Ladies and gentlemen, good day and welcome to Q3 FY 2025 earnings conference call of Entero Healthcare Limited, hosted by Investec Capital Services India Private 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 call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Anshuman Gupta from Investec Capital Services.
Thank you, and over to you, sir.
Thank you very much. Good afternoon, everyone, and a very warm welcome to Entero Healthcare Solutions Limited Q3 FY 2025 earnings call. I am Anshuman Gupta, part of Investec Capital Services. I cover pharma and healthcare. On the call today, we have representing Entero Healthcare Solutions, the management team comprising of Mr. Prabhat Agrawal, Managing Director and CEO, and Mr. C.V. Ram, CFO. I will now hand over the call to the management team to make opening comments, and then we will open the floor for questions. Over to you, sir.
Yeah. Thank you, Anshuman, so much. This is Prabhat. Good evening, everyone, and thank you for joining our earnings conference call to discuss the operational and financial performance for quarter three FY 2025. On this call, I am joined by Ram, our Group CFO, and SGA, our Investor Relation Advisor. 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 key operational highlights, after which Ram will take you through the highlights of our quarter three FY 2025 financial performance. We are pleased to report yet another quarter of strong growth and consistent execution at Entero Healthcare.
In quarter three FY 2025, our consolidated revenue reached INR 1,359 crore, reflecting a robust 37% year-on-year growth from INR 993 crore in the last year same quarter. Our organic growth stood at 17%, significantly outperforming the Indian pharmaceutical market growth rate of 7% during the same period. Our gross profit for the quarter stood at INR 133 crore, a 48% year-on-year increase, with gross margin improving from 9.1% in quarter three FY 2024 to 9.8% this quarter. The EBITDA 75% year-on-year to INR 50 crore, with EBITDA margin improving from 2.9% in quarter three FY 2024 to 3.7% in this quarter. The improvement in profitability underscores our focus on enhancing the product categories, adding more value-added services, and driving procurement efficiencies.
Further, with the revenue growth and use of technology, the operating cost leverage is also helping in expansion of EBITDA margins. Till date in FY 2025, we have completed 10 acquisitions, which have collectively contributed INR 792 crore in annualized revenue. These acquisitions have expanded our presence into new geographies and product categories such as diagnostic consumables, medical devices, and specialty pharma. Entero has strategically established itself as a leading player in India's highly fragmented healthcare distribution ecosystem. With the Indian healthcare distribution market valued at $33 billion, we see significant potential for consolidation that could fundamentally reshape the sector. To capitalize on this transformative opportunity, we have adopted a well-calibrated approach that combines both organic and inorganic strategies. For organic growth, our focus is on expanding our geographical footprint, deepening our market penetration, and increasing wallet share with existing retail pharmacies.
We aim to grow our organic business at 1.5x- 2x of Indian pharmaceutical market growth rate by adding new customers and expanding our product portfolio. For inorganic growth, we have a disciplined acquisition strategy targeting businesses that enhance our geographical reach or expand our product and service offerings. We have built a robust acquisition pipeline where many of them are in advanced stages and nearing closure. Leveraging our expansive and continuous growing pan-India network comprising 104 warehouses, relationships with over 3,200 hospitals, and reach to more than 86,200 retailers nationwide, we remain steadfast in delivering significant value to healthcare brands. Our SKU portfolio has expanded to over 76,600, ensuring that we are well-positioned to cater to the diverse and evolving needs of our customers.
Currently, we are actively deepening our market presence in tier two and tier three cities, unlocking untapped growth opportunities and enhancing our wallet share in these underserved regions. We remain extremely excited about the potential and the opportunities that the Entero all-India distribution network infrastructure and capabilities can bring to enhance the healthcare access and supply chain efficiency in the country. Our strategic priorities are well-articulated and serve as a clear roadmap for our future initiatives. Number one, expanding market reach and portfolio. We remain committed to deepening our geographical footprint, broadening our customer base, and enhancing our product portfolio through collaboration with healthcare brands. Number two, diversifying product offerings. We continue to introduce new product categories such as specialty pharmaceuticals, medical devices, in vitro diagnostics, and surgical consumables to redefine our position as a one-stop procurement partner for our customers. Number three, enhancing service capabilities.
We aim to continuously expand our value-added services, including marketing and promotional support for healthcare brands, along with innovative solutions like HealthEdge, to deliver a differentiated and integrated service experience. These strategic initiatives collectively position us to achieve market-leading organic growth and establish Entero as a partner of choice for both healthcare brands and our customers, including pharmacies and hospitals. We remain dedicated to expanding our operating margins by leveraging key drivers such as adding margin-enhancing product categories, more value-added services, and enhanced procurement efficiencies, and the benefits of operating leverage. Our focus is on delivering consistent quarter-on-quarter improvements in these metrics to strengthen profitability and operational resilience. Further, through operational excellence initiatives and use of technology, we will continue to work on improving our working capital cycles and operating cash flow.
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 ask Ram to summarize the company's financial performance for quarter three and nine months FY 2025.
Thank you, Prabhat, and good evening, everyone. Summarizing below Q3 FY 2025 consolidated financial highlights. Revenue for Q3 FY 2025 is at INR 1,359 crore, registering a growth of 37% compared to the same period last year. 17% of this growth is organic and 20% is from acquisitions. As mentioned by Prabhat, we have completed 10 acquisitions so far in FY 2025, and we have recorded INR 197 crore revenue during the quarter from these new acquisitions. We recorded gross profit margin of 9.8% in Q3 FY 2025, versus 9.1% in Q3 FY 2024, an improvement of 73 basis points. The improvement in gross margin is a result of our continuous effort to scale high-margin product categories, value-added services, and initiatives taken by us for procurement efficiencies. EBITDA for the quarter is at INR 50 crore with a growth of 75% on year-on-year basis.
EBITDA margin in Q3 FY 2025 is 3.7% compared to 2.9% in the same quarter last year. Recording an improvement of 80 basis points, primarily coming from the gross margin improvement and operating leverage. We continue to make significant investments in talent, process improvements, and technology to support the integration and expansion of our recent acquisitions. Profit after tax for the quarter is at INR 29 crore, increasing by more than 4x compared to last year's same period. This growth is on account of higher EBITDA and optimized net finance costs. Now coming to nine months FY 2025 consolidated financial highlights. Revenue for nine months FY 2025 is at INR 3,957 crore with a growth of 30% year-on-year basis. Gross profit margin stood at 9.5% compared to 9% during previous year's same period. EBITDA for nine months FY 2025 is at INR 123 crore, an increase of 48% year-on-year basis.
Operating margins for nine months FY 2025 are 3.3%, which is an improvement of 39 basis points compared to previous year. Profit after tax for nine months FY 2025 is at INR 76 crore, up by 4x from INR 19 crore recorded in the same period last year. On the working capital front, in Q3 FY 2025, our net working capital days stood at 69 days, including acquisitions. We will continue to focus on efficient working capital management, and this will remain a core pillar of our financial strategy going forward. During Q3 FY 2025, we have witnessed an improvement in return profile of the company with an annualized RoCE stood at 12.3% and ROE stood at 9%. This improvement is primarily coming from the margin improvement during the quarter. With this, I would like to conclude the presentation and open the floor for questions and answers.
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 the touch-tone 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 will wait for a moment while the question queue assembles. The first question is from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Yeah. Hi, thanks for the opportunity, and good afternoon. Healthcare, to my mind, now as well as in future, is all about ATA. A-T-A, that is Accessibility, Technology, and Affordability. So in that context, slide 29, what characteristics of the platform are unique to Entero, and how do these proprietary features provide a competitive advantage?
Yeah, very good question. I personally believe technology can play a big role in driving efficiencies in healthcare supply chain. Okay. Just to give an example, there are many items in technology which helps in improving things, right? But I will just give you a very simple example of ordering. Now, most of the ordering is happening on app-based ordering is happening, or web-based ordering is happening, right? Few years back, all the orders were manually collected by our salespeople or through telephone calls, which was a very inefficient process. Because when you order to a salesman, he will not be able to remember all the SKUs. He will not even know which SKUs are in stock. Then he will transfer those orders to our billing guy in warehouse. Then the billing guy will punch in the orders. Accordingly, the products will get invoiced and all that.
Today, the customer, at his own convenience, can order, looking at our inventory in our app and place an order, and he can get invoiced immediately. He will also know which products are in stock, what are the schemes running on those products. All these things are —information available transparently to him, through text. Even the ordering process has been so simplified for him that order-to-dispatch time reduces significantly because the moment he places an order, the order is already captured in the system, right? This helps him to reduce his stock levels at his own retail pharmacy, reduces expiry. A lot of information and data that we provide to the healthcare brands can help them to optimize their own inventory, reduce their expiry rates. Wastages and all can be reduced significantly.
Some of these technologies we have built in-house, and we are using it to drive our business performance and also helping the customers to improve their customer experience. This is just one example. There are many such examples where the use of technology is helping in driving efficiency in the healthcare supply chain.
Thank you. We now invite our next question, which is from the line of Devanand Mohan from Avendus Spark. Please go ahead.
Hello. Good evening, and thank you for the opportunity, sir. I just have a couple of questions. First one is, can you give me a breakup of the other segments, sir, like when I am talking about the sales and marketing as well as the private label business? It was in the single digits. Just want to know where it is now.
Sorry, can you please repeat? I lost you in the last part of your question.
Yes, sir. I just want to know the breakup of other segments, particularly the sales and marketing segment as well as the private label segment, where it is currently in terms of revenue mix.
We haven't disclosed the breakup between sales and marketing and other services, because most of the segments are integrated in nature, where we are taking contracts with the companies. We are taking both marketing as well as distribution rights. Okay. But one of the margin lever is also when you engage more deeply with the companies and do more value-added services to them, which includes marketing, promotion and all that helps us to grow your gross margin profile. And that's also one of the reason you will see that our gross margin profiles have gone up in last few years and last few quarters.
Yes, I could see that. I don't need a breakup of those two, but probably those two put together would probably increase the revenue mix, right, sir? Maybe the low double digits now.
Yeah. See, distribution is the majority of our business.
Yeah.
The marketing services is a small part of the business, but has a good impact on the margins.
Okay, sir. Thank you. The next one would be, what would be the EBITDA margins of the units of the acquisitions that have been scaled up, sir? The scaled-up acquisitions.
Sorry, what are the EBITDA margins for the recent acquisitions, you are asking?
No, the acquisitions that you have already scaled up.
Every business is continuously scaling up. The businesses, there are certain geographies where we are enjoying 20% market share also. And there could be geographies where we are enjoying 5% market share, right? But even the 20% market share geography, we can still scale up because we still see a lot of opportunity in scaling up, even in those micro markets. As we continue to grow, when you continue to grow and occupy a dominant market share, it helps you in many ways. It helps you in implementing your credit policy. It helps you in getting to a better working capital cycle. You can optimize inventory. You can collect the money more in time with the retailers. Your operating cost as a percentage of revenue goes down. There are many advantages of scaling up, right?
We have not given the breakup, or we have not classified any of our entities as scaled up and something which has not scaled up.
No, sir, but scaled up in the sense that I meant integrated. Like integrated fully into the business.
All our entities are fully integrated in our business. Once we do the acquisition, next three months we spend on integrating them to our policy, procedure, systems, ERP, tech, buying pattern. Everything gets integrated in next three months from the acquisition date.
Okay. Thank you.
Thank you. The next question is from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Yeah, hi. I lost my connection, so apologies. But yeah, thanks for the follow-up. I just, on that technology things, slide 29, how scalable is this technology? Can we use this technology to support 10x as many hospitals, 10x as many manufacturers as we are doing today? As I add on, what parts of this platform are getting prioritized for future investment and development? What I am trying to understand is this could potentially be a very high RoCE kind of a standalone revenue stream. How scalable is this, basically?
See, we are not selling technology as a separate revenue line. The technology is basically integrated with our business operations to drive a better customer experience or to drive more efficiencies at our warehouses and our delivery. As of now, we are not monetizing technology as a separate business line for us. Now, coming back to your question on how scalable it is, the platform is an open platform. Today, 86,000 retailers are using it. Even tomorrow, 150,000 retailers can use it because it's the same technology. We have already done all the development work, tested in the market. Customers are enjoying a similar service on that. What we need to do is to just maintain it. There could be lot of small value adds that we can build around it.
Like for example, we are working on a system where we are creating a wallet for the retailers. Any additional offers and all, we can put them in their wallet. They can use that wallet to buy our private label. Those add-ons, we continue to innovate and build.
No, that's helpful. One bookkeeping question for Ram. On the operating cash flow, both organic and inorganic flavor, so adjusting for or excluding inorganic was operating cash flow positive. What is the outlook for the operating cash flow?
Currently, from the operating internal accruals to what we are spending for the working capital, operating cash flow is negative currently, and we are improving quarter on quarter, and then we expect this to be positive by next year.
We are very, very confident that next year our operating cash flow will surely be positive.
Even including the ongoing inorganic?
No, inorganic—
Yeah. So, excluding investment.
Exactly.
When we say operating cash flow, operating cash flow means internal accruals to fund your own growth, and taxes and all that paid from that, right? For investments, we raised this IPO funds, which we are using to purchase more assets in the country. But operating cash flow is for organic business.
Yes. No, understood. Got the response. Thank you. That is all from my side. Thank you so much.
Thank you. The next question is from the line of Chintan Sheth from Girik Capital. Please go ahead.
Thank you for the opportunity and great set of numbers. On the couple of questions on the acquisition part, the pipeline you mentioned has been pretty strong in your opening remarks. If you can give a little bit more color on how one should look at, because that piece will be a significant part of our overall growth strategy going forward, right? If you can provide some color, what are the areas, which are the geographies we are currently looking at? And some guidance in terms of whether the similar run rate likely to continue for upcoming period or not. That will be the first question, and I will follow up with another question.
If you look at the guidance that we had given at beginning of this year was that we should be able to do INR 1,000 crore of inorganic acquisition during the year. Out of that INR 1,000 crore, we have already done INR 800 crore, close to INR 800 crore. Right? Balance INR 200 crore and more, we are targeting that we should be able to do in this fourth quarter.
Correct. Okay.
We have enough funds left, we have enough opportunity left with us to pursue a similar kind of numbers going forward in the next year as well.
Got it. Thanks for that. Secondly, if I look at the margin improvement and all, if you can quantify a little bit in terms of how much it has come from product mix, how much has come from procurement efficiency, that gives us a direction to, and what lever is still available for us to further improve our margins through procurement efficiency because of the scale which we will be able to achieve by this acquisition.
If you look at this quarter, our gross margins have expanded by around 70 basis points.
Right.
The breakup of these 70 basis points into various levers is difficult to give on this call. What I can say to you is that this is not exhausted. There are still a lot of opportunities left in further expanding our gross margins because the levers that are being applied to expand the gross margins, things like more value-added services, scale-based procurement efficiency, that has not played out completely. I would say it is still a small part that we have been able to leverage on right now. So, still a lot more to go in future as well.
Lastly, on the inorganic side, do you see the market a little tightening or the ask has been increasing, which might slow us down in terms of our comfort to acquire distributors going forward, or we are comfortable, even the current scenario is comfortable enough to target such kind of the number you guided that we will be able to achieve?
Market is very conducive. There are a lot many sellers. The buyers are very few. There are only two or three organized players out of which we are the most active one.
Right.
The equation is very unbalanced. There are a lot many sellers than buyers.
Got it. I will join back into you. Thanks, sir. I think that answers my question.
Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of [Bhargav from Ambit Asset Management. Please go ahead.
Yeah. Good afternoon team, and thank you for the opportunity, and congrats for the good set of numbers. Is it fair to say that once we become a positive operating cash flow post-net working capital company, our pace of acquisition can actually be a leg up?
Sorry, last part. Pace of acquisition could be a?
Could be a increasing momentum.
You said bigger. No. I think, the pace of acquisition is dependent more so on the right set of targets that we need to close. It is not that we are not closing anything because of lack of funds or anything like that. We haven't closed anything in the last quarter specifically because we couldn't close the transactions that we want to close. They need to have a right fitment into our business model. Either they are adding a new geography or adding a new product segment that we don't operate in. To answer your question, ability to have more cash to invest doesn't necessarily bring you more acquisition opportunities.
Of the acquisitions that you would have done in the last two years, how many of those entrepreneurs would have continued to stay with us post the acquisition?
Most of them.
Okay.
Majority of them.
And that still continues, right? Most of them still continue to be with us.
Yes.
Because if I remember correctly, earlier we used to give a sort of an equity for them. But now, post we getting listed, what is the incentive for them to stay back?
Some of the acquisition that we have done recently, we haven't done 100% acquisition, right? So, it's 70%-80% stake that we have taken, and we have a call option to buy the rest. And they are continuing with us and if you meet some of these promoters, this is what they know doing. This is what they do. This is the business that they understand. So most of the people have joined hands with us to grow with us, not to monetize their assets. Monetize is part of their holdings we are monetizing anyway, but they see a bigger value in growing with us.
And lastly, sir, on the hospital side, are we also contemplating that we manage the entire procurement of hospitals? Is that also a business we want to pursue aggressively?
Yeah. That's an idea that we continuously debate on, and we also get offers to do that. As of now, we have not taken up any contract where we are 100% responsible for entire hospital procurement. But this is something that looks very interesting to us. Maybe in times to come, we would pursue and close some of those opportunities.
In that event, is it fair to say that our share of private label, especially in consumables or surgical items, we can also push that?
Yes. If you have a complete control on the procurement of any entity, any hospital or pharmacy or anyone, you would have a much better chance of pushing your private label because then you are deciding which brands will come in.
Globally, is it popular, this model, or not that popular?
Sorry?
Globally, is this popular?
Globally, it has been done in many countries. They have a group purchasing office. Basically, it is like a GPO concept where they outsource the procurement to some larger entity who consolidates the requirement of many small entities and aggregate the requirement and tries to get a better pricing and deal from the manufacturers.
On this quick commerce, there have been talks that they will also start selling OTC. Are we in discussion with these quick commerce platforms?
See, we still have to see how does the quick commerce perform in the pharma segment. I tell you, the pharma as a category has three complexities which other categories don't have. Okay. Number one is the SKU complexity. If you want to give a full service to all pharmaceutical products to a customer, which typically a prescription would have three, four, five drugs written in it, then you will have to maintain a huge SKU list. It might be difficult for you to give 100% fill rate from your dark store. That is number one. Number two is how would you address the prescription requirement in those 10 minutes or 15 minutes of time that you have, right? Third, there are issues around managing the trade associations and pharmaceutical, AIOCD and others, right?
These are the three complexities that any quick commerce company would have to encounter before they try to scale up pharma as a category on their platform.
Great, sir. Thank you very much for your answers and all the very best.
Thank you.
Thank you. The next question is from the line of Gautam Gosar from Monarch AIF. Please go ahead.
Hi, sir. Thanks for the opportunity. My question is on net working capital. In Q1, we had around 71 days of net working capital and 69 days for Q2 and Q3. But in your presentation, you mentioned around 75 days working capital for the nine months. I did not understand how much exactly is our net working capital days.
69 days is the working capital days for the quarter three, and 75 days is for the nine months. The way it is worked out is, you have debtors plus inventory minus payable and then divide it by the revenues grossed up with the GST of 12%.
Okay. But for all the quarters, our working capital has been less than 71 days, and for nine months, how is it 75 days?
No, no. Actually, this comes because on the nine months thing, we have announced the acquisitions, and we have closed the acquisitions in the second part of the Q2 and Q3. From the revenue, if you divide, the working capital comes in full, because when we acquire, the working capital is 100% is added to the base, while the revenue is only for three to four months. That is the reason you will see this number slightly higher.
Okay, understood. How much should be our aspiration on net working capital days going forward?
I am sorry to interrupt you, Mr. Gosar, but can you please check your voice? Your voice is sounding muffled, sir.
Okay. Just a second. Hello?
Yes, please.
Am I audible now?
Yes.
Yes, yes.
I was asking what should be our aspiration for the net working capital days coming down?
Definitely, I think there is additional five to six days we can definitely optimize from the current level for next 12 months.
Okay. One more question on the same lines. We are currently operating cash negative. At what margins will we get operating cash positives?
[inaudible]
Yeah. Hello, are you there?
Yeah.
Operating cash flow is a function of two things. One is margin and secondly is optimization in working capital. We believe that even at current margins, we should be operating cash flow positive just by improving our working capital. Okay? The further improvement of margin from there should result into a bigger positive delta on operating cash flow.
Okay. Understood. And sir, lastly, you have recently announced the convertible debt of around INR 600 crore. You have taken an approval for that. Could you highlight, for what reason is it, and what should be the timeline for the same?
This is between the wholly owned subsidiaries and the parent, and this is more internal efficiencies in terms of funding the subsidiaries. And there are intercorporate deposits already there, and it will be cash flow neutral at overall level. So this is internal structuring.
Okay. That is it from my side.
Thank you. The next question is from the line of Alok Dalal from Jefferies India Private Limited. Please go ahead.
Yes. Good afternoon. Prabhat, will you still be able to achieve your FY 2025 revenue growth guidance of 35%-40%?
That will depend on how soon we are able to close some of these acquisitions, impending acquisitions in this quarter.
Because even if I assume that you are able to close, then the implied growth rate will be anywhere between 49%-68%, versus 4Q 2024. Is that achievable?
I mean, the more we take time, the more difficult it becomes.
Okay. One more guidance was about 4% EBITDA margin for the exit quarter, which is 4Q 2025. Will you be on track to achieve that?
We are targeting that, Alok. See, quarter on quarter we have been able to deliver EBITDA margin improvement. We will continue to target improvement in this quarter as well.
All right. Prabhat, you mentioned there is delays in closing acquisitions. I missed the reason for that. Can you please help understand why are the acquisitions getting delayed?
There is no specific reason. Some people were not available and it is just procedural. There is no specific reason that we are not able to find opportunities or anything like that. It is just that those identified opportunities, we have taken a little more time to close it. I mean, the negotiations have taken a little more time to close it.
Got it. Okay. Okay, Prabhat. Thank you for taking my question.
Thank you. The next question is from the line of Romil Jain from Electrum PMS. Please go ahead.
Yeah. Thanks for the opportunity. Am I audible, sir?
Yeah.
Yeah. Just want to understand, on the acquired companies, how much levers will be left in getting to the EBITDA margin targets that we have at a consolidated level? Of course, we are working towards that, but just want to understand where does the subsidiary EBITDA margin stand together?
EBITDA margin improvement is not going to come only from new acquisitions. It has to come from our existing business, which is still the largest part of our business, right? The new acquisitions have just added more scale, added us the capability to bargain more. That is it. It is not that the improvements will only be reflected in the new acquisitions.
Okay. But when we acquire broadly, where are they in terms of margins?
We have given, I think last time we have given what?
6%-8% is our range. Combined.
Okay. And, sir, because we are continuously as a strategy we are acquiring, I think the competitors would also have an understanding of this strategy, right? So in general, has the valuations also started increasing when we are out there to acquire?
How many people are there to acquire? How many people are out there to acquire? There are very few. There is only two, three people are in organized distribution space. Out of which only one or two are changing. I mean, one of the competitors is not even pursuing any acquisition. They are struggling for their own fund management. I do not see any pressure on valuation at all.
Okay. And lastly, in terms of, I just want to understand the wallet share gains, with the existing, the chemist that we have. If you can give some data points, how the wallet share has moved over a period of time.
This data is not specifically available right now on the call. Maybe you can connect with the finance team or investor relations team. They will share with you some data points on the table.
Okay. Thanks a lot.
Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of [Josh] from Dalal & Broacha. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity, and congratulations on a great set of numbers. My question is with regards to the acquired entities. How should we think about the working capital of the acquired entities?
More or less similarly with the rest of our business.
Okay. So at around 70 days.
Just the bookkeeping that is a little bit different, what Ram tried to explain to you, that when you acquire somebody, you acquire the full working capital, and it gets reflected in the balance sheet. But revenues, you only consolidate from the time of acquisition.
Right. So if at all they are similar to us in terms of working capital, then the goodwill should be a lower part. Is my understanding correct?
Goodwill should be? Sorry, we couldn't hear you. Goodwill should be?
On the lower side.
Goodwill depends on two things. Not only working capital but also on their margin profile.
Right.
I can tell you that the multiples are in a similar range.
Okay. You mentioned that 6%-8% should be the gross margin rate of the acquired entity. EBITDA level, what should be the—
Sorry, 6%-8% is EBITDA margin, not gross margin.
6%-8% is the EBITDA margin?
Right.
Okay. So they are better in terms of margins than us?
Yes. We are not pursuing low-margin businesses. We are only pursuing margin-accretive businesses.
Okay. Perfect, sir. Thank you. Thank you, sir.
Thank you—
That is it from my side.
Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of Aman Jain from Arihant Capital. Please go ahead.
Yeah. Thank you, sir, for the opportunity. Sir, just wanted to understand on the organic growth part. One part is that we are expanding on pan-India level through inorganic acquisitions. But on the organic growth part, sir, once we are done with the strategy of inorganic growth, how do we plan to scale our operations on pan-India level other than the value-added services?
We said that the guidance that we have given is that organic growth, we should be able to deliver between 1.5x- 2x of market growth rate. Right? This delta of 0.5x to 1x of market growth rate will come from adding more customers, adding more products. There are many categories that we can expand, which we are not doing. There are many set of customers we can expand. There are many companies that we partner with. Just to give you an example, next year, we are looking at a good growth or good launch of GLP-1 drugs. Right? We partner with them and enjoy the growth.
Okay, so understood. My question was more related that do we have any plans to set up a company by ourselves instead of acquisitions? For example, if we set up a company in Mumbai and for the expansion.
See, we open branches of our existing entities into nearby markets. That's part of our organic growth strategy to add more customers, to be closer to the customers.
Understood. My second question was on the margin front. This is more of a broader question, sir. Currently we are inching towards 10% gross margins and about 3.7%, 3.8% EBITDA margins. What is the optimum level of margins that we can expect in this business?
See, the guidance that I had given at the time of IPO as well as in subsequent investor meetings. We said that near term, by end of this year, we should be targeting 4% EBITDA margin, and by end of next year, we should be targeting 5% EBITDA margin. Then from then we grow from there. But these are the near-term target guidance that we have given.
Okay, sir. Understood. Thank you so much.
Thank you. The next question is from the line of Akul Broachwala from Avendus Investment Managers. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just in terms of your procurement strategy. As and when you continue to gain scale, are we in a position to get some margin benefit or some benefit in terms of working capital from the pharma companies on procurement side?
Yeah, we get benefits on margins based on the scale.
Okay.
We get schemes, offers, quarterly, annual volume-driven targets.
Okay. Is this how we plan to manage our working capital as well by elongating our payable dates for them?
Not so much on the payable dates. We haven't seen a huge improvement on the payable dates. But then, the more you scale up your business, the more dominant you become in the market. You can optimize inventory better, you can manage your receivables better because the shop is more dependent on you, so he's more likely to accept whatever terms you offer to him. So there are many ways the scale helps us in optimizing your working capital, not only from the payables to suppliers.
Understood. Second question is on your acquisition strategy. Are we kind of focusing more on distributors who are in tier 1 or metro cities or more probably towards Tier two, three kind of setup?
We see that we are a very small player in metro city. There are very few large metro cities left for us where we are not a significant player. Plus tier two and tier three cities where we have opportunities which is underserved, we are not able to reach from one of our existing entities or from one of our existing warehouses properly.
Understood.
That's what we are targeting, even tier two, tier three cities.
Understood. Thank you. That is it from my side.
Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of Chintan Sheth from Girik Capital. Please go ahead.
Thank you for the follow-up. One question I had was on the acquired entities for this year so far, how much we have spent in terms of CapEx? If you can bifurcate what will be the proportion of goodwill in it and what will be the working capital which we have consumed.
Yeah. Close to INR 300 crore is what we have spent so far on the acquisitions. One second. Incremental goodwill, I will just give you. [inaudible] ?
Yes.
Total INR 430 crore is the total goodwill, and then incremental will be about close to—
INR 200 crore.
INR 200 crore.
INR 200 crore is goodwill incremental. Okay. In terms of other income run rate, which we have seen from Q1 to Q2 and Q2 to Q3, there is a slight deceleration. How should one look at other income going forward as we consume our capital? I believe that is the reason why our other income, interest income has been tapering off, right?
That is correct. Broadly that is correct. I think we are deploying. We deployed from Q2, Q3 onwards, so that is when the interest income has come down.
Understood.
Overall finance costs, we have net positive finance costs this year compared to last year. We have about INR 7 crore net positive income from the finance.
Got it. I think that is all from me. Thank you.
Thank you. The next question is from the line of Unnati Bhavekar from Share India. Please go ahead.
Good afternoon. Thanks for the opportunity. Just a couple of questions. What could be your Pan India market share individually? You had mentioned it before that for the top three players together it is around 8% of the market. Has that particular market share increased in this quarter? If you can share it.
Yeah. If you look at pharma market as somewhere onwards of INR 2 lakh crore, we will be around 2%-2.5%.
Mm-hmm. Incrementally, has there been any change or has it been constant around 2%-2.5%?
How can it be constant when we are growing our growth rate much higher than industry growth rate? Definitely, the market share is growing.
Okay. So comparative number, would you be able to share year-on-year basis?
Sorry, what? Which number?
Like Q3 2024, what could have been your market share then individually?
You have our revenues for Q3. You have the IPM market. You can calculate what is our market share.
Okay.
You can see what is our market share now.
Okay, sure. The private label share of the revenue was mentioned last time at around 1% of the revenue. Has it been around the same percentage or has it increased in this quarter?
No, much significant change.
Okay. You expect it to be around the same number going forward over a short to medium term?
We are targeting to grow this for sure. To make meaningful change, because our revenues from other than private label is also growing so significantly. Even to just maintain the same share, our revenue growth for this year is 37%. Just to maintain the same share, the private label has to grow 37%, right? Which is not an easy task.
Okay. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor over to the management for closing comments.
I would like to thank everybody for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with our investor relations advisors at SGA. Thank you once again, and have a great day.
Thank you.
Thank you, sir. On behalf of Investec Capital Services India Private Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines. Thank you.