give you comfort. It's not that we're to stop the production at one place while the approval is still pending. Only once the necessary approvals are done will be exit transition will happen.
So there will be no production or business loss during that period.
Okay. Okay. Then, sir, second question is regarding in last call. From Europe, there's like, the orders are there it's not that much that is coming. So for this facility, the new PendraCare cardiac facility, It's not a problem there, Europe, or still there is a problem in the orders coming?
No. No. I think these are two completely different businesses. And it's not that one has to replicate what's happening in other business. So no, we don't expect that to have an impact.
Our next question comes from the line of Naman Bhagraha from IIFL Capital Services Limited. Please go ahead.
Thank you. Thank you for the opportunity. Sir, two questions. One, why did promoters offer Sorry.
You sorry.
Can you be closer to the handphone, please?
Yes. Why did PentaCare's promoter sold the stake? And was it like a one on one deal or there were other, let's say, competitor signed for our system?
It's tough to answer, but I think very clearly clearly based on the conversation that we've had with the founders, right, they saw significant value in having a strong partner like Polymed, helping them grow the business. As I said early, Medical Devices, specifically this segment is dominated by large global medtech companies. And you need strength of R and D, engineering, manufacturing to be able to compete effectively with them. So to that extent, I'm sure they found a lot of value to have Polymed as a partner, which I think will go a long way in ensuring that the business remains competitive and they're able to expand the reach in areas where they don't currently have access to.
Okay. Okay. But I we are taking the entire stake, right, of the promoters.
Sorry?
We are we are basically taking the entire input to take from the promoters. Right?
Yeah. Except for 10%, which will be held by sender.
Okay. Okay. Send us. Okay. Okay.
And, sand so have we basically, what I so is the valuation, already predecided for the balance in purchasing?
See, See, there are milestone payments to be done and there is an objective way to calculate those milestone payments over a period of time. I think for the balance 10%, as we have highlighted in our presentation, it is linked to the actual EBITDA of the year 2029, calendar year 2029. And we'll be paid post audit for the year 2029 is complete.
Okay. Okay. Okay. And just last one, if I mean, if you look, you'll be signing a new lease, and that will be a 2,300 square per meter, let's say
Sorry to interrupt, Norman, but your line is not very clear.
Hello?
Yes. Please go ahead.
Yes.
Yes. What I was trying to ask is the new facility, Harvita, that is going to be half the size or, let's say, half the size of almost half the size of the current lead facility. Does it mean I mean, half of the production will be outsourced in India or something? Just if you could help on this.
Yes. So I think same question was asked by the previous investor as well. And as I clarified, currently, the operations of the company are across three different locations, which brings its own set of inefficiencies. And now all of these operations are going to be clubbed under consolidated under one facility, which will bring that efficiency. And we show that the overall capacity of the business does not go down, and we are able to sort of reduce the area under operations as well as the cost of running that place.
All right. Thanks,
Operator, if there are no further questions, I think we can close the call.
Certainly, sir. We have no questions at this moment. Would you like to go ahead with your closing comments, sir?
Yes, I think so.
Sorry to interrupt. We do have a last minute entry in the question queue. Would you like to take that, sir?
Sure.
We have a question from the line of Suruchi Parmar from NX Wealth Management. Suruchi, your line is unmuted. You may proceed.
Yeah. Thank you again for the opportunity. Just wanted to ask one question. Like, in CDMO, it will be an opportunity from this tender care also?
Yes. So I think there is an opportunity. Clearly, is an opportunity to use the R and D and manufacturing capabilities of the company to enter into those space. So yes, very high level answer to that question is yes.
Okay, okay. Thank you so much.
Thank you. I would now like to hand the conference over to Mr. Rahul Gautam for closing comments. Over to you, sir.
Thank you, everyone, for taking all the time to discuss this strategic move from Polymed. If you have any further questions, you can reach out to us on our e mail ID of investorcarepolymedicure dot com or directly to me at raul. Gothampolymedico dot com, and we'll be happy to clarify any further questions you may have. Thanks a lot for your time.
Thank you. On behalf of Polymedicure Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.