Entero Healthcare Solutions Ltd. - Management Meet Note

Home » Financial News Hotbox » Results » Entero Healthcare Solutions Ltd. – Management Meet Note

See the views of our research team on management meet Note of Entero Healthcare Solutions Ltd

The super distributor a re-rating candidate on higher capex and acquisition

We at StoxBox met with Entero Healthcare Solutions Ltd.’s management to understand the healthcare distribution sector and its growth potential. India’s healthcare industry is undergoing a major transformation, driven by government initiatives, technological advancements, and growing demand for quality, accessible care. The pharmaceutical distribution market is consolidating, creating opportunities for organized players like Entero to gain market share. Currently, the market is fragmented, with 65,000 distributors, while the top three, including Keimed, Ascent, and Entero, hold just 8-10%. Entero stands out as one of India’s largest and fastest-growing platforms, offering nationwide reach, efficient service, a diverse product portfolio, advanced technology, and a proven track record in acquisitions.

Following are the key takeaways from that interaction

Differentiated business model offers a one-stop solution provider

Entero Healthcare leverages its nationwide distribution network, advanced technology, and strong relationships with pharmacies and hospitals to help brands expand efficiently in India. The company offers a one-stop solution for healthcare products, including medicines, medical devices, vaccines, and surgical consumables.

With a hub-and-spoke model, Entero ensures competitive pricing, high availability, and reliable delivery. By introducing private-label products like nebulizers, thermometers, and adult diapers, Entero expands its portfolio, improves gross margins, and offers retailers a wider selection and better profitability. This approach simplifies procurement for pharmacies, hospitals, and clinics.

Focus on acquisitions to accelerate growth

Entero Healthcare has completed 39 acquisitions and plans to finalize five more by Q3FY25. The company focuses on mergers and acquisitions to expand regionally, strengthen its presence in existing markets, and diversify its product range, especially in medical devices.

When selecting acquisition targets, Entero evaluates factors like market size, customer base, supplier ties, product portfolio, financial performance, and growth potential. Acquisitions are made at reasonable valuations of 5-7x EV/EBITDA, and acquired companies have shown strong post-acquisition growth. Entero remains committed to leveraging M&A opportunities to enhance its reach and product offerings.

Industry wise consolidation on cards to drive business performance

India’s pharmaceutical distribution market, with over 65,000 players, is fragmented, leading to inefficiencies and high costs. With GST implementation and the rise of organized players, Entero Healthcare is well-positioned to benefit from industry consolidation.

Entero leverages its large-scale operations, advanced technology, and ability to integrate smaller distributors to provide a wide product range, high fill rates, and reliable service. The company’s access to capital and scale gives it an edge over local distributors. Having completed 40+ acquisitions, Entero’s aggressive growth strategy highlights its expertise in identifying and integrating valuable businesses effectively. Backed by technology and strong execution, Entero is poised to lead in the evolving pharmaceutical distribution market.

Healthy financial performance to aid positive OCF and improved return ratios

Entero Healthcare continues to outperform industry growth, driven by new customers and increased wallet share, supported by a strong acquisition pipeline. With a solid balance sheet, it stands out as a dedicated healthcare distributor. The company has reduced its working capital cycle to 67 days in FY24, aiming for 60 days in the mid-to-long term, with an ideal target of six cycles per year.

On the financial side, Entero plans to improve its EBITDA margin from 2.9% in FY24 to 5% by FY26 through a better product mix, procurement efficiencies, and operational leverage. It expects to turn operating cash flow positive by FY26 and improve ROCE from 10.2% in FY24 to mid-double digits. With industry consolidation and robust growth strategies, Entero is poised for strong financial performance ahead.

Valuation & Outlook

Entero Healthcare Solutions connects healthcare product manufacturers with pharmacies, hospitals, and clinics through its tech-driven distribution platform. It also provides clients access to a wide range of healthcare products. Since its inception, Entero has rapidly grown into a key player in India’s healthcare distribution market, thanks to its focus on acquisitions, advanced technology, and efficient operations.

Financially, the company expects revenue, EBITDA, and PAT to grow at 21.3%, 57.4%, and 61.5% CAGR over FY24–26, driven by a strong deal pipeline, a better product mix, increased focus on high-margin medical devices, and operational efficiencies. While aggressive growth has temporarily impacted cash flow, improved margins and robust business growth are expected to turn cash flow positive. Entero is well-positioned for sustained growth and profitability, trading at a PE of 84.8x/59.6x for FY24e/25e EPS estimates.