Entero Healthcare Solutions - Well-Placed To Consolidate Pharma Distribution: HDFC Securities

HDFC Securities Institutional Equities

We recently interacted with Entero Healthcare Solutions Ltd.'s senior management. The key highlights were:

1. In FY25, the company expects 35-40% revenue growth, with ~15-16% organic growth (outperforming IPM by 1.5x) and the remaining growth coming from acquisitions (targets ~Rs 10 billion annualised sales from in FY25). Over the mid-to-long term, the company aims to outperform IPM by two times.

2. Entero is focused on improving its Ebitda margin by ~1% in FY25 from 2.9% in FY24 (Q1 FY25 margin stood at 2.8%). This improvement will be driven by a better product mix (increasing share from medical devices business), procurement efficiencies, and from operating leverage.

3. The company will continue exploring M&As, having completed 39 acquisitions since its inception in 2018, with five more expected to close by Q3 FY25. The focus is on regional expansion, market consolidation, and adding new product portfolio. Entero applies stringent valuation metrics, targeting a single-digit EV/ Ebitda multiple, with a two–three-year payback period.

4. The company plans to continue its organic expansion, focusing on the North, East, and western regions of India.

5. The company expects to turn operating cash flow positive in FY26 and anticipates RoCE to reach mid-double digits in the near term (RoCE was 10.2% in FY24 and 9.2% in Q1 FY25).

6. Entero has reduced its working capital cycle to 67 days in FY24 (though it increased to 71 days in Q1 FY25 due to acquisitions), down from 71 days in FY21.

The company aims to stabilize working capital at around 60 days in the mid-to-long term. Entero expects IPM growth of 9-10% to sustain. The key risks for Entero are the execution of M&As and its organic expansion strategy.

We do not have coverage on Entero. Based on Bloomberg consensus, Entero is trading at 27x/16x/12x EV/E and 45x/24x/18x PE for FY24/25/26/27.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.