Company Overview
Incorporated in 2018, Entero Healthcare Solutions Ltd was established to create an organized and technology-driven healthcare product distribution platform that serves the entire healthcare ecosystem pan-India. The company facilitates healthcare product manufacturers by providing access to pharmacies, hospitals, and clinics through its integrated and technology-driven distribution platform. Similarly, clients (pharmacies, hospitals, and clinics) gain access to a broad range of healthcare products through the distribution infrastructure and established relationships with healthcare product manufacturers. Over the years, the company has acquired 34 entities in the Indian healthcare products distribution industry. The company’s pan-India approach to acquiring and integrating smaller distributors has increased its geographic reach and has grown its customer base. The company operates 77 distribution warehouses spread across 38 cities in 19 states and union territories, with an aggregate size of 4,64,112 sq. ft. As of September 2023, it serves a customer base of over 73,700 pharmacies and 2,800 hospitals across 501 districts, providing vast access to healthcare product manufacturers. Additionally, the company has established supply relationships with over 1,900 healthcare product manufacturers and access to over 63,900 product SKUs as of 1HFY24.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Repayment/prepayment, in full or part, of certain borrowings availed of by our Company;
- Funding of long-term working capital requirements of the Company and its Subsidiaries during FY25 and FY26;
- Pursuing inorganic growth initiatives through acquisitions: and
- General corporate purposes.
Investment Rationale:
Operates in a fragmented Indian healthcare products distribution market and expects to benefit from market consolidation.
The distribution network of pharmaceutical products in India is highly fragmented, with around 65,000 distributors as of FY23, serving limited local areas only, unlike developed markets where large nationwide distributors occupy a dominant market position. The Indian pharmaceutical distribution market remains fragmented, with traditional local distributors having a market share of around 92% and large/national distributors having a market share of around 8%. Market consolidation in India’s pharmaceutical distribution market is expected to be supported by factors such as the introduction of the GST regime and benefits presented by the consolidation of the segment, such as access to additional capital, better resource management, advantages of scale, establishment of a technology-driven country-wide distribution network, better infrastructure, quick turnaround times and high fill rates. The company will be able to benefit from the market consolidation in India and continue to expand business through future strategic acquisitions of local distributors. The company also believes that a technology-driven, nationwide distribution network, relationships with over 1,900 healthcare product manufacturers that give us access to over 63,900 product SKUs as of H1FY24, and an experienced and professional management team position us well to continue to grow the scale of business in India and take advantage of the shift towards the organized Indian healthcare products distribution market. According to the CRISIL Report, distributors can increase their market reach in a comparatively shorter period by growing inorganically, compared to pharmacy retailers that usually require relatively more time to scale as they need to increase store count.
India’s largest and fastest growing healthcare products distribution platforms to cater to demand
The company has developed a technology-driven, scalable business model focusing on network expansion, execution, and cost efficiency to enable demand fulfilment in the healthcare industry. The company has established a large footprint in the distribution of healthcare products, with relationships with key stakeholders such as manufacturers, pharmacies, hospitals, and clinics. Further, the company’s B2B ordering application is integrated with other third-party customer ordering applications, allowing them to seamlessly add customers to the network by providing customers with visibility of product range and pricing, allowing them to place orders through the Entero Direct application conveniently.
Valuation and Outlook:
Entero Healthcare Solutions’ main focus is to create an organized and technology-driven healthcare product distribution platform that serves the entire healthcare ecosystem pan-India. The company’s pan-India approach to acquiring and integrating smaller distributors has increased its geographic reach and has grown its customer base. The company uses growth strategies such as product portfolio expansion, increased customer reach, improved service levels, and technology-based solutions to boost its market share. The company replicates this approach while expanding into new geographies and continuously attracting collaborations from the distributors. The company also has a record of sustained consolidated revenue from operation, growing at a CAGR of 36.2% during FY21-23. Looking at the industry growth, Entero, which is one of the largest and fastest-growing healthcare product distributors, is expected to grow from 8%-10% in FY23 to 20% -30 % by FY28. Going ahead, the improvement in operational performance is anticipated to be driven by a wide range of products offered, operations aimed at providing high fill rates to customers, technology-driven inventory management and order placing mechanisms for customers, economies of scale advantage, and competitive and transparent pricing. The issue is valued at a P/E of 111.2x on the upper price band based on FY24E earnings, which we feel is fairly valued in comparison to its peer. We, therefore, recommend an SUBSCRIBE rating for the issue.
