Ladies and gentlemen, good day and welcome to the Q4 FY 2025 earnings conference call of Entero Healthcare Solutions Limited, hosted by IIFL Capital Services 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 the 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 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. Rahul Jeewani from IIFL Capital Services. Thank you, and over to you.
Yeah. Thank you. Hi, good afternoon, everyone, and I welcome you to Entero Healthcare's fourth quarter FY 2025 earnings conference call being hosted by IIFL Capital. From Entero, we have with us today the senior management team comprising Mr. Prabhat Agrawal, Managing Director and CEO, Mr. Prem Sethi, the Whole-Time Director and COO, and Balakrishnan Kaushik , Group CFO. I will hand over the call to the management for them to make their opening comments and post that we will open the floor for Q and A. Over to you, sir.
Yeah, thank you, Rahul. Good afternoon, everyone, and thank you for joining earnings conference call to discuss the operational financial performance for Q4 FY 2025. My name is Prabhat, and on this call, I am joined by Prem, Co-Founder and COO of Entero, Bala, who is the Group CFO, and SGA which is our investor relations advisors. I hope everyone had an opportunity to go through the financial results and investor presentation, which has been uploaded on the stock exchanges and on our company's website. I shall provide a brief overview of the operational and financial highlights for the financial year, after which Bala will take you through the highlights of our Q4 FY 2025 financial performance. Let me begin by saying that FY 2025 has been a landmark year for Entero Healthcare Solutions.
We crossed INR 5,000 crores in revenues, surpassed 100,000 customer base across pharmacies and hospitals, and achieved over INR 100 crores in profit after tax. All have been significant milestones in our journey. Also in the second half of the year, we turned operating cash flow positive. The above achievements give us the confidence in the vast scalability potential of our business model and also validates the market acceptance of our value proposition and right to win in this fragmented market. Our strategic playbook is centered around the following. Number one, organic scale-up in underserved markets through expanding our geographic footprint and product segments and delivering better buying experience to our customers through deployment of technology-led solutions and efficient physical infrastructure and processes. Our presence now spans 500 districts across 20 states, supported by 101 warehouses.
We serve more than 95,300 retail pharmacies, which is almost one out of 10 pharmacies operating in India, and 3,600 hospitals. Our product portfolio or SKU count has crossed 80,600, and we now work with over 2,700 healthcare product manufacturers. This gives us a truly unique national-scale distribution capability, both deep and broad, in a market that remains largely fragmented. The organic growth is complemented with entry into new geographic markets and newer product segments through inorganic acquisitions that helps us to scale and penetrate the market faster. We successfully completed and integrated 10 strategic acquisitions during the year, contributing INR 792 crores in annualized revenue.
These acquisitions have expanded our geographic footprint in multiple new cities and diversified our product portfolio across new segments, including medical devices, diagnostic consumables and equipments, surgical consumables, and specialty pharma. The unique Pan-India distribution platform built from the above attracts many new healthcare brand partnerships and collaboration opportunities as the platform provides wide India reach at one go to every company that associates with us. We have further augmented our value-added service capabilities in terms of comprehensive commercial solutions covering both demand generation and demand fulfillment. This brings us closer to our long-term vision of building India's most comprehensive, efficient, and digitally integrated healthcare distribution platform, which is difficult to replicate. In terms of key financial metrics for the year, FY 2025 marked a period of solid growth, strategic expansion, and improved operating metrics.
We registered revenue of INR 5,096 crores, achieving a 30% year-on-year growth rate, which includes 16% organic growth against an IPM growth of 8%, thereby outpacing the industry growth by 2x. Our gross margins improved by 57 basis points to 9.5%, aided by margin-accretive categories and value-added services and procurement efficiencies. EBITDA rose by 53% year-on-year to INR 172 crores, with operating margins expanding by 52 basis points to 3.4%, with last two quarters margin being 3.7%. Profit after tax for the year stood at INR 107 crores, growing nearly 2.7x from the previous year, underscoring the strength of our operating model and disciplined financial execution. In terms of business outlook for financial year 2026 and beyond. Looking ahead, we remain very optimistic about the long-term opportunity in the healthcare distribution space in India.
The addressable market, which includes pharmaceutical, medical devices, and surgical consumables, stands at $33.2 billion and is expected to grow at 10%-11% CAGR over the next five years. Importantly, the shift towards organized distribution is accelerating, and we are ideally positioned to lead this consolidation. Our growth strategy going forward will continue to rest on three fundamental pillars. First, we will sustain our organic momentum by onboarding new pharmacies and hospitals and increasing our wallet share with existing customers. Our organic growth has consistently tracked 1.5x-2x of IPM growth rate, and we expect this to continue. Secondly, we will pursue disciplined inorganic growth with a proven M&A playbook and a robust acquisition pipeline. We will continue to onboard high-quality regional players that are strategically aligned with our long-term goals.
We have already announced six new strategic acquisitions, which collectively would add over INR 400 crores of annualized revenues and expand our geographical reach and further add to our business portfolio in the areas of trade generics, specialty pharma, medical consumables, and devices. These acquisitions are EBITDA margin-accretive on blended level and would enhance our overall margins. We are being very selective in our inorganic approach and are targeting to acquire only those targets that add either new geography, new product segment or capabilities, and are margin-accretive. While we expect the pace of acquisitions to normalize in a couple of years, in the near term, our unutilized IPO proceeds give us the flexibility to capture attractive opportunities. Our FY 2025 revenue growth was 30%, and we expect to deliver similar or better growth rates in FY 2026 also.
Thirdly, we are committed to expanding EBITDA margins through margin-accretive product categories and value-added services, procurement efficiencies, and operational efficiencies. We are targeting to exceed 4% EBITDA margins in FY 2026 on full year basis. Fourth, our focus would be on improving working capital management, which in combination with margin expansion, would provide positive operating cash flows in full year 2026. To conclude, we remain committed to creating a truly differentiated technology-led and value-accretive platform in healthcare distribution that delivers sustained returns to all our stakeholders. I extend my heartfelt gratitude to our team for their unwavering dedication and to our shareholders for their steadfast support and trust in our vision. With this, I will now request Bala to summarize the company's financial performance for Q4 and FY 2025.
Thank you, Prabhat, and good afternoon, everyone. Coming to Q4 FY 2025 consolidated financial highlights. Revenue for Q4 is at INR 1,339 crores, registering a growth of 29% on year-on-year basis. 11% of this growth is organic and 22% is from acquisitions. As mentioned by Prabhat, we completed 10 acquisitions in FY 2025, and we have recorded INR 225 crore revenue from these new acquisitions in Q4 FY 2025. The seamless integration of our recent acquisitions is expanding our geographic footprint in cities like Jaipur, Ujjain, Trivandrum, Khammam, and we also have expanded our category footprint along with driving meaningful margin expansion and is expected to enhance our operating leverage by unlocking scale efficiencies, enriching our product mix, and aligning the acquired entities with our centralized technology-enabled platform.
Coming to gross margins, we recorded gross profit margins of 9.8% in Q4 vis-à-vis 9% in Q4 of the previous year, an improvement of 81 basis points. This improvement in our gross margin reflects our focused efforts to scale high-margin categories such as specialty pharmaceutical, surgical consumables, diagnostic products, alongside sustained procurement efficiencies enabled by our expanding scale and integrated supply chain infrastructure. Coming now to EBITDA. EBITDA for the quarter stood at INR 49 crores, which is a growth of 69% year-on-year basis. EBITDA margins in Q4 FY 2025 stood at 3.7%, vis-à-vis 2.8% in the same quarter last year, recording an improvement of 86 basis points. This margin expansion was achieved despite ongoing investments to support integration and scale-up of our recent acquisition, underscoring our strength of the operating model and our ability to drive efficiency while building for long-term growth.
Profit after tax for the quarter stood at INR 31 crore, marking a 48% year-on-year growth driven by strong EBITDA expansion and prudent financial management. Our return on capital employed improved meaningfully to 11.6% compared to 9% in Q4 FY 2024, and we managed to maintain our working capital cycle at 60 days, a reduction of three days from the previous quarter. With this, I would like to conclude the presentation and open the floor for questions and answers. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. 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 will 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. Thanks a lot. Congrats for the good set of numbers. Am I audible?
Yes, you are audible, Chintan.
Yes. Okay. Coming to the organic growth in the presentation, if you see the slide, where we compare our organic growth, IPM and others, there is some asterisk on the net margin impact of 3%. Could you explain what it is which resulted into our organic growth being 11% for the current quarter? If you could explain that.
Yes. We had a change in agreement with one of our companies where we are providing super distribution services to them.
Okay.
Earlier we were recognizing the full revenue, now we are recognizing only the gross margins on that agreement.
Okay. But that completely flows down to EBITDA, I believe, right?
That flows to gross margins and after expenses flows to EBITDA.
Oh, okay. But does that impact like to like how should one look at? Because if I look at that, if I adjust the growth, that 3% for the overall piece, I believe the revenue growth number will look a little better versus what we have reported, right?
No. This 11% is after adjusting for that.
Yes. That's what I'm saying. If we include that on the like-to-like basis, the growth would have been 32%-33% for the quarter.
Yes. Correct. Right.
Okay. Does that impact our margin profitability point of view or is this just an adjustment?
Not meaningfully.
Not meaningfully. The reported margin for the current quarter, 3.7%. On the like-to-like basis, it could have been lower, right? If we include that 3% revenue adjustment which we did.
Yeah. In some single-digit basis point. Yes.
Okay. The guidance of 4%+ for the full year versus our earlier guidance, that we will exit 4Q next year at around 5%. Do we see that trend of EBITDA improvement continuing, or we will end up somewhere little lower on the exit rate, 100 basis?
No. The guidance we are giving you is that full year basis will be more than 4%, okay? Quarter by quarter is difficult to provide a guidance right now. In fact, last year also I had said that we will exit at 4%, which unfortunately we did not do, right? So I don't want to stick my neck out on a quarterly basis and give a. Rather, the full-year performance is much better predictable as compared to quarterly performance.
Got it. Lastly, on the Peerless incremental acquisition, which we are doing at INR 44 crore-INR 45 crore for 16% stake. If I look at the numbers of what you have reported in the release, the revenue for the current year, FY 2025, has grown at 10%, while the valuations seem to be relatively higher, given that last time around, I think we have paid around INR 110 odd crore for this business. So I'm just trying to understand how should one look at it, the incremental acquisition of that 16% stake in the Peerless side.
Yeah. There is some explanation that Bala will give you because it is not what it appears.
Okay.
Chintan, basically, when we did this Peerless deal, there was a subsidiary of Peerless which was actually commercially not part of the deal. During the year,
Okay
we have actually kind of sold that subsidiary and whatever proceeds were there from that sale that had come into the Peerless. As part of this tranche, we have actually transferred the money that came in. If we exclude this one-off, the valuations are very much similar to what was done at the acquisition stage.
Okay. The cash flow, if I look at first half to full year, we are still negating in the second half. Your initial comment, you mentioned that OCF is positive in the second half. Just trying to understand that, because if I look at first half, operating cash flow is around INR 62 crore negative , versus full year is around INR 77 crore negative . Just trying to connect the two.
When we were talking about the operating cash flow, cash flow from operations, we are positive. We are positive about INR 50 crores cash flow from operations positive. You are looking at the overall cash flow, while we were looking at the cash flow from operations. That is what we mentioned, that in H2, we have turned cash flow operations positive.
Okay. I will connect separately. Thank you. I will get back. Thank you.
Yeah. Okay.
Thank you. Next question is from the line of Harshi Shah from Beas Capital. Please go ahead.
Congratulations on the good results, Prem and Prabhat. Just wanted some clarity on improving working capital to be fully OCF positive next year.
Yes. That's an important focus area for us, and on a full year basis for. I told you that on second half of this year, which Bala explained, we were OCF positive. We were OCF positive to the extent of around INR 50 crores. But on a full year basis, we were negative, because in the first half of the year, we were quite negative on OCF. You would see that in the second half of the year, our margins were much better than the first half of the year in the last year, right? So once the margin trajectory continues to grow and working capital improves through our focused efforts, then next year we will definitely be OCF positive on a full year.
Can you see any guidance on the net working capital days you are planning to make next year?
Our net working capital days on a quarterly basis is close to 66 days. In Q4, there is definitely 5% improvement that we are planning for next year.
Great. Thank you.
Thank you. We will take the next question from the line of Ishmohit from SOIC Research. Please go ahead.
Hi, sir, and congrats for the recent set of numbers. Sir, can you just reiterate what was the guidance for FY 2025 when it comes to full year margins and working capital days, if they are improving?
Sorry, can you repeat again?
Sir, I was just saying, can you basically reiterate the guidance that we have for FY 2026 when it comes to growth and full year EBITDA margins that we are seeing? Not on a quarterly basis, just a broad direction for FY 2026.
Yeah. So three guidance items. One is on a revenue growth, which we said, this year we had 30% growth. Next year also, we are targeting more than 30% growth. On EBITDA margin basis, on a full year basis, 4%+ EBITDA margins for the coming year. And operating cash flow positive for next year, which will be a combination of both reduction in working capital days and also higher margins.
Right. And sir, just in terms of the industry environment right now, how are you seeing the IPM industry environment right now? Because we have seen a lot of domestic pharma companies reporting basically growth slowdown which is happening. So how are you seeing the industry environment?
Yeah, we are seeing the same trend. If you look at the last year, the whole entire year, the industry growth rate was only 8%, and last two quarters was 7%. Historically, industry has grown in double digits earlier, and which has come down to single digits for the last year. So we are seeing definitely a slowdown on the industry growth rate. That is still why I always give a guidance in terms of our growth rate relative to industry growth rate.
Right. I think we have finalized some five acquisitions for, I think, which will get executed in FY 2026. Are there any more acquisitions in the pipeline?
Yes. There are more acquisitions in the pipeline.
Right. Okay, sir. Thank you. All the best for everybody.
Thank you. We'll take the next question from the line of Shivk umar Prajapati from Ambit Investment Advisors. Please go ahead.
Yeah. Hi, sir. Thanks for entertaining my question. Hope I am audible. Hello, am I audible?
Yes, you are. Little bit of noise, but it is okay.
Yeah. Sorry for the inconvenience. Sir, my first question is-
Sir, I am sorry to interrupt. Shivk umar, sir. Could you please move to a quieter area? There is a lot of background noise. Or you may rejoin the call.
Give me a second. Am I audible now? Is it clear now?
Yes. I think you are audible. Go ahead.
Okay. Great, sir. My first question is on standalone basis, you are not doing that great. Sir, could you please throw some light, like why there is such a poor performance on standalone basis? On the following part, when will we turn EBITDA positive on the standalone for our financial statements? The third one is, what is the guided tax rate for FY 2026? That is it.
We are not looking at standalone. Entero is a network of subsidiaries, both holding company and subsidiaries.
Yes
it is difficult to give standalone or subsidiary by subsidiary guidance. We always give a guidance on It's all basic, which I just gave in the previous question.
Okay, sir. What will be the tax rate for FY 2026?
See, corporate tax rate is 25%.
Yes.
Companies make an effort to optimize on tax rate to more tax efficient strategies. But for the time being, you can take a guidance of 25% corporate tax rate.
Okay, great, sir. Thank you.
Thank you. Next question is from the line of Romil Jain from Electrum PMS. Please go ahead.
Hi, sir. Am I audible?
Yes, you are.
Yeah. Sir, my first question is, I just want to understand the companies which we have acquired. One, they would be at what margin level, at the growth, EBITDA, whatever you can give some color on. When are they included in our organic kind of pools? So, one year, two years down the line, they come in the organic pools. Just some color on that.
Yes. Only in the first year of acquisition is where they are considered under inorganic. Post that, it is considered under organic only because after that, we are in control of that company and we manage that business.
Okay. What margins they would be at, just like affecting between the earlier businesses that you have acquired and the new businesses?
I can only say that the businesses that we have acquired are at margin accretive. They are at a margin higher than our current margin. It is going to add to our overall margin profiling. We are not acquiring anything which are margin dilutive.
Okay. On the organic side, I just wanted to understand. So let's say whenever these companies come under the organic bucket, going ahead, when our acquisitions kind of slow down, maybe in a year or two. So your guidance is definitely 1.5x - 2 x the growth rate of IPM. Do we still see that if the IPM grows at about 8%-10%, probably we should grow between 15%-20% when the acquisitions slow down?
Yeah. So organic growth rate is independent of inorganic, right? So based on our value proposition, based on our right to win, based on this fragmented nature of the industry, we expect that our growth rate will exceed the industry growth rate by 0.5x - 1x.
Sorry, how much, sir?
1.5x - 2x of industry growth rate.
Okay, and the margins are broadly on track to reach 4% or maybe higher than that in two years' time. What would contribute to that?
I just gave a guidance that in FY 2026, we should exceed 4% on a full year basis.
Okay. Okay, sir. Thanks. I will come back on the rest.
Thank you. Next question is from the line of Gautam Gosar from Monarch AIF. Please go ahead.
Hi, sir. Thank you for the opportunity. My question is basically on the organic business. You explained that we will grow at 1.5x - 2x of the IPM growth. My question here is that, in the last Q4 FY 2025, we have done 11% organic growth versus earlier in the year doing 15%, 16%, 17% growth. You are saying that we will have a similar rate in FY 2026 as well. Can you explain how will we catch up the growth which we did in Q4, and how should we look at it, the industry growth as well as our growth in FY 2026?
Yeah. Except for this quarter, if you look at our growth rate for the full financial year for FY 2026, our growth rate was 2x of industry growth rate, which is on higher end of our range that I gave you. We expect that the same will continue. Typically what happens in fourth quarter is there is a little bit of slowdown from our side also because at end of the year, most of the accounts and all, we kind of reconcile with our customers. There is lot more focus on collections rather than on sales.
Understood. Secondly, sir, on the acquisition part, we have roughly done around more six acquisitions of around INR 400 crores. I would like to know more about the payout which we have done for these acquisitions and understand like we have a cash on books of around INR 250 odd crores. Will that cash be enough to fund our future acquisitions or do we envisage a further fundraise plan or a debt plan for the same?
See, as of now, we don't have a new fundraise plan. The IPO that we did a year back has given us. We still have unutilized proceeds from that IPO and our balance sheet also we have significant cash. I don't envisage any immediate fundraise plan in our thinking.
Sir, basically you leverage-
Once we start generating positive operating cash flows, that amount will be available for acquisitions without fundraise.
Understood. But sir, this acquisition which we have done recently, these six acquisitions, how much payout we have done for the same because this will come in the FY 2026 balance sheet, right?
Yeah. Normally, we don't give exact payouts for even both seller and buyer perspective. But I can tell you that the multiples are in the same range that we had guided before.
Okay. Got it. I think we can take it offline. Okay, thank you.
Thank you. We will take the next question from the line of Akshat Mehta from Seven Rivers Holdings.
Thank you, guys.
Please go ahead.
Hello, sir. Am I audible?
Yes, Akshat.
Sir, first question that I have is, I just wanted to understand, last earnings call, we were guiding for a full year growth of around 35%-40%, and we have kind of missed that mark by at least 5%-10%. I just wanted to understand, what is the key driver that we kind of resulted in a lower growth than what we had guided earlier?
On a full revenue recognition basis, our growth rate for this year was close to 31% after adjusting for the Q4 change in recognition method. So it is like 4% we are below in terms of guidance that I gave. And it is primarily because in the delay in timing of acquisition.
Okay.
We take that.
Next year, should we see a kind of a higher organic growth because the acquisition will ramp up the ramp up part of the acquisition will be shifted a bit to next year. Should we see higher growth from-
Akshat, sir, I am so sorry to interrupt, but there seems to be a lot of disturbance from your end.
Sorry, I should be much better now.
Yeah. If you are connected on two devices, there is an echo.
No, sir. I am fine now. I just wanted to ask if next year there will be a better organic growth since the ramp-up of the acquisition will take place majorly in the next year of these 10 acquisitions.
Next year, growth will be a combination of three factors. One is the organic growth on a continuing business. Number two will be the full year impact of acquisitions that we did this year, and new acquisitions for next year. It will be a combination of organic growth on continuing business, full year impact of acquisitions that we did this year, but we recognize revenues for the full year next year, and the new acquisitions that we are going to do in this year.
Okay, sir. Also, I wanted to just have a clarification, sir. Did we say any target for how many acquisitions do you want to do this financial in FY 2026?
No, we are not giving a specific number. But as I told you that we have already done more than INR 400 crores, that we have announced, and we have a pipeline we'll continue to execute more.
Okay. Last question, sir. I just wanted to understand, we have written in our Board meeting outcome that you've canceled the acquisition of one of the companies, I think Prem. What is the reason for that, if you can share?
Well, we actually canceled that because we have a better target which got available in the similar market, with better margins and better revenue profile.
Okay, sir. Thank you.
Thank you. We will take the next question from the line of Harshal Patil from Mirae Asset Capital Markets. Please go ahead.
Good afternoon, sir, and thanks for the opportunity. Just one clarification I wanted to know. For FY 2025, did you say that 11% will be growth in organic revenues for 2024?
Yes. Only for Q4. Yes.
Okay. And sir, what would it be for the full year?
16%.
Okay. The balance, I guess, would be through the inorganic acquisitions that you have announced.
Right.
Okay. Sir, that was it. Second thing, sir, would it be a good thing to kind of assume that I will probably go ahead that in FY 2026 also we should be doing almost a similar level of acquisitions as we did in FY 2025?
What we said next year, I gave you a kind of a revenue guidance, right?
Right.
Which is upwards of 30%, and this will be a combination of organic growth, new acquisitions, and full year impact of last year acquisitions.
Yes. Correct. Okay, sir. That is it. Thank you. Thank you so much, sir. All the best.
Thank you. Next question is from the line of Binoy from Sunidhi Securities & Finance Limited. Please go ahead.
Yes. Am I audible?
Yes. You are.
Okay. So one question, on the recent acquisitions that you have made, a few of them are on the North Indian side of the geography. I believe that market is a little more competitive as compared to the Southern Indian market. So will these acquisitions be margin accretive for us?
Yes, you are absolutely right. The northern part of the country is little more competitive than the southern part. But the acquisition that we have done is in specialty pharma. It is not pure generic retail business, right? So the margins are higher in that segment, and that is the reason we acquired that.
Understood. Could you give a ballpark range of the margins of these acquisitions in aggregate?
We haven't given that number, but you can take it as that they are higher than what we have today. It's a range. Some are at little higher, some are much higher, but on a blended basis, they are higher than where we are today.
Okay. In one of the previous presentations, you mentioned that the acquisition's EBITDA margin range is roughly about 6%-8%. Would these acquisitions also be in that range? Can I assume that?
Yes.
Okay. A couple of bookkeeping questions from my end. If you could just help me with the sales and marketing revenue for FY 2025. Likewise, how much revenue came from the hospital segment for FY 2025?
Around 20%-25% is from hospitals.
Okay. And the sales and marketing revenue?
You mean to say the business where we are doing marketing and promotion also?
Yeah, for the pharma companies. Yes.
Yeah. It is around less than 5%. Little less than 5%.
Still less than 5%. How much of the revenue would be coming from medical devices and surgical instruments, et cetera?
At a consol level, across all our geographies. Less than 10%. Close to 10%, I would say.
About 10%. One last point. I was just looking at the warehousing network. The number of warehouses on QoQ basis have been consolidated, and likewise, the overall network is consolidated. I also see the pin code, the district coverage also consolidated as compared to the last year. Anything to highlight out here?
No significant highlight here. These marginal, small plus and minuses is difficult to explain, but no major or significant thing to talk about.
Okay. That's all from my side. Thank you so much.
Thank you. Next question is from the line of Shiddharth from YES Securities. Please go ahead.
Yeah. Hi, sir. Good afternoon. Sir, I just want to understand one thing. We have a long list of subsidiaries. I think if I have missed this question, if somebody's asked this earlier. Sir, do we ever intend to merge it into Entero, or we plan to continue running it in a subsidiary only? And why so? Because, do you think it's operationally better that way, or what is the rationale behind this?
In ideal world, you would want one company to operate across India, right? Because of our acquisitive nature of business, whereby we have bought stakes in multiple companies. So, those companies have very strong regional goodwill and regional local name, which we want to preserve at least in the first few years. So we are not likely to merge them in the immediate future. But yeah, in the longer term, we will definitely look at it.
Got it. So after a couple of years, because operationally, I assume it's a hassle to manage so many subsidiaries, because every year we have, let's say we did 10 acquisitions, coming year also, we'll probably do similar numbers.
Yeah. There's a little bit of higher compliance cost and all because of the structure.
Correct.
But they are integrated on our technology base, so operationally, it's much easier to manage.
Understood, sir. That's it from my side. I just wanted to have a clarity on this, sir. Thank you, sir.
Thank you. Next question is from the line of Krupa Desai from Electrum Capital. Please go ahead.
Hi, sir. Sir, my question was in the medium term, where could the EBITDA margin go? Can you give us ballpark guidance on that three to five years in?
I've given for next year, right?
Yeah. Sir, I just wanted to understand in the medium term, where can this number go? Once the scale comes in, like we are growing at 30% in the next year, and then going ahead, we can do double-digit growth. So where could the EBITDA margin go once the scale comes in?
When you say medium term, what is the time frame that you are looking at?
Three to five years, sir.
For example, I have said that next year is 4%+ .
Yes.
Earlier I had told about we should be targeting close to 5%. The year beyond, we should reach towards that or move towards that.
Okay, sir.
Thank you. We take the next question from the line of Govindarajan Chellappa from CSIM. Please go ahead.
Yeah. Yeah, hi. Just a housekeeping question. For your FY 2026, what is the full year impact of the acquisition that you did last year?
Full year impact would be what? Around INR 1,000 crores, right? Somewhere around that.
Yeah.
Sorry. You have done acquisition about INR 780 crores last year, right? In FY 2025.
Yes.
Part of it already came in FY 2025.
Right.
My question is, in FY 2026, how much was recorded in FY 2025? The remainder, of course, will be the delta for FY 2026.
The delta would be around INR 500 crores.
Okay. So, so far you have recorded about INR 250 crores for in FY 2025.
Govindarajan , INR 250 crores was for Q4 .
Yes.
Overall, we have recorded around INR 500 crores.
Okay. The delta is about INR 250 crores for next year.
No. These businesses are also growing, right?
Sure. Of course. Secondly, what is the IPM growth and organic growth assumption that you have in this 30% guidance that you have given?
8% IPM growth, 15%-16% organic growth.
Okay. Lastly, in the long term, where do you think the working capital settles?
I think long term, very long, but near term, 60 days.
60?
Yeah. I mean, next two, three years, we should target at 60 days.
Okay. The delta, the improvement, will it come from receivables or will it come from the inventory in warehouses?
Both. It will be a combination of both.
Okay. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to one per participant. Next question is from the line of Mayank Agarwal from Scientific Investing. Please go ahead.
Yeah. Good afternoon, sir. Thank you for the opportunity. I have one question on the working capital. Right now we have a 70-day cash conversion cycle, and if we estimate, you would need around 20% of sales as working capital. Assuming the current margin levels, it appears you can support around 15% annual growth, organic, without the need of the external funding. However, you have stated the ambition to grow around 25%-30% CAGR for the next few years. How do you see the debt and equity playing a role in this funding, this growth? Would you agree with this assessment, and how are you planning for the capital structure accordingly going forward?
That is what I said in the previous guidance, that once we move to 4% + margin structure and 60 days of working capital, the internal fund approval will be more than enough to support organic growth. Only for inorganic, we will use external capital, which we have already raised through IPO.
Okay. If I can, one more.
Mr. Agarwal, I am so sorry to interrupt. May I request that you rejoin the queue for follow-up questions? There are several other participants waiting.
Okay.
Thank you. We take the next question from the line of Vansh Solanki from RSPN Ventures. Please go ahead.
Hello. Hi, Prabhat. I just want to understand that last year we were talking about that we are doing the acquisitions which have EBITDA margin to 6%-8%, right? So in long-term future of Entero, can we assume that our margin also will go to 7% in long-term future, or just because of corporate overheads, we will stick around 5.5% or 6% around?
No, I will stick only to guidance for next year. Longer term guidance, maybe FY 2027 guidance maybe I give sometime during the year, by end of the year.
Okay. Just one more. I have gone through the Sai RK which you have acquired, which is acquisition value is around INR 70,000, but annualized revenue for financial 2025 is more than INR 100 crores. What kind of arrangement is that? Because you have given that it is a proprietary firm and you acquired that.
No, the model that we operate with, we create an SPV in which the business is slump sale into. The value that we have given is only the value of acquisition of shares. But we will pay separately for the value of the business that is slump sale. That value is not included in the value that we give, because it is not directly paid to the seller.
Okay. So I have
Mr. Solanki, may I request that you rejoin the queue for follow-up questions?
You-
Sir, I am so sorry to interrupt.
What I am saying is you can please connect with our CFO offline on this. He will be able to explain you better the structure that we follow. And consistently we have been following this structure since beginning.
Okay. Sure.
Thank you. Next question is from the line of Ajeesh from Investor Things. Please go ahead.
Hi, am I audible?
Yes.
My question is that, do you have any long-term target of ROE? I mean
On ROE?
five, six years, what will be our ROE?
Once we are able to reach those margins that we spoke about and that working capital target, we should be 15%-20% ROE.
Okay, thank you.
Thank you. Next question is from the line of Swayam Rana Bhat from PinPoint X Capital. Please go ahead.
Yes, sir. Sorry, sir, I joined a bit late, so pardon me if my question has already been addressed. I have only one question. Could you elaborate on the direct benefits pharmacist and retailers experience as a result of Entero acquiring the regional distributors? Specifically, how do these acquisitions improve aspects like fill rates, credit periods, and what other industry challenges are we solving for the retailers?
Yeah. The biggest challenge that the retailers are facing is fill rate today, right? Because what has happened is the number of SKUs in pharma is huge because of the branded generic nature of the industry.
Right.
As you know, it's a very fragmented and low entry barrier industry. That's why you have so many regional companies, local companies, national companies operating, right?
A retailer is struggling, typically, to provide all the items of the prescription to the patient. Typically, we see that the fill rate of the retailer is not more than 60%. So if five drugs are written in a prescription, he's only able to offer two or three, right? Because he just can't store and manage so many SKUs. The problem that we are solving for the customers is basically the range. So from one shop, from one of our warehouse, he can get the entire range. Because we are working with 2,500 pharmaceutical companies. So we have a very huge product range available with us, and which helps us to give him one-stop shop. That makes his buying much less complex, his experience much better. And most of the geographies, we are delivering three times or four times during the day.
Our delivery TAT time is also much lower. Combined with a lower delivery timeline and huge product range, the customer is able to improve his own overall sales at his shop and also optimize his inventory at his shop.
Got it. Thank you for answering my question. I will join back with you. Thank you.
Thank you. Next question is from the line of Naman Bagrecha from IIFL Capital Services Limited. Please go ahead.
Thanks for the opportunity. Sir, just one question. Our second half OCF is positive for this year. Last year also our second half OCF was positive. Is it a second half phenomena where OCF is positive, or let us say working capital is lower? Could you help me understand that?
If you take the pharmaceutical industry and try to divide the sales quarterly, typically, the second and third quarter are high sales period. By fourth quarter, generally, the sales taper down because end of the year and low season. That is how it also followed in our case also. Typically, you see the highest level of working capital in September, because that is the peak season where you are operating at. Just monsoon period and post-monsoon is where the season is very high and you have to store inventory and all that, right? Which kind of normalizes by end of the year. Right. So you are right that last year we were operating cash flow positive for second half of the year, but not for the entire year. That is what I guided that next year we are targeting to be OCF positive on a full year basis.
Okay. Sir, if I may ask one more question.
Sir, may I request you to rejoin the queue?
Sure.
Thank you. Participants are requested to limit questions to one per participant and rejoin the queue for follow-up questions, if any. Thank you. We take the next question from the line of Ankur Gulati from Genuity Capital. Please go ahead.
Yeah. Hi. If you can give us some, how the industry has played out in the U.S. and how you see play out in the industry. Any lessons for us to learn from the U.S. consolidation?
U.S. is on the other extreme of consolidation. There are three distributors who have more than 90% market share. India is also moving towards consolidation, but it is not likely to go at that extreme level in near term, at least.
What are the factors which drove U.S. and what are the hindrances in India, just for our understanding?
See, India is much more complex geography compared to U.S. U.S., entire pharmacies are only 65,000. In India, our customer base is more than entire pharmacy population of U.S. So India is 1 million customer segments, 1 million pharmacies in India. Very complex. You cannot supply to Guwahati from Mumbai, right? You will have lot of regional centers and regional warehouses that you will have to make closer to the customers. Number of SKUs in India is so much more than U.S. U.S. is a generic market. This is not a branded generic. India, every molecule has 100 brands. So these complexities add to the challenge of consolidation.
Last question, any aspirational market share?
Sir, Mr. Gulati, I am so sorry to interrupt. May I request that you please rejoin the queue for follow-up questions?
Okay.
Thank you. We take the next question from the line of Naman Bagrecha from IIFL Capital Services Limited. Please go ahead.
Thanks for the follow-up. Sir, just one thing on the revenue growth. We have guided for 30% growth in FY 2026. It is equally divided between organic growth and the impact of last year acquisitions and the new acquisitions. If we do just a simple math of 15% kind of growth on FY 2025 number, which is closer to INR 764 crores. What we have announced, the acquisitions, if I look, the revenue would be closer to INR 300 crores, given that the consolidation will happen post August 15. Right. Is the guidance a bit lower because then INR 300 crore or INR 320 crore or INR 350 crore kind of number is the balance number, which is your revenue from last year's, let us say, acquisitions. Is the guidance a bit lower or the organic growth might be slower than our expectations? It would be helpful if you can.
You are working out the maths very well, Naman. What we want to give is a more conservative guidance that we are 100% sure of delivering. Nothing stops us from delivering more than our guidance, right?
Sure. All right. Sir, just one request, if you can give us-
Mr. Bagrecha, please, I am so sorry to interrupt. I request you to rejoin the queue for follow-up questions.
Sure.
Thank you. Next question is from the line of Binoy from Sunidhi Securities & Finance Limited. Please go ahead.
Yes, thank you for the opportunity to ask follow-on questions. Prabhat, one strategic question on the industry. The Indian government is mulling OTC healthcare policy, and it has been mulling this policy since quite some time. Of late, it was again in the news that the government might allow distribution of, or let's say, actually retailing of OTC medicines through general trade stores as well, which is the Kirana stores, et cetera. Just your thoughts on this. Where are we in terms of OTC healthcare policy? And if it gets implemented, how does that impact our business?
As of now, our customer base does not include Kirana stores. It does not include Kirana stores. So we are focusing only on the retail pharmacies and hospitals. If part of the sales of OTC moves away from retail pharmacy to Kirana stores, either we will have to prepare a plan to reach out to Kirana stores, or the industry size will become smaller for us, or addressable market will become a little smaller for us.
But wouldn't you be, as a distributor-
Mr. Binoy, may I request you to please end the queue?
Let him continue, please.
Okay.
Yeah, go ahead. Sorry.
As a distributor, since you are one leg before the retailer in the chain, just as you are distributing to the chemist, wouldn't you essentially be distributing to Kirana stores as well? Because you are a distributor for the company, right?
It's a choice that we will have to exercise, whether we want to just go for very few products to Kirana store or we don't have to. Because we'll have to work out the economics of doing that. Because your average order values will not be that high. Right.
Understood. Okay, thank you so much. Thank you for the thoughts.
Thank you. Next question is from the line of Harshi Shah from Beas Capital. Please go ahead.
Hi. Two quick questions. What is the timeline to complete remaining acquisitions? Second, all of the newer acquisitions made last year will have a full year revenue. Can we see margin approach of 4% because they are margin accretive, right?
On a full year basis, yes. We are declaring quarterly margins, right? The acquisition that we did in middle of the year, in the last quarter they are included, or Q3 is included, but not in the full year. So full year basis, yes.
Yes. And the timeline to complete the remaining acquisitions?
Harshi Shah, may I request you to rejoin the queue?
No, my suggestion to you will be, let's continue the question so the flow is complete. Otherwise, they will have to come back and then again reiterate the whole thing.
Sure.
Sorry, what are you saying?
The timeline to complete the remaining acquisitions.
I think the timeline that we've given is two months, or two and a half, but we'll try to close it faster than that.
Understand. Thank you.
Thank you. Next question is from the line of Krupa Desai from Electrum Capital. Please go ahead.
Sir, my question was, what is the plan for write-off of intangibles in future or now? Hello, am I audible? Yes.
Yeah, Krupa.
Yeah.
Krupa, so basically what we are doing is we have goodwill, which is tested for impairment at every financial year. Goodwill, since we follow Ind AS, the requirement of the standard is that we do an impairment testing. There is no requirement of amortization of those goodwill. So we do the impairment testing every year.
Okay, sir.
Thank you. Next question is from the line of Naman Bagrecha from IIFL Capital Services Limited. Please go ahead.
Thanks. Just a quick one. Just wanted to know what is the total purchase cost of all the seven transactions, so six new entities. I mean, you could give also the only six new entities. I mean, seventh is available. I mean, we understand that's in way already too.
Sorry, could you hear?
Yeah.
He wants the total cost of transaction. We only give multiples.
The total consideration we do not disclose because of confidentiality reasons from the seller side also.
Okay. I guess the multiple will be at an aggregate level, will be between 0.3x-0.35x of revenue. Is there any deviation?
The guidance that we give is the multiples are between 5x-7x of EV to EBITDA.
Okay.
Within that range.
All right. Thanks.
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. Over to you, sir.
I would like to thank everyone for joining the call. I hope we have been able to address all your queries. For any further queries which has not been answered, please connect with our investor relation team. Thanks again for your time. Have a great day.
Thank you, everyone.
Thank you, sir. On behalf of IIFL Capital Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.