Ladies and gentlemen, good day, and welcome to the Q4 and FY 2026 earnings conference call of Entero Healthcare Solutions Limited, hosted by DAM Capital Advisors Limited. 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. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your telephone. Please note that this conference call is being recorded. Before we proceed, this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors.
Thank you, and over to you, sir.
Thank you. Hi, good morning, everyone, and a very warm welcome to Entero Healthcare Solutions Q4 and FY 2026 earnings call hosted by DAM Capital Advisors Limited. On the call today, we have representing Entero Healthcare Solutions, Mr. Prabhat Agrawal, Managing Director and CEO, and Mr. Balakrishnan Natesan Kaushik, our Group CFO. I will hand over the call to the management team to make the opening comments, and we will open the floor for questions. Please go ahead, sir.
Good afternoon, everyone, and thank you for joining our earnings conference call to discuss the performance of quarter four, financial year 2026 and the full year. I am joined by Mr. Balakrishnan Kaushik, Group CFO, and Ajit, our Investor Relations advisors on the call. I hope everyone had an opportunity to go through the financial results and investor presentation, which are uploaded on the stock exchanges as well as on our company's website. I will start with the performance update of the full year, followed by quarter update. Following which, I will cover guidance for financial year 2027 and provide updates on the strategic initiatives and operational improvement efforts in the organization. Let me begin by first reminding ourselves of the vision we have set for our company.
We started this company eight years ago with a vision to create a scalable, comprehensive, and integrated healthcare distribution platform which can add value to the entire healthcare ecosystem. Currently, the healthcare supply chain industry, sized over $33 billion, is extremely fragmented, which presents a massive opportunity for consolidating the space through use of technology and scale-led benefits, along with capitalizing on available M&A opportunities. We have been on this journey for almost eight years now and have made significant strides in creating a pan-India distribution platform, which is today serving more than 100,000 retail pharmacies. That is almost one out of every 10 pharmacies in India and 3,600 hospitals spread over 523 districts of India who get access to one of the largest product portfolios of 97,500 SKUs.
The platform also serves over 3,300 healthcare manufacturers who get wide market access. This year we expanded our presence beyond pharmaceutical to include MedTech, especially in the diagnostic and medical device space, which are synergistic and broadens and strengthens our platform. We believe we are in a unique position to create a very impactful and extremely scalable organization that can proudly support the nation's objective of providing quality and reliable healthcare access to one billion+ population in India. Now coming to the financial performance summary. At the beginning of financial year, we set out few financial targets for us, and I am pleased to share that we have delivered on each of those parameters. First one, we guided for revenue growth of 30% year-on-year on like-for-like basis.
That is growth adjusting for the base impact of revenue recognized on net margin basis and divestment of a subsidiary. In line with the guidance, our full year revenue on like-for-like basis grew by 31.5%, with top line at INR 6,591 crore. We outperformed IPM by 1.6x , delivering an organic like-for-like growth of 15.6%. The inorganic growth was 16% year-on-year during the year. Our second parameter for guidance was achieving EBITDA margin of 4% for the full year. Again, I am pleased to share that we delivered 4% EBITDA margin, which is +67 basis points year-on-year with EBITDA at INR 266 crore. This came on the back of gross margin expansion of 78 basis points year-on-year to 10.3%, driven by better product mix and procurement efficiencies. Gross profit came in at INR 680 crore, up 40% year-on-year.
Full year PAT stood at INR 1.6 crore with PAT margin of 2.2%. PAT grew by 36% year-on-year. Our third parameter of guidance was operating cash flow. We continue to optimize working capital and net working capital days continue to improve on a quarterly basis through the initiatives taken during the year. Our optimization efforts, especially on inventory and accounts receivable side, along with improved EBITDA margin, drove operating cash flow of INR 96.2 crore for the full year. There is also a steady improvement in the return ratios. Return on capital employed improved to 14.6% in FY 2026 from 10.7% in FY 2025, and return on equity increased to 12.5% from 7.7% in FY 2025. Next, moving on to quarterly performance. In line with our full-year results, we saw solid growth momentum in quarter four.
Revenue grew 42.6% year-on-year, with organic growth on like-for-like basis at 17.1%, and growth led by new acquisitions at 26%. Gross margin expanded by 110 basis points to 10.9% during the quarter with gross profit growing by 59% year-on-year to INR 207 crore. Our EBITDA margin was at 4.5%, that is 85 basis points plus year-on-year with EBITDA at INR 86 crore growing by 76%. PAT margin was 2.4%. PAT grew by 44% year-on-year to INR 45.1 crore. Our ROCE on a quarterly basis improved to 18.4% from 14.8% in the last quarter. Our ROE was 16% versus 10.4% in the last quarter. We achieved operating cash flow of INR 104.6 crore with net working capital days at 59 days versus 64 days in the previous quarter. Now coming to acquisitions. As you are aware, we have closed seven acquisitions during the year, including three in MedTech segment.
That is [inaudible] , Ace Cardiopathy Solutions and Bioaide Technologies. With these acquisitions and existing presence that we have in this segment, we have built significant scale and presence in the MedTech space. The segment now contributes more than INR 1,000 crore in annualized revenue for us. We have added scale in the key sub-segments of diagnostic reagents and equipment, cardiology and consumables through these acquisitions. Apart from distribution services, we also play the value-added commercial role for some of the manufacturers, where we market and promote the products using our sales and marketing team. We are further forging new partnerships with innovators and global players and expanding our sales and marketing infrastructure in these segments. MedTech distribution is a large and synergistic opportunity and diversifies our revenue mix and strengthens our position in the healthcare distribution platform with wider product offerings.
Finally, as we close FY 2026 and move on to next financial year, I reiterate that we have delivered on all parameters of our guidance. With optimism and confidence for the next financial year, let me lay out our guidance for FY 2027. We aim for consolidated revenue growth of 23% year-on-year, excluding any new acquisitions, with 5% EBITDA margins. Our focus will be on profitable revenue growth and operational efficiencies to drive margins. We aim to deliver EBITDA to operating cash flow conversion ratio to be at least 50% to ensure sustainable growth path for future. With this, I close my opening remarks and invite people to ask questions. Thank you.
Thank you very much. We will now begin with a question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants, you are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We will take the first question from the line of Govind Chellappa from CSIM. Please go ahead.
Yeah. Hi. Thanks for taking my question. My first question is on the minority interest during the fourth quarter. There has been a significant jump from the third quarter to fourth quarter. Considering that most of your acquisitions, you have 70%-80% stake. The incremental minority interest is more than half of the incremental EBITDA during the quarter. That somehow doesn't add up. Could you just explain that?
Yeah. Sure. Thank you, Govind. In the last quarter of financial year 2026, we had an abnormal contribution from one of our subsidiaries, where we have partial stake, not full stake. That's the reason, the minority interest contribution for quarter four was abnormally high. Right? But over next year, it's going to normalize. The minority interest is not likely to be as high as it was there in quarter four.
Yeah. Thanks for giving the specific guidance for FY 2027. But honestly, without knowing what the minority's contribution is going to be, it's very hard for us to make sense of the overall numbers.
What we can say for next year, you can take around 25%-27% of PAT before minority interest to be contribution from minority interest. This quarter, the minority interest was almost 38% of our PAT. That's going to reduce by 10%-12% in the next year.
Do you think about 25% being minority interest?
Yeah.
Okay, thanks.
Thank you. We will take the next question from the line of Chintan Sheth from Girik Capital. Please go ahead.
Thank you for the opportunity. Am I audible? Hello.
Yes, we can hear you.
Yeah. Hi, Prabhat. Thank you for the opportunity and the great set of numbers. Just to clarify on the growth, you mentioned the organic kind of acquisitions will be reporting almost 23% year-over-year growth in FY 2027. Does that include two components? One is the calendarization of the acquisitions which we did this year. So basically, the INR 1,000 crore pro forma revenue which we acquired this year, I think we booked around INR 500 crore-INR 550 crore during the year. So the remaining revenue is included in the 23% growth guidance. Is it correct? Understanding, right?
Yes, correct.
Yeah. Okay. Second is, does this high organic growth which we are planning, which we are expecting, also includes the expectations of the GLP-1 drug for the full year impact of the generics? If you can provide some insight into what kind of, obviously, the role you are playing for the other part, but any specific you want to point out on how are you looking and ensuring that we don't lose out on the GLP-1 in the coming year? If you can provide some insight into how you are approaching GLP-1 as a category. Given it's a kind of a big growth driver for the overall IPM expectation for the next year.
Right. Our product portfolio is very wide. GLP forms a small portion of our product portfolio, as GLP forms a small portion of overall IPM industry, right?
Our market share in GLP is higher than our overall market share in India, because GLP distribution is not as widespread as a lot of other products are, right? A lot of general medicines are, right? Given the fact that we have the cold chain facility in all of our warehouses, and there are few specific companies doing GLP-1, we would get a disproportionate share of GLP-1 distribution for sure. It is built into our growth guidance.
Got it. On the minority, you clarified that, but typically, we take two, three years to fully consolidate and acquire the remaining stakes. That level of buying out the business will be considered or you like to continue the structure with majority ownership, but partial minority with the erstwhile owners. How should one think about it?
Right. Every transaction we do or every acquisition that we do, whether in pharma space or MedTech space, we always have the call option on the remaining of the stake because we clearly lay out the path how we will take full ownership of the company. Okay?
The timelines, valuation multiples, everything is predetermined in the first contract itself. We have a timeline to we have an option to buy rest of the stake at predetermined valuations and on a defined timeline. So that option we always have.
The timeline is basically two, three years post the acquisition or more than that? Just to kind of join up on that.
In some of the cases, it is a three-year period. In some cases,
Okay
it could be five years.
Got it. Last update on my side, I will join back in queue quickly. If I look at your pre-minority network equity, despite a very strong profitability, the absolute number seems to be flattish or slight dip on the net worth side. If you can elaborate what went into it which resulted into flattest net worth for the year. That will be the last, I will join back in queue for more.
I will take that call. Balakrishnan here. I will take that question.
Yeah.
Basically, since this year we have entities where we are not 100% shareholders and the number of entities where we are not 100% has increased. This is basically the impact of the first-time recognition of put option liability. Typically, that is the main reason why you are seeing the net worth flattish. The profit moves into my net worth, but the impact of the put option liability is bringing it down to make it flattish. Because this is required under Ind AS, this is more an accounting thing rather than a pure movement of net worth.
Okay. I will join back in.
Yeah.
Thank you.
Thank you. Before we take the next question, ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants in the question queue, we request you to kindly limit your questions to two per participant. If you have a follow-up question, please rejoin the queue again. We will take the next question from the line of Akshat Mehta from Seven Rivers Holding. Please go ahead.
Hello, sir. Thank you for the opportunity. My first question was if you can help us break up the 23% revenue growth and 5% margins, what will be the key drivers, how will you achieve that? Can you help us with that? Secondly, on the same note, the 23% revenue growth seems to be a bit low given that thousands of revenue is just going to come from the MedTech acquisition that we have done in the full year. So how should we look at that?
Right. So 23% revenue guidance basically builds on two, three things. One is, of course, the calendarization impact of the acquisitions done during the last year. The second is the organic growth. While calculating the organic growth, we have also taken down some business on a net revenue margin basis also. There are certain businesses that we have added where we are only recognizing the net revenue. Okay? So that has an impact on overall revenue growth for next year. Also there are certain low margin business that we are giving up. We are releasing the working capital to invest in more profitable or more higher return on investment-generating assets. So we have factored all this in while giving the revenue growth guidance of 23%.
On the margin side?
Margin side also. We have given 5% EBITDA margins for next year. That factors in the contribution from MedTech, that factors in the operating leverage, that factors in certain businesses where we are low margin businesses that we are giving up. This is the net margin guidance for next year after considering all these impacts.
Okay. My next question is on the working capital cycle. You have seen some dip in the working capital cycle, but again, on the face of it seems like that is majorly being driven by the payable cycle actually going up rather than inventory or the receivables coming down. I mean, how should we look at this in FY 2027? How sustainable is this number at the end of FY 2026?
The payables increase is mainly contributed by higher MedTech contribution. MedTech, the payment cycle is not like seven days and 21 days as in pharma. There the credit provided by all these companies are much higher as compared to, I would say, pharma side. That is the reason why you are seeing higher payable days. Going forward for next year, the guidance that I have given is that whatever EBITDA we generate, at least 50% will get converted to cash or operating cash flow. That includes both the margin impact and also working capital rationalization.
Sir, my exact question was that will we see kind of a working capital drawdown because we haven't yet seen the full year impact of the acquisitions, that full year revenue impact of acquisitions that you've done. Our plan is not to have too many acquisitions in FY 2027. Will that have an impact on the overall working capital cycle in FY 2027?
If you look at my this year quarter revenue itself is more than INR 1,900 crore. If you annualize for next year, the annualized number itself is close to INR 8,000 crore, right?
Yeah.
I've already built in most of the working capital in this quarter itself. Unless our growth rates are much higher than 23% that we are guiding for, your incremental working capital is not going to be huge because a lot of the working capital is already in place at end of this year balancing.
Okay. One last question, sir. What can we expect the tax rate to be in FY 2027?
We expect it to be in the range of about 22%-23% for FY 2027.
Thank you, sir. I will come back.
Thank you. We will take the next question from the line of Sudarshan Padmanabhan from Ask NDPMS. Please go ahead.
Yeah, thank you for taking my question. My question is on-
Sorry to interrupt in between, Sudarshan. I would request you to please use your handset mode and speak.
Am I audible now?
Yes, you are audible. Please proceed.
My question is on your strategy, especially given that we are going to generate good operating cash flows going forward. We have seen a spate of acquisitions in the last three to four or five years. I mean, and we are at a certain scale at this point of time. Going forward, one, if you can give some color on the magnitude of cash flows, especially magnitude of acquisition, especially given that our minority has inched up to 25% of the PBT or PAT pre-minority. The second is with respect to the quality of acquisitions, because we have seen that MedTech is something that we are focused on. Incrementally, what are we going to focus differently as compared to what we used to focus in the last four, five years?
Yeah. If you look at my next year guidance, I have given a guidance without including any new acquisitions. Right? We have done a lot of M&A in last one or two years. So for next six to eight months, we are only going to focus on delivering organic growth because there are a lot of opportunities that is available to us given that huge platform that we have built. And now our platform is including not only pharma, but also MedTech space. In MedTech space, we are tying up with lot many new companies, whether it is in imaging segment, whether it is in neuropsychiatry, whether it is orthopedics, cardiology. Multiple new segments we are working with lot of global companies where we can provide them a distribution platform in India. Right?
Our job as a management is cut out for next year is to focus on lot of organic opportunities that can be built over this platform. And that's the reason I have not included in the guidance any new acquisitions as of now. But as we say, we are not walking away from looking at any new acquisition opportunity. If something interesting comes up, we would definitely look at it. If it creates value for the shareholders, we would definitely look at it. And if that happens, accordingly, we will revise our guidance upwards.
Sure. And sir, with respect to the GLP-1, we have seen that this is actually encouraging to see the scale-up happening in the ones that have gone generic. Can you give some color with respect to the positive impact it is having on our business? And if I take, say, two, three years down the line, the positive thing is we have made entry into MedTech. Where do we see MedTech as proportion of our business in terms of both sales and EBITDA?
On revenue side, the MedTech contribution now, given all the acquisition that we have done, and now everything we have consolidated in our revenues, it will be more than 15%.
This figure, what would you expect or what would you aspire it to be, sir, in, say, two, three years?
It can go up to 20%.
Okay.
Pharma will still remain a core part of our business. Right? Because that's where we have massive scale as well. MedTech is a synergistic opportunity. If you look at the industry size of MedTech and compare it with the industry size of pharma, this is what the ratio is approximately.
Mm-hmm. Sure, I would assume that the impact on EBITDA would be higher, given that MedTech typically has about 50% to higher, 100%, these kind of margins that we make on the pharma side.
Yes. The reason why MedTech, the margins are higher than pharma is because we play a more commercial role in those contracts, where we are also responsible for generating demand and sales for the companies. That is why we end up enjoying better margins.
Sure. Sir, one final thing before I join back is your view on the GLP-1. How do you see this positively impacting
Sorry for the lag in between.
-segment and us?
Sudarshan. I would request you to please rejoin the queue again for more questions.
I think I will answer the GLP-1 because I think that's a question from many analysts on this call or many participants on this call. GLP-1, as we said, at the end of the day, see, we are doing approximately INR 10 crore-INR 12 crore of GLP sales per month. Which is approximately, I would say, let's say 5% of all GLP overall industry value.
Thank you. We will take the next question from the line of Vansh Solanki from RSPN Ventures. Please go ahead.
Hi. Good morning. My question is on the finance cost. In last call, Mr. Prabhat Agrawal mentioned that the finance cost will continue to rise and also in this quarter also, like it is increased very well. And as you are not going to acquire new acquisitions, I think this finance cost will come down sequentially in FY 2027. Is my understanding correct?
This is Bala here, Vansh.
Yeah.
We expect finance cost to remain relatively stable and then come down in future. Because in the earlier years, we had the IPO funds which were also parked pending investment into acquisitions, which has happened in the last year. That is the reason you see the higher interest cost in this year. Like you rightly mentioned, this will sequentially come down over the next couple of years. It is expected to remain stable in the near term, maybe in the next couple of quarters, and then you will see some reduction coming through.
Okay. The second question is on the depreciation. Depreciation is increased sequentially approximately 50%. Is it due to the new acquisitions we have done in the last two quarters or what?
You are right. The depreciation has increased because in the MedTech business, it is slightly different from your typical pharma distribution business where there will be assets that will be placed at customer levels as well. That is the reason why you are seeing a higher depreciation.
Okay. This depreciation is continued to be in this level and maybe increase if we acquire a new MedTech acquisition in next year.
Not all MedTech business has this depreciation component. Specifically, I would say in the IVD segment of MedTech where we are providing machines on reagent rental model, where we are putting our machines in the lab, against a five-year revenue contract with them, those machines we are depreciating. On other parts of business, like cardiology and others, you don't have much of a depreciating machine.
Okay. That from my side and all the best.
Thank you. We will take the next question from the line of Aditya Chheda from Incred Asset Management. Please go ahead.
Hi. Thank you for the opportunity. My question is on the working capital, which is as a percentage of sales that has been in the range of 20%-22%. What is your outlook on the best operating efficiency that you can have in this area? Some math that I did is that for the incremental sales guidance that we have, we will need an additional INR 300 crore of working capital versus an EBITDA of INR 400 crore. That will leave us with INR 100 crore of OCF, which implies a 25% OCF to EBITDA conversion rate. Do we expect this working capital as a percentage of sales to come down directionally? Thanks.
What you are comparing is year to year, but compare with quarter four to next year numbers. My quarter four already has a working capital investment of almost what? If you annualize INR 1,900 crore of revenue.
INR 7,600 crore.
INR 7,600 crore revenue worth of working capital is already there in the balance sheet. We are looking at what? At a revenue guidance, this is only INR 500 crore+ over quarter four, which is hardly INR 50-INR 50 crore.
Got it. So on a reported basis for next year, this ratio will come down, which is working capital as a percentage of sales.
Yes, I mean, incremental working capital as a percentage of incremental revenue.
Right. My next question was about the acquisitions that we do. What are the typical valuations that we pay for the valuations that we do?
The same that we have always said before, which is 5x- 7x of enterprise value- to- EBITDA.
Got it. Thanks.
Thank you. We will take the next question from the line of Sidharth Negandhi from CWC. Please go ahead.
Hi. Thanks for the opportunity. Just wanted to understand, you had mentioned about certain global customers whom you are distributing products for in India. Given the current Middle East crisis, are you seeing a challenge either on pricing or on availability for this? And how do you see that playing out, especially, say, in the first half of FY 2027? That was question one. Question two, just a clarification. When you mentioned the minority interest proportion coming down from 38%- 25%, I am assuming that is not for the profits. That is for your net worth. Just a clarification.
I try to understand your second question better, but the first question that you talked about is the global challenges from the Middle East conflict. No, we are not importing a lot of stuff. Even if we are working with a lot of partners, we are working with their local subsidiaries in India. They are importing the stuff and we are doing the distribution and commercial role for them. Our direct imports from abroad is very small portion of our sales. So it is not going to impact directly anything significant to us in our business plan that we have prepared. But if the whole industry faces a challenge like the pharma industry faces challenge or MedTech industry faces challenge in terms of their own critical imports, then we will be impacted by that as well.
Sure, I appreciate that, Prabhat. What I meant to ask is while you may not be directly importing, if there is an import challenge that, say, their local subsidiary is facing, are you seeing any impact on your business from the local subsidiary not being able to provide products or anything of that sort, or do you believe that largely you are insulated from the crisis currently?
Largely, we are insulated. To be honest, you look at the last quarter, the conflict started in end of February. Our numbers for the quarter was good. Next year also, we are forecasting good numbers. I do not see any significant impact coming from. We are largely insulated on this front because a lot of our business is domestic. Our import component is very small in our overall business. We are primarily a domestic player confined to.
Sure, I hear.
-issues.
Sure, I hear you. I will take the minority one offline later. Just a second question on the breakdown of your 23% growth. If you could give us some color on MedTech versus pharma, and if you could give us some color on organic versus calendarization in this case.
Calendarization impact
Organic will have obviously the three elements.
Calendarization impact is around 11%, and the rest is organic in our 22% guidance. The growth on pharma and MedTech both are equally contributing to the organic growth for next year.
Okay. Thank you. Thanks a lot.
Thank you. We will take the next question from the line of Shubham Agarwal from Burman Capital. Please go ahead.
Hi. Good afternoon. Am I audible?
Yes, yes, you are.
My first question is on organic growth, and I asked this question last quarter as well. If I were to take a 12-quarter average of your IPM outperformance up to Q2 FY 2026, I come to a number of 1.9x. We have seen it dipped suddenly to 1.4x, and when I asked this question, the response was that IPM numbers sometimes are inflated and it is revised downwards. But what we see is IPM continues to be in that 10%, 12% range, and 1.4x is again the outperformance in Q4 as well. If I were to think about IPM next year, I do not know, let us put it at 10%. You just mentioned to the previous participant that out of 23% growth, 11% is from calendarization. So if I just reverse that, 12% is basically the remaining growth.
If I just add in some benefit because you are reducing some business voluntarily, it will add to that somehow. But maybe 14%-15% is the like for like. If I just add back the businesses you are shutting down. Again, I am coming to the 1.4x-1.5x number. Structurally, is the outperformance number reset for us because of the higher scale and because MedTech does not really grow in line with IPM, so we should look at it as more like a lesser rate, or how should I look at it?
You are right. For last two quarters, we have seen that IPM growth rate, which used to be 7%-8%, has gone to 12%. Okay. And that is why our multiplier has gone down from 1.7x, 1.8x to 1.4x. If you look at our organic growth rate for last two quarters also have been in the range of 16%-17% as it was in earlier years as well. Right. Or earlier quarters as well. But the denominator has increased significantly from 7%-9%, it has gone to now 12% for last two quarters. And that is why you see this 1.4x against 1.7x-1.8x that we used to have earlier. Okay. Now, next year, your question is very valid that even if let us say industry grows at 12%, why are we forecasting only 12% organic growth? Okay.
Right. And the answer to that is the one that I told before, that there are certain businesses that we are giving up because they are not generating very high ROIC for us, and like for like in certain businesses that we are taking up on a net margin basis. Okay. So like to like growth is actually around 15%, which is again coming back to 1.5x of industry growth rate. But revenue recognized is lower in our financials because of the accounting treatment.
Sorry to interrupt in between. Mr. Shubham, before you proceed with the next question, I would request you to please use your headset mode and speak, and please mute your line when not speaking to avoid the background disturbance. Now you may proceed with your question.
Is this clearer?
Yes, sir. This is clear. Please proceed.
My second question is again on minority interest, but I will ask it in a different way. Sir, the first time you were asked that question in this call, you responded that there was abnormal profits in one subsidiary where it is probably close to 50%, 60%, I am not sure, but the minority interest hence from that one subsidiary increased. My counterpoint or response to that to you is, wouldn't that also have hence driven a lot of your EBITDA margin expansion quarter-on-quarter? Let us say there is a subsidiary where you have, let us say 55% or 60% interest, and let us say that has done really well. In terms of margins, that has been consolidated fully in your numbers. EBITDA has taken the benefit. EBIT, there is a benefit. PBT, there is a benefit. PAT, there is a benefit.
It then gets leaked out to non-controlling interests, right? Now number one, is that the case? Is then the right number for EBITDA margin 4.5% not the case if this was an abnormal case? The second part to that is, if we should expect a reduction in the run rate of minority interest in the incremental quarters, wouldn't that hence be a headwind to your margins because it helped your margins in Q4? I am just trying to understand that.
No. So you know the next year. Hello.
Yes, sir.
Quarter four EBITDA margins was 4.5%. While for next year, the guidance I am giving is 5%. So definitely there is a much higher margin in next year that we are projecting vis-à-vis this year. So on overall margin basis, I am revising my guidance upwards, not reducing. Now, the reason I told you was that the minority interests were abnormally higher in one subsidiary because there were certain sales that were preponed by the customer. So the customer, we were planning for that sales in quarter one of this year, but the customer requested for those equipments in quarter four itself because the government project was executed before time. So that is the reason. Otherwise, there is no abnormal aspect, and the margin guidance that I have given is not only MedTech. There are a lot of other factors on margin improvement.
There are certain businesses which we are giving up because of low margin. That also adds to the margin uplift. There are a lot of organic businesses that we are building in the company on MedTech space. So that is all our higher margin contribution businesses. There are operating leverage coming. Again, 23% growth we are talking about. So operating leverage is also contributing. So there are many factors which is going to impact and keep our margin another 50 basis points higher than what it was in quarter four.
Thanks a lot, sir. All the best.
Thank you.
Thank you. We will take the next question from the line of Divya Agarwal from Ficom Family Office. Please go ahead.
Yeah, hi sir. Thanks for taking my question. Am I audible?
Yes.
Yeah. Firstly, I just wanted to know, currently I believe we have around four MedTech companies. Is the target for INR 1,000 crore revenue achievable from these companies or will we need some additions in this segment?
INR 1,000 crore is just based on what we have today, what we are delivering today. We do not need more companies to take it to INR 1,000. INR 1,000 is our base already achieved. Next year with organic growth, it will be above INR 1,000 crore without adding anything more.
Sir, our earlier growth was 30%, so now we are coming down to 23%.
Because last year we did a lot of acquisitions also. In 23%, next year, we are not including any new acquisition, right? Last year, I think, the new acquisitions contributed almost 16% to our growth. Next year that component is basically zero.
Are there limited opportunities available for this MedTech segment acquisition?
No, it is not a question of opportunities. Opportunities are a lot. We have already proven that we can buy MedTech acquisitions at reasonable price and execute it. There is no shortage of pipeline, but we have to chew what we have already acquired, right? We need to build on this. We need to spend more time on organically building this business, optimizing this business, going after a lot of opportunities that present itself based on the platform that we have. Today, lot many global companies are looking at us or tying up with us because they know that this is a business expertise that we have built over last two years. We would rather focus our energies on that rather than chasing new acquisition targets.
Right. Lastly, sir, just wanted to know your-
Sorry to interrupt in between, Divya. I would request you to please rejoin the queue again.
Sure.
There are participants waiting. Thank you. We will take the next question from the line of Vineet from Toro Wealth Managers. Please go ahead.
Hi, sir. Good afternoon and congratulations for the great results.
Sorry to interrupt in between, Vineet, you are not audible.
Now audible?
No, you are not audible. Please use your handset and speak. Vineet, as there is no response, I would request you to please. Now audible now? No, you are not audible, sir. I would request you to please rejoin the queue again. Thank you. We will take the next question from the line of Kumar Saurabh from Scientific Investing. Please go ahead.
Hello, sir. My question is around the acquisitions we have done. I am not looking at exact number, but in what percentage of these acquisitions, the key management persons are still there with us?
100% of the acquisition. The recent acquisition we are talking about?
No, I mean in last two, three years, because my understanding is this is a business where the key management person is very important for the sales and for the collection. So with that intent, my question is there.
Generally, whenever we are doing an acquisition, even if we are doing 100% acquisition, the promoters or the selling shareholders stay with us for at least one year. That is the contract that we negotiate with them. If you look at our earlier acquisitions, the ones that we did in FY 2019, 2020, 2021, some of the promoters have left because their locking period is over. But the recent acquisitions, everyone is with us because they want to continue with us, and anyway, we have not bought 100% of their stake in the acquisition that we have done post-IPO. All guys are with us, and they believe in this Entero vision. We are working together and jointly trying to grow business. Since they hold a part of the stake also, there is a skin in the game for them. There is an upside available to them.
Great. Sir, one related question. Once some of these promoters leave, how do we take care of that relationship building which they had with the organization? Second, in the acquired companies, what has been the growth rate of the acquired companies pre-acquisition and post-acquisition, if you have that data?
The first question, how do we take care of this? First of all, even if somebody leaves, it is only the selling shareholder leave. The management team stays with us, right? The sales people, the operations people, the customer interface people, they stay in the company. It is only one person or two person that leaves the company. By the time we have already had forged the relationship ourselves, so we have people in our company who are closely working with these companies at a pan-India level. We maintain those relationships and carry those relationships even if they exit after their lock-in periods are over.
Great. The second question, sir, on the pre and post-acquisition growth rates.
That I will share with you separately. Maybe the finance team can share with you the data because if I tell you something, it may not be very accurate.
Sure. The last question is, given we have-
Sorry, there is an interruption between Saurabh. I would request you to please rejoin the queue again for more questions.
Sure.
Thank you. We will take the next question from the line of Utkarsh Somaiya from Eiko Quantum Solutions Private Limited. Please go ahead.
Hi, this is Utkarsh from Eiko Quantum Solutions . I actually wanted to understand that if you do not do any acquisitions for the foreseeable future, your FY 2028 growth, assuming 1.4x outperformance versus IPM, should be 14%-15%, given that IPM would be 10%. Is that a fair assumption?
See, FY 2028 guidance I am not giving. There are a lot of business that we are trying to build in this year, which will determine the growth rate of FY 2028. There are a lot of organic opportunities, massive organic opportunities that are available with us. So we are working on that. So maybe in the second half of the year, I can give you more visibility for FY 2028.
Okay. And this interest cost and depreciation that you have in this quarter has gone up. Is that sustainable? Is that a sustainable number for the next year?
Interest cost will go up because we have acquired many entities for which we are paying up, and we have already finished up the IPO funds. So that is leading to increase in debt levels or liquidation of the investment that we had. So the interest cost will go up for some time, till the time we pay up all those debt levels.
What is a number we can work with for the full year FY 2027 interest cost?
This quarter was how much?
INR 58.17 crore.
Our finance team will give you a range.
Okay. Sure.
Thank you. We will take the next question from the line of Anupam Agarwal from Lucky Investments. Please go ahead.
Thank you for taking my question and congratulations on good numbers, sir. Just one question. A lot of questions have been asked on EBITDA margin. My question will solely be focusing on gross margins. We have improved about 90 basis points for the quarter year-over-year and 80 basis points for the full year. How are you able to source better from the manufacturers and what kind of better margins you are being able to take from the entire channel, if you can maybe give some idea and color there, please.
So why we are able to get a better margin is just because of our scale. Once you buy so much, in those quantities, of course you can enjoy economies of purchasing. So that is number one. Secondly, in many places, as we said, we are playing a commercial role. Commercial role means we are also responsible for sales and demand generation. In that scenario, the gross margin that the companies give us is much higher than the gross margin that they would give for a pure fulfillment role. So the reason for increasing gross margins is coming from basically these two reasons. One is the scale-led purchase economies, and secondly is more commercial role being played. When I say more commercial role, when I say for many companies, we are exclusive distributor for the entire India market.
So we are doing end-to-end work for them, from developing the customer service, installation of equipment, creating the distributor network in the country, launching new products. So a full agency model, as we say in other countries, where we have full commercial role we are playing. Once you play a full commercial role, you would certainly expect much better gross margins than when you would play just a demand fulfiller role.
Understood. Sir, how much would be the contribution of these third-party manufactured products, sir?
So I would say, more than 10%-15% of our sales is coming from where we are playing a full commercial role.
And have you seen that contribution increasing, sir, over the last 3-4 years?
Yes. That contribution should increase going forward as well, because we are targeting that kind of opportunities.
Understood. How much incremental margins you would be getting, sir, in these kind of models compared to your generic distribution model?
It depends on what is the scale potential of these companies. It is no uniform number I can give you, but it could be at least level of normal distribution margin.
Understood. Great, sir. Just last question.
Sorry to interrupt in between, Anupam. I would request you to please rejoin the queue again.
Sure. Thank you.
Thank you. We will take the next question from the line of Karan Gupta from ACMIIL. Please go ahead.
Yeah. Hi. Good afternoon. Am I audible?
Yeah.
You are audible.
Yeah. So, two questions. One on margin, one on working capital side. The gross margin part that you've also mentioned in your PPT is in the range of 8%-15%. It is the gross margin, right? Or what?
Sorry, which one?
Slide number 23. Just for confirmation, the 8%-15% on the distributor side, it is basically the gross margin that you are saying?
Yeah.
Okay. The band, we are at the lower margin side, 9% something. What it will lead to increase the margin maybe in the 11%-12% kind of range. What is the gross margin in core pharma and MedTech right now? That is the one question.
See, large part of margin expansion, the EBITDA margin expansion that I am talking about for next year also is going to come from gross margin expansion only.
Mm-mmh.
This year also, if you look at large part of our EBITDA margin expansion has come from gross margin expansion itself.
Okay. What is the gross margin right now, core pharma and MedTech? If you just give a gross number.
What is the total gross margin for this quarter was 10.9%.
Okay, 10.9%- 10.10%.
Sorry to interrupt in between, Mr. Karan. I would request you to please rejoin the queue again for more questions. Thank you. We will take the next question from the line of Bharat Shah from BCS Capital Ideas Limited. Please go ahead.
Yeah. Hi. Thank you. I just wanted to understand what is the desired return on capital employed that you are looking forward to in Entero. And in sync with that, what is the likely sustainable growth, because superior ROC will have impact on your ability to grow, and your growth also will have impact on your ROC through the operating leverage. Therefore, can you first talk about what in your opinion is the desirable ROC? And when do you see that being achieved without diluting capital?
The reported ROC for this quarter was 18.4%. With a margin expansion to next year by another 0.5% From the current quarter, definitely the ROC for next year will exceed 20%.
My question was, is that the desirable ROC that you would look forward to, or in your opinion, that is more or less in the character of business that you can achieve?
Well, if you are asking are there opportunities to increase the ROC beyond 20%, yes, it is available for sure. But it may not happen in maybe next year or next quarter.
What it should be, in your opinion, is the real competitive advantage you bring on the table for you to earn 20%, 22%, 24% ROC. I mean, at the end of the day, there is a demand for the product and pure distribution, even in consumer businesses, we are seeing over a period of time, consumer businesses which were riding on high ROC through impregnable distribution strength, that advantage is eroded. So what really is the core moat and the sustainable advantage which will protect and enhance the return on capital employed?
You have come to a very strategic point. What is the moat available? I tell you, the kind of moat that we have, it is very difficult for anyone to build. We have 100,000 customers in India. We have more than 3,000 companies for which we are the distributors in the country. Nobody has that kind of a network. So many customers are there with us because there are so many companies' products we have available. So many companies are with us because we have so much of customers. So it is a two-way moat. It is a two-way closed-loop system. More companies come to you because you have so much of customers, and more customers come to you because you have so many companies. So it is very difficult for anyone to build this two-way moat. We have taken seven, eight years.
We have done so many 40, 50 M&As to build this kind of a moat. That gives us a sustainable long-term advantage. Because so many companies, we do a large part of their business in India. There is not much of options available outside us. The option available is going to smaller distributors who can only do a limited role. So the ROCE will keep on increasing, as long as we keep on building this two-way moat. I believe that if somebody can forecast four, five years down the line, that will create a very unique barrier to entry for this business.
If the retail becomes more and more consolidated and institutionalized, much like you are institutionalizing the distribution, will the equation and the terms of the trade change between the two?
Yes. The reason why we have this unique advantage is because the supplier base is also very fragmented, and the customer base is also very fragmented. You ask specifically about the retail being unorganized in India. Do you see a lot of consolidation happening in retail space? I do not see that because India has more than one million pharmacy stores. The number of stores that belong to chain stores is hardly 15,000. So still, 97%, 98% of store network in India is basically mom-and-pop. Even that 1%, 2% organized retail is happening after 30 years, 40 years. The biggest store network in India is MedPlus, which is 5,500 and second biggest, let us say. Sorry, first is Apollo, second is MedPlus. Together they add up to 10,000 stores, 12,000 stores in the country and they are adding 500 stores, 600 stores every year. So you imagine.
And then after MedPlus and Apollo, there is no one having even 500 stores in India, right? So the consolidation pace on retail is not going to be such that the organized chain will start contributing a large part of India's pharmacy retailing business.
Sure. And just one last bit. On the other income, I just wanted clarity from Bala. It seems to swing year by year, being high in FY 2025, then moderating in FY 2026. So can you highlight the source of the other income which is swinging? There was one exception income or expense that I am ignoring, but how is the other income behavior?
Yeah. So basically FY 2025 we had a large other income, mainly because we had funds from the IPO that were invested during FY 2025 in deposits, mutual funds, et cetera. We have utilized those funds for acquisitions and for working capital as the purpose for which the IPO was done. So since those funds have now been invested into the business, you do not see it in other income in FY 2026.
Okay, got it. So last year is more representative now.
Yes. FY 2026 is more representative. You are right.
Okay. Thank you.
Thank you very much. Ladies and gentlemen, due to time constraint, we will take that as the last question for today. I would now like to hand the conference over to the management for the closing comments. Thank you and over to you, sir.
Thank you everyone for joining this call. I hope I was able to address some of your queries during this call, but if any queries remain unanswered, please feel free to reach out to our Investor Relations team. Thank you once again for your support and confidence in the company. Thank you so much.
Thank you, members of the management. On behalf of DAM Capital Advisors, we conclude this conference. Thank you all for joining with us today and you may now disconnect your lines. Thank you.