Ladies and gentlemen, good day and welcome to Q1 FY 2026 earnings conference call of Entero Healthcare Solutions Limited, hosted by Monarch Networth Capital 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 touchtone phone. Please note that this conference is being recorded. Please note 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 the 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. Rahul Dani from Monarch Networth Capital.
Thank you, and over to you.
Yeah. Thank you. Hi, good evening everyone on our very warm welcome to Entero Healthcare Solutions Q1 FY 2026 call. On the call today we have with us Mr. Prabhat Agrawal, Managing Director and CEO, and we have Mr. Balakrishnan Kaushik, Group CFO. I will hand over the call to the management for the opening remarks, and then we will move to Q&A. Thank you, and over to you, sir.
Yeah, thank you. Good evening, everyone, and thank you for joining our earnings conference call to discuss the operational and financial performance for Q1 FY 2026. My name is Prabhat, and on this call, I am joined by Mr. Balakrishnan Kaushik, Group CFO and SGA, our investor relation advisors. I hope everyone had an opportunity to go through the financial results and investor presentation, which has been uploaded on the stock exchange and also on our company website. We have started the new financial year on a strong note with Q1 revenues growing 28% year-on-year as against the IPM growth of 9%, INR 1,404 crores. On like-to-like basis, the revenue growth is 31%. 3% growth is adjusted after change in revenue recognition for a certain contract on net margin basis.
More importantly, this growth is broad-based, supported both by organic expansion, contributing 15% on like-to-like basis, where we continue to deliver around 1.6x the market growth rate and the rest through M&A executed in last financial year. We have already announced more than INR 400 crores of acquisitions in the last conference call, some of which have already closed in the current quarter, and the balance also will be closed in the quarter two itself. At the same time, there are more deals in pipeline, which will be announced once the transaction documents are signed. Acquisitions will remain an important lever for growth, but our approach will continue to be disciplined and value accretive. Gross profit came in at INR 140 crores, up 40% year-on-year, with our gross margins improving by 83 basis points to 9.9% versus last year and 17 basis points versus last quarter.
This improvement has been driven by higher value-added services, margin accretive categories and procurement efficiencies. EBITDA for the quarter was INR 50 crores, representing a growth of 66% year-on-year, with margins improving by 82 basis points versus last year to 3.6%. Profit after tax increased 47% year-on-year to INR 30 crores. In spite of higher gross margins versus last quarter, the EBITDA margins declined from 3.7% to 3.6% versus last quarter as the operating leverage impact was not felt in this quarter due to annual salary and wage increases being implemented at the beginning of the year.
Our revenue base increased by 5% versus last quarter while operating costs increased by 9% over last quarter. The fixed manpower costs have been fully baked in the quarterly operating cost numbers, and as the revenue growth catches up in the rest of the year, the positive impact of operating leverage will start playing out. Even the IPM revenue grows significantly from quarter two onwards and after the rainy season. This is in line with our historical quarterly performance and even our full year guidance of 4% + EBITDA margins has factored this in the projections. Equally important is our continued focus on cash flows. We have moderated our net working capital from about 71 days about a year ago to around 66 days in last couple of quarters.
We have initiated multiple initiatives to further optimize both inventory and receivables through ERP-driven controls and data science-based techniques, and we are targeting another 10% reduction in working capital days by end of this financial year. Our network and reach have strengthened further. We now serve over 71,000 retail pharmacies and more than 2,500 hospitals across 469 districts in India, supported by 102 warehouses strategically located across the country. Our product portfolio has expanded to over 74,700 SKUs sourced from more than 2,600 healthcare product manufacturers. This scale is not just about numbers. It is about reach, vast product portfolio, service reliability, and quality, which helps us to continuously gain confidence and wallet share from our customers. More and more customers, including even organized retailers, find our value proposition compelling and unique.
At the same time, as we penetrate larger parts of India with significant share in micro markets, we become significantly more attractive for any healthcare product manufacturer to collaborate or partner with us, both for demand fulfillment and demand generation activities. Our strategic playbook centered on discipline in organic growth, organic scale-up in underserved markets, and deepening partnerships with healthcare brands, continues to deliver and bring us closer to our long-term vision of building India's most comprehensive, efficient, and digitally integrated healthcare distribution platform. We are executing on three clear growth pillars. First, organic expansion. Deepening penetration in our existing markets, winning a larger wallet share from existing customers, and expanding our product range, especially into higher margin categories like medical devices, diagnostics, surgical consumables, trade generics, and specialty pharma. Second, discipline in organic growth. We are very selective with acquisitions now.
We only acquire where there is a strong strategic fit, whether it's a new geography, a differentiated product segment, or a capability that strengthens our value proposition. Third, operational excellence. This means better procurement, technology-driven, efficient warehousing and delivery infrastructure, and optimized operating costs and working capital management. It is worth reiterating that the Indian pharma distribution market is still highly fragmented, with organized players accounting for less than 10% of the market. Our pan-India technology-led and category-neutral platform is difficult to replicate. This positions us uniquely to capture outsized share gains as the market consolidates. Looking ahead, we are on track to deliver 30% revenue growth in FY 2026, including both organic and inorganic growth, surpassing 4% full-year EBITDA margins and generating positive operating cash flows. Margin expansion will be driven by richer product mix, procurement gains, value-added services, and operating leverage from scale.
We are targeting to achieve the working capital target of 60 days by end of this financial year. In summary, quarter one FY 2026 has been a strong start to the year. We continue to deliver on the vast consolidation opportunity in an extremely fragmented healthcare supply chain through organic expansion as well as disciplined M&A. We continue to add customers, enhance product portfolio through collaboration with healthcare brands, diversify into new product categories such as medical devices, diagnostics, trade generics, et cetera, to become a one-stop solution for our customers. With this, I close my opening remarks and invite people to ask questions.
Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Chintan Sheth from Girik Capital. Please go ahead.
Hi. Thank you team for the opportunity and congrats on the improvement in gross margins and EBITDA margins. A couple of questions on the growth part. You did mention that 31% is a like-to-like growth, with 3% is related to revenue recognition impact. If I look at organic growth of 15% and adjust and calculate the inorganic contribution for the quarter, it seems sequentially declining. Last quarter, I think you mentioned around INR 200 crore- INR 225 crore was the contribution from the inorganic revenue. What would be that number, and if the number has lowered down, why is it that?
Yeah. Bala, how do you respond to the breakup into organic and inorganic?
Yeah. Chintan, this is Bala here.
Hi, Bala.
So if you look at the growth, the INR 225 that you mentioned for last quarter, that number was about INR 218. And this quarter, that is about INR 230 crores.
Okay.
So there is a growth. When you look at inorganic for entities that were acquired during the quarter one of FY 2025, the portion that was there in the reported numbers will move into organic. So if you look at like-to-like, it is about INR 230 versus INR 218 of last year.
Okay.
So there is a growth on those numbers as well.
Okay, got it. And in terms of acquisition pipeline, are we still keeping track on the INR 800- INR 1,000 crore of revenue acquisition for the year or any change on that number if you want to highlight?
Yeah. If you look at the guidance that we gave on this year of revenue rate of growth of 30%, that includes both organic and inorganic part.
Right.
On the inorganic part, we had assumed around INR 500 growth of recognized revenue on books. We think that we are on track. We have already done INR 400 crores quarter one we announced, which will start reflecting from quarter two onwards. And there are further more acquisitions in pipeline that will be completed.
Got it. I'll join that queue then. Thank you for the opportunity.
Yeah.
Thank you. The next question is from the line of Bhargav from Ambit Asset Management. Please go ahead.
Yeah. Good evening, team, and thank you for the opportunity. Sir, in your press release, you mentioned that earlier the guidance was to do acquisition by August, but that has been pushed over to November. That is my first question.
We are pushed to November, is it?
In the stock exchange, because we had given August 15th. This going towards end of August, we put it as
For the one that we announced.
For the one that we announced, the two.
All these acquisitions that we have announced in the previous conference call, that will be completed during this quarter. Two of them we have already completed. One of them, we are just waiting for drug license to conclude.
Okay. What you are hinting at is that in the second quarter, a couple of acquisitions will be announced.
Not announced, completed. The one that we announced previously.
Yeah. Your revenue recognition will start happening.
Yes. From quarter two. Yeah.
Okay. What would be the size of them in terms of revenue from the second quarter?
It depends on the day when we are able to close. As I told you, a couple of them we have already closed. Some of them, the revenue is flowing from July beginning. One of them is going to flow from July end. One of them, everything is complete. We are just waiting for the new drug license in the new company. The drug license site is down for 10 days now. We are not able to close that transaction. The moment the site is open, within three, four days, we should close the transaction and the revenue will start flowing in. It is difficult to accurately predict. Some of this we are dependent on external factors, but what I can tell you that all four transactions will be definitely closed. Two of them has already closed. Balance two will also be closed.
Okay, understood. Secondly, sir, is it fair to say that is seasonally the weakest quarter for us? If we have done 66 days of working capital in 1Q, it is fair to say that the working capital from here on only should improve, given that the revenue growth in terms of absolute also will be higher in the subsequent quarters.
Yes, because typically, if you look at even the pharma industry, how the revenues are split into four quarters, you will see that quarter two is generally 8%-10% higher than quarter one. Quarter two is the strongest quarter in the pharma industry because of the rainy season, because of which the spread of infectious diseases. So typically and historically also even in our numbers, you will see that quarter two is generally 10%, 12% higher than quarter one. So on a high quarter numbers, your NWC in days goes down because the NWC doesn't increase in the same proportion. So you are right. These numbers will improve in quarters to come.
Lastly, sir, Amazon India has significantly expanded its reach in selling medicines. Now they are servicing in almost all of their serviceable PIN codes. Do we benefit out of this and how big can this business become? Related to that, Zepto has also launched pharmacy in August in four major metros. If you can combine both of these in the same answer, that would be very helpful.
See, quick commerce foray into pharma or healthcare, I am not too sure about how this is going to scale up and how this is going to impact, because there are a lot of challenges in quick commerce, especially on the pharma category. The challenges are basically three. Number one is the range, because if the quick commerce value proposition is delivery in 10 minutes only, then there are few medicines that they can deliver in 10 minutes. But if their value proposition is going to be fulfilling the prescription, then they won't be able to do that because the pharma, the number of SKUs is just humongous. So there are so many brands. Even we are carrying 75,000 SKUs. The whole market is carrying more than 150,000 SKUs.
If your value proposition is going to be fulfilling the prescription and there are four or five drugs written in the prescription, it will be very difficult for them to fulfill all four or five. Even the large organized e-pharmacies are not able to do it. That will be number one challenge. Number two challenge will be on AOV. How to drive AOV on this because in 10 minutes, as I said, that whole range will not be available with you, so your AOV could be much, much lower. On a lower AOV, you will burn a lot of money because your delivery cost and other costs will be a very high proportion of your sales. Third is the prescription, because the prescription, if you do not have a prescription, then you have to generate prescription through doctor calling that adds a lot of cost to the system.
On a low AOV, prescription generation is required, then that will eat up a lot of margins. Thirdly, fourthly, in terms of if you want to go up, because of this prescription addition, your 10-minute thing may not work out. It will take much longer time for you to supply the medicine. You will not be able to combine pharma delivery with other delivery because if you want to combine both, pharma will take more time because of prescription and because of that the other things will also get delayed. Typically what is happening is they are delivering pharma separately and other SKUs separately from the same basket. Which adds significant additional cost because on the same order, you will have two deliveries. Because of all these challenges, I am not too sure how much pharma is profitable for quick commerce companies. They are experimenting.
Let us see how it works out.
Amazon?
Amazon has a better opportunity than other people because Amazon is not on quick commerce. Amazon is trying to fulfill the whole prescription range, right?
Yes.
Which is you don't find anywhere, you find on Amazon. So the value proposition of Amazon is selection, not the speed.
Yes. Are we participating in that opportunity?
Yes, we supply to organized retailers. Yes.
Okay, great. Great, sir. Thank you very much and all the very best.
Thank you.
Thank you. The next question is from the line of Ishmohit Arora from SOIC Research. Please go ahead.
Hi, sir. I had a question. For the full financial year, do we maintain that we will grow our top line by 30%? Because sequentially, our growth has been lower for the last three quarters in a row now.
Sorry, what?
For the full financial year, do we maintain a 30%+ top-line growth guidance? Because sequentially, for the last three quarters, our growth has been a bit slower.
So see, if you look at last whole financial year FY 2025, our growth rate was more than 30%. Right? So when we said that similar growth rate will continue in this year.
Right.
Even this year on like-to-like basis, our growth rate was 31%.
Right. Because I think beginning from this quarter, our base is pretty elevated when it comes to basically comparing comparison versus last year.
Yeah. So the base of quarter two is higher, and that always has been. If you look at many years, for last three years, always quarter two is much higher than quarter one. So, of course, our quarter two numbers have to be significantly better than quarter one to even deliver that kind of a growth over a quarter two base.
Right. And sir, second question was that, I think in first half of this financial year or for the full financial year, I think last con call you alluded to that in H2, you have seen positive cash flows. Do we expect a similar trend to continue that H1 will have positive cash flows or for the full financial year we will maintain that we will see positive cash flows?
We expect that on a full year basis, we will be positive cash flow.
Right.
And similarly, for EBITDA margin also, we expect that on a full year basis, we will be 4%+ .
Right. Sure, sir. All the best for the coming quarter.
Thank you. The next question is from the line of Sudarshan Padmanabhan from ASK Wealth Advisors. Please go ahead.
Yeah, thank you for taking my question. My question is, if I want to understand a little bit more on the operations, say, in the last few quarters, and even if I look at the fourth quarter versus the first quarter, the number of districts covered had basically come down from 500 to 469. And similarly, the number of retailers, the number of SKUs as well as the number of manufacturers. I mean, anything that you can add in this, or are we primarily looking to basically scale down and focus more on operational excellence?
Just one second. I am just trying to pull out the earlier quarters, this thing. Just give me a moment. Yeah. Sequentially also, if you look at quarter, my Q4 has 69,000 customers, Q1 has 71,000 customers. Right? So it has not gone down.
Okay. I was referring to the SKUs and the number of districts covered, et cetera. That is the page number six.
Yeah. If you look at in quarter to quarter, comparing exactly with the same quarter last year for district covered in FY 2026 was 469. Last year it was 448.
Okay. So there is a seasonality is what you are saying. Even this data that you are providing on a quarter-on-quarter.
I am not able to understand how you are figuring out seasonality. Which data point are you looking at?
I am looking at the data point where the number of SKUs handled in FY 2025 is basically 80,600. The number of retailers is 95,300. When I come to the first quarter, it shows the retailers as 71-
If you are comparing it full year with a quarter. Okay.
Okay.
If you look at just quarterly numbers.
Okay.
Because sometimes what happens is that same retailer may not have billed in every quarter. It will get captured in the full year, but it may not get captured in that particular quarter in which we are not billing. Right? You look at quarter to quarter. If I look at last year, quarter one, FY 2025, we had 60,000 customers. In quarter one of this year, we have 71,000 customers. That's the more like-to-like comparison.
Sure. With respect to understanding the cost, I think one, yearly on a year-on-year basis, I see there has been a stark improvement in the gross margin, for the reason that you had explained that there has been a salary hike. Is it fair to understand going forward, you are talking about over 30% growth, the rate of change of the salary cost would incrementally start coming down, and incrementally that will start showing to your EBITDA. That is probably something that we should expect from the next three quarters?
Yes. It's a simple math. For example, we had an operating cost of something like INR 89 crores in this quarter, right? All the salary increases have already been baked in quarter one. Okay? My growth is close to 10%, 11%, sorry, 9% operating cost. My revenue growth target is 30% for the full year. On a quarter-on-quarter basis, my revenue growth is only 5%. This 5% will expand to 30%. My entire cost increase has already been baked in quarter one.
Sure. If I just go through that, probably will exit your fourth quarter if I just extrapolate this by anywhere between 4%- 4.5%, which is where for the full year you will be.
Yes. Next three quarters has to be between that.
Sure. With respect to the acquisition, I think as you had talked earlier that there is going to be part growth from your acquisition and partly from your existing business. Just to understand from a longer-term perspective, as the pace catches up, what is your thought process with respect to the rate of change of acquisition that has been very heavy till now?
Rate of acquisition will go down in future. In next two, three years, the rate of acquisition will go down because we will not need so many. You would have penetrated a good part of India. We would have expanded into various product segments. The inorganic need will go down. Today, the inorganic is contributing almost 15%, 16% on our growth. In future, this 15%, 16% growth will taper down. The organic growth will continue.
Perfect. But the cash flows will be more robust, right? Because in that case, your acquisition, the CapEx that goes into it, that will not be required. To that extent, your cash generation ability will increase substantially.
Yes. The idea is that we should be cash flow positive on the operating cash flow. Whatever operating cash flows we generate, that would give us the ability to acquire more in future. As of now, we are using IPO funds to do that.
Perfect, J ust one final question before I join back. What would be the OCF, say, in the last second half of last year and first quarter of this year? Just some color on that.
It was positive.
Okay.
Last six months was good positive. As I told you, we are working on multiple projects on working capital reduction. I believe, among all the levers, that's the lower hanging lever for us, because at this scale, we can definitely optimize much more on working capital. Today, 66 days and earlier we had given a target of getting 10% reduction or 60 days in two years. Now we are saying that by end of this financial year, we should be able to reach there.
Sure, sir. Thanks a lot. I join back with you.
Thank you. The next question is from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Yeah, thanks for taking my question. First question is, has Entero's approach to integrating acquisitions fundamentally evolved between, let's say, 2018, 2019 versus last 12 months?
Yes, definitely. We have been learning from our experience over last four, five years.
Would you be able to share one or two examples of that learning, please?
Earlier, we were taking a much slower approach in integrating. Now we are taking a more aggressive approach in integrating. So maybe we change the ERP systems or technology systems from day one. Earlier, we were waiting a much longer time to change those things because we wanted the existing sellers to. We didn't want to disrupt the business so much, and we wanted a slower integration. Now we are much ahead in that. Our selection criteria has changed quite a bit now versus earlier. Now we are not looking at very small-scale acquisitions. We are looking at the targets from multiple angles as compared to how we used to look at it in the first two years of our existence. That's why you would see that most of the acquisitions that we have done over last 12 months have all been margin accretive.
Yeah, sure. Just to follow up, how do you motivate your team and maintain a productive company culture amid this rapid organic and inorganic expansion?
This team has been around for a long time. Most of the senior members of this team have been around for last six years. We have grown together as a team. There are various kind of reward mechanisms in place, including ESOPs and all that. This is an exciting business. Where would you find so many businesses where we are growing 30% year on year with 10 acquisitions in a year being done? So it's a great learning experience also for a lot of people.
Sure it is. Yeah. Lastly, what is the investment roadmap for your proprietary technology platform over the, let's say, next one to three years?
We have already built a lot of technology. To be honest, we are one of the few companies that have developed our own ERP systems which can be customized, it can be integrated with Facebook, it can be integrated with WhatsApp, it can be integrated with any other social media platform. All these ERPs, we have built our own apps, customer-facing apps. We are also working on a health tech platform where we should be able to integrate directly with the retailer system. All these tech investments have been made in the past. We don't see much significant investments in tech going forward. It's already in place. It just needs to be utilized more or capitalized more.
That means that as we start monetizing the tech, investments have been made. It's all upfront pain that we have already endured. The benefits should start flowing in incrementally as we go into this fiscal, later off of this fiscal and maybe next one.
Yeah. For example, if I'm saying that I'm targeting 10% reduction in working capital days, tech will play a very strong role in that. Without that tech, we wouldn't have been able to do it or we won't be able to do it.
Absolutely. That's very helpful. Thank you so much. All the very best.
Thank you. The next question is from the line of Akshat Mehta from Seven Rivers Holding. Please go ahead.
Hello, sir. Am I audible?
Yes.
Sir, one question on the revenue part itself, sir. You said that around INR 230 crores of acquisition is what is included in the current quarter. How should we then look at the 15%? That implies that around 7% growth is the organic. How should we look at that and the 15% number? If you can just help me make sense of the revenue growth figures.
So I think, Bala, you gave a different. We said INR 180 crores is included in inorganic, right?
Akshat, so the way it is, there were certain acquisitions that were done in Q1 FY 2025.
Okay.
And certain revenue numbers were reported out of it into our financials of Q1 FY 2025. And some of it, which is the pre-acquisition revenue, whatever was that value, goes into the inorganic. And whatever is excess over what we have already reported in the previous year goes into organic. So you will have to look at those numbers in an overall basis. If you try to split between what went into organic, inorganic, that is probably why you are getting a different number in your calculations.
So just to confirm, you mean to say that some part of the acquisition revenue that has come in this quarter one, some part of that was also there in quarter one, FY 2025?
Exactly. Yes.
Okay. Secondly, I wanted to ask if we exclude the amount of annual increment that was given to the employees this quarter, what would be the basis point impact on our margins from 3.6?
It would have been 20 basis points.
20 basis points. Okay.
Yeah.
The acquisition that we have done last year in FY 2025, around INR 500 crores that we booked. What kind of growth that we will see on these acquisitions in this year?
Similar range what we are talking about, 15%+ .
15%+ for the year. Thirdly, sir, if you can help us understand this tax rate for this quarter was quite low at 17%. How should we look at this for the full year as well?
Akshat, tax rate for the full year will also be in the similar range because we are taking some tax efficiency measures, which is actually helping us improve the tax. The annual numbers will also be somewhat in the similar range of 17%-18%.
Okay, sir. This employee cost number that you have gotten for the year, INR 58 crores. Some 2%-3% quarter-on-quarter upside on that is what we can take as the number for the full year. Right?
Yeah. Part of the manpower cost is fixed.
Okay.
A certain part is also variable, which is mostly sales commission and all that. That will change in proportion to sales, but rest of the cost will remain fixed.
Okay. But we can roughly take, multiply it by four and put some upside to that as the full year number.
Yes.
Okay, sir. And just one confirmation, sir. You said that we are targeting INR 500 crores of acquisition this year.
Yes.
Okay. Thank you, sir. I will come back.
Thank you. The next question is from the line of Prince from Pink Wealth. Please go ahead.
Hello?
Yeah.
Yeah. Hi, sir. Thank you for taking my question. The first question is, in this quarter, there is no growth in our hospital customers. If you can throw some light on it.
No, we already had almost what, 3,000+ hospital customers. 2,500+, I think.
Yeah. So there were no addition in the hospital customers. It was similar to the last quarter.
See, at the end of the day, we are getting more wallet share from the same hospitals. Even a lot of hospitals are getting consolidated also, right? It is like they are becoming part of one group. So it is getting reported as one single customer.
Okay. So if you can share the incremental wallet share from these hospitals as well as those distributors.
We are not giving kind of revenue split between hospitals and pharmacies. It is sometimes very difficult to get that data out also because a lot of hospitals have OPD pharmacies, IPD pharmacies. Sometimes the OPD pharmacies are outsourced to third parties, get counted
retail pharmacy while actually it should be counted as pharmacy inside a hospital. The data classification is not very accurate, I would say, in hospitals.
Right. In terms of wallet share, incremental wallet share, not the revenue split between the hospitals and retailers.
How will you calculate the wallet share? The wallet share you will calculate by dividing the revenue by number of customers, right? And compare it over a period of time.
Isn't it? Because what you are going to get an aggregate wallet share or let's say average wallet share, you will not get hospital by wallet share.
Right.
In some hospitals you might have 30% wallet share, in some hospitals you might have 10% wallet share. What you would get is an average wallet share. Not even wallet share you will get because you will not know what is the total purchase of that hospital. You will only get a revenue per hospital.
Understood.
Our revenue.
Yeah. Also in terms of acquisitions, currently we have four in pipeline. Other than these four acquisition pipeline, what opportunities do we see for merger and acquisitions?
So we are continuing. We are evaluating a couple of more deals. Hopefully, in the next one month we should be announcing that. The work is going on as we speak.
Okay. And for this quarter, EBITDA margin was 3.6%, and we have a target for FY 2026, 4%+ . So
Apart from operating leverage
Yeah. Apart from operating leverage, what
Apart from procurement efficiency.
Yeah, like procurement efficiency as well as other metrics, product mix, how they will contribute for this financial year.
This year, what we have said is 4%+ EBITDA margin, right? Today, quarter one, the gross margins are at 9.9%. For the rest, for the incremental EBITDA, large part of it will flow through operating leverage only because all the costs are there while revenue is only 5% weightage in the quarter one. Large part of it will come through operating leverage itself. Whatever the incremental we get on gross margin will be an additional over and above our targets.
Okay, sir. Understood. Just for the last part, what was the contribution from medical devices for this quarter?
Medical devices around 4%, 5%.
Okay, 4%, 5%. Yeah.
Will it increase?
How do you look at for the going forward for this year?
So we are more aggressive on medical devices now. It is growing well. It has a higher margin structure also. Couple of deals that we are evaluating are in this space itself. So this share will grow.
Okay, sir. Yeah. Thanks for answering all the questions.
Thank you. The next question is from the line of Shivkumar Prajapati from Ambit Investment Advisors. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. My first question is, I noticed that there are two step-down subsidiaries in our list of subsidiaries. Just want to understand why we are looking at this route and not a subsidiary route. Second one is, we had very low tax rate for this quarter. So what is the reason behind it?
Sorry, I did not get your question very well.
So sir, in our list of subsidiaries, we have two step-down subsidiaries. So usually though we acquire the company as a subsidiary and not route it through a step-down subsidiary. So just want to understand what change does this makes us?
Yeah. So when you are referring to step-down subsidiaries, can you tell me which ones you are referring to as step-down?
Okay. Just give me a minute. I will just open.
I think you are referring to CPD Pharma and Chethana Pharma Distributors, if I am not wrong. Because basically we are looking to merge a few entities to look at it from an operational efficiency. We are doing an operational pilot on if we merge the entities, how does it work, whether it helps us improve our overall operations and stuff. There are two subsidiaries which we are merging with one of our existing subsidiaries. In this quarter, the shares of those subsidiaries were sold from Entero to another subsidiary of Entero, and we will be merging those subsidiaries. That is the reason you are seeing a step-down subsidiary. Correct?
Yes.
We are in the process of that.
I understand.
That is the reason you are seeing step-down. Otherwise, typically acquisition, all our acquisitions happen as a direct subsidiary of Entero.
Okay, got it. Great. My next question is
On your second question on the taxation, we are also working on certain tax-efficient way of funding our subsidiaries, which will help us to improve our overall effective tax rate. The reason being that we will be able to utilize the earlier tax losses and set off our overall tax. That is the reason you are seeing a lower effective tax rate. We believe our tax rate for the full year will be in the same range.
Okay, so 16%, like 16%-17%.
Yeah, 16%-17% is what we expect it to be for the full year as well for FY 2026.
All right, sir. My next question is on the gross margin. From last quarter we have been adjusting 3% of gross margin due to change in contract. Just want to confirm whether this is for a single client only, and do we expect any such changes in coming period?
This is for a single client only to answer the specific question.
So far, we do not anticipate any other major impact. As it stands today, we don't anticipate any other major impact of the same nature currently.
Sir, how does this change help the other entity? Obviously, because of this change, our consolidated growth rate looks a bit down. But how does this change help the other entity that we made the change in contract?
No, it was not a change that was driven by us. It was more driven by the client.
There are various kind of services that you can provide. Either it is revenue, which will impact full revenue recognition, or we say that we just provide you the services, we will bill you for the services. You don't have to buy and sell from our books.
This is what they wanted, so this is what we did.
Okay.
We don't see any other contract right now, existing contract that can go through this route.
Okay, great. My last question is, did we do any kind of assessment, I mean, benchmarking with the global distributors, say, customer acquisition cost or cost to serve per order? If you could provide these data points, that would be helpful.
See, if we compare with U.S., the market is completely different. If we compare with Europe, the market will be very different. Every country is very unique. India is, I am telling you, pharma itself is such a unique country. In which country you have branded generic such a big proportion of pharma industry, right? Most of the geography, either it is research molecule or patented molecules, and then you have generics. India has three category, four category. Patented, then branded generic, then trade generic, and then generic. No country has a structure like India. No country has the complexity of the geography that we have.
Okay.
Entire U.S. has not more than 80,000, 90,000 pharmacies. We have a customer base which is larger than the total population of pharmacies in U.S.
Understood.
It is not a good idea to benchmark with them. We will have to create our own benchmarks and measure.
against our own benchmarks.
Understood, sir. Thank you so much, sir, and best of luck.
Thank you. The next question is from the line of Ishmohit Arora from SOIC Research. Please go ahead.
Hi, sir. Just a follow-up question. Do we have any view on the market creation of weight loss drugs in India? Are we seeing any impact on our revenues also?
Ishmohit, we are not able to hear you clearly. Can you please repeat your question?
Can be a little slow.
Hi, sir. Am I audible better?
Yeah.
Yes.
Sir, I was asking, are we seeing any market creation happening in the weight loss drugs in India? Do we see any positive impact from growth from there also?
Yeah. There are two weight loss drugs launched recently. One is Mounjaro and the second is Wegovy. We are distributors for both these companies. In fact, we are doing significant sales for Eli Lilly in India.
Right. That is it then. Any idea on how do you see the market evolving in India itself over the next couple of years?
I think next year in FY 2026, next calendar year, you will have a lot of generic companies coming in semaglutide market, right? That should expand the market significantly.
Right. That is it, sir, from my side. Thank you.
Thank you. The next question is from the line of Akshat Mehta from Seven Rivers Holding. Please go ahead.
Yes, sir. Just wanted to ask if you can share the cash balance on the books right now.
Yeah. So we have about INR 365 crores of cash on our books currently. You will not see it all in one place. So it will be in different line items because the way the investments are done. We have about INR 365 crores.
Okay, thank you.
Thank you. The next question is from the line of Divya Agrawal from Ficom Advisory LLP. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. I am new to the company, so my apologies if there are some basic questions on that. Sir, firstly, if you look at this quarter, our inorganic growth was around 13% compared to 18% the previous quarter. What were the key factors driving this reduction?
Sorry, no. Our growth rate on organic growth this quarter is higher than the previous quarter.
Okay. Because in the PPT, if you see, the consolidated growth was around 28% and the Entero organic growth of 15%. The balance would be inorganic growth, right?
Inorganic. Yes, correct.
That is 13%.
Divya Agrawal, I will tell you. Here, what is happening is you are looking at 28%. The like-to-like growth is 31%. And out of 31%, 15% is organic and 16% is inorganic.
After adjusting that 3%?
Yeah, after adjusting that 3%, because you need to look at like to like.
If you look at slide number six of our investor presentation, you will see the breakup between organic, inorganic, on slide six.
Right.
Quarter on quarter you can see.
Sure, sir. Got your point. Secondly, on the acquisition side, so considering that our primary objective of acquiring smaller distributors is to expand geographic presence and increase the number of SKUs. If we were to achieve the same organically, what would be the estimated time and capital investment required?
See, the only thing in terms of time, it could be anywhere. It could be two years, three years. Or it could be even longer than that. The good question is, it's buy versus build, right? What is the extra that you are paying to buy as compared to build? And what we are paying in goodwill is the only amount which is paying over and above what we are physically acquiring the assets. Because those assets, even if we build organically, we would have to put. So only the premium over and above the net assets that you are acquiring is your cost of buying versus building it yourself. I think our total goodwill will be what, in our balance sheet, like less than INR 500 crores?
Yeah, about INR 400.
Let's say, a revenue of INR 6,000 crores has been built with, let's say INR 400, INR 500 crores of goodwill. Premium that was paid.
As we are on the goodwill side, I just wanted to know, goodwill right now as on FY 2025 is 16% of the total assets. Would it be prudent to write it off entirely, given that this could potentially improve our return ratios?
Yeah, but it is tested for impairment every year.
Under Ind AS, you need to test goodwill for impairment. Under the accounting standard, there was a concept of goodwill being amortized over a 5-10 year period. But under Ind AS, under which we are covered, the Ind AS standards require that we test the goodwill for impairment at every financial period. So we do-
There is no amortization, right?
There is no amortization. Only if at all there is any impairment, then that is taken into the books, but otherwise, it is only impairment testing that needs to be done, no amortization.
Lastly, sir, there is a Moneycontrol article dated May 30th, 2025, which reports that Servier, which is a French drug maker. It terminated the exclusive distribution agreement with Entero after AIOCD intervened over monopoly concerns. Could this be a similar thing going forward as well in our acquisitions?
No, let me first clarify that article, because we never gave any response to that article. First of all, Servier, we are exclusive partner for them to promote certain of Servier brands in India, like we are for Abbott or like we are for Roche. That contract was never terminated. What was the point of AIOCD was that, why Entero is only supplying to all the stockists. What was agreed that, okay, Servier CFAs can also supply to the same stockist instead of Entero. But marketing and promotion is still with us exclusively.
Okay, sir. Sorry, go ahead, sir.
That Servier partnership has never been terminated in terms of marketing and promotion.
Right now, we have three agreements: Roche, Abbott, and Servier.
For pharma demand generation, yes. For pharma marketing, yes.
For pharma marketing. Right. And the margin for this would be?
Promotion margins are different than distribution margins. Promotion margins are higher, but the cost is also there. We are paying around 150 people to promote and market Abbott and Servier drugs.
Okay. The incremental margin that we get here is, if we want to compare the margins here, how much business point upside it
Margin is a confidential information between us and the company. It is difficult for us to disclose in a public forum.
Sure, sir. Thanks. I get that point. Thanks a lot.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Yeah. I would like to thank everyone for joining this call. I hope we have been able to address all your queries. For any further information, kindly get in touch with SGA, our investor relation advisor. Thank you once again, and have a great day.
Thank you. On behalf of Monarch Networth Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.