Entero Healthcare Solutions Limited (ENTERO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '25 Earnings Conference Call of Entero Healthcare Solutions Limited hosted by IIFL Capital Services Limited. [Operator Instructions] 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.

Yes. Thank you. Hi. Good afternoon, everyone, and I welcome you to Entero Healthcare's Fourth Quarter FY '25 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 Mr. 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&A. And over to you.

Yes. Thank you. Good afternoon, everyone, and thank you for joining our earnings conference call to discuss the operational and financial performance for quarter 4 FY '25. My name is Prabhat. And on this call, I'm joined by Prem, Co-Founder and COO of Entero; Bala, who is the group CFO; and SGA, which is our Investor Relations advisers. 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 '25 financial performance. Let me begin by saying that FY '25 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 1 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 health care 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 equipment, surgical consumables and specialty pharma. The unique pan-India distribution platform built from the above attracts many new health care 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 health care distribution platform, which is difficult to replicate. In terms of key financial metrics for the year, FY '25 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 2 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 '26 and beyond, looking ahead, we remain very optimistic about the long-term opportunity in the health care distribution space in India. The addressable market, which includes pharmaceuticals, medical devices and surgical consumables, stands at USD 33.2 billion and is expected to grow at 10%, 11% CAGR over the next 5 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 3 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 1.5 to 2x of IPM growth rate, and we expect this to continue. Secondly, we will pursue discipline in organic growth with a proven M&A playbook and a robust acquisition pipeline, we'll continue to onboard high-quality regional payers that are strategically aligned with our long-term goals. We have already announced 6 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 '25 revenue growth was 20% -- was 30%, sorry, and we expect to deliver similar or better growth rates in FY '26 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 '26 on a 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 '26. To conclude, we remain committed to creating a truly differentiated technology-led and value-accretive platform in health care 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 quarter 4 and FY '25.

Thank you, Prabhat, and good afternoon, everyone. Coming to quarter 4 FY '25 consolidated financial highlights. Revenue for quarter 4 is at INR 1,339 crores, registering a growth of 29% on a 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 '25, and we have recorded INR 225 crores revenue from these new acquisitions in Q4 FY '25. 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 quarter 4 vis-a-vis 9% in quarter 4 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 pharmaceuticals, 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 quarter 4 FY '25 stood at 3.7% vis-a-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 acquisitions, 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 crores, 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 quarter 4 FY '24, and we managed to maintain our working capital cycle at 60 days, a reduction of 3 days from the previous quarter. With this, I would like to conclude the presentation and open the floor for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Chintan Sheth from Girik Capital.

Congrats for the good set of numbers. Am I audible?

Yes, you are audible, Chintan.

Yes. Yes, yes. Okay. So 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 is it which resulted into growth -- 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. And 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.

Okay. Okay. But does that impact like-to-like, how should one look at it? Because if I look at that, if I adjust the growth, that 3% for the overall piece, I believe the growth number -- revenue growth number will look a little better versus what we have reported, right?

So this 11% is after adjusting for that.

Yes, that's what I'm saying. If we include that on a like-to-like basis, the growth would have been 32%, 33% for the quarter.

Yes, yes. Correct. Right.

Okay. And does that impact our margin profitability point of view? Or this is just an adjustment?

Not meaningfully.

Not meaningfully. Then the reported margin for the current quarter, 3.7%. On the like-to-like basis, it would have been lower, right, if you include the 3% revenue adjustment, which we did?

Yes. In some single-digit basis points, yes.

Okay. Okay. Okay. And the guidance of 4% plus 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 a little lower on the exit rate -- run rate basis?

So the guidance we are giving you is that a full year basis, we will be more than 4%, okay? Now quarter-by-quarter, it's difficult to provide a guidance right now. In fact, last year also, I had said that we'll 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 us -- rather it is -- the full year performance is much better predictable as compared to quarterly performance.

Got it. Got it. And lastly, on the Peerless incremental acquisition, which we are doing at INR 44 crores, INR 45-odd crores for 16% stake. If I look at the numbers of what you have reported in the release, the revenue for the current year FY '25 has grown at 10% while the valuation seems to be relatively higher given that last time around, I think we have paid around INR 110-odd crores 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?

Yes, there is some exclusion that Bala will give you because it doesn't -- it's not what it appears.

So basically, when we did this Peerless deal, there was a subsidiary of Peerless, which was actually commercially not part of the deal. So during the year, we have actually kind of sold that subsidiary and whatever proceeds were there from that sale, that had come into the peerless. And 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. Okay. And the cash flow, if I look at first half to full year, we are still negative in the second half, but 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 crores negative versus the full year, it's around INR 77 crores negative. Just trying to connect the...

So when we are saying we are -- 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's what we mentioned that in H2, we've turned cash flow operations positive.

Okay. I'll connect separately on this.

Next question is from the line of Harshi Shah from Beas Capital.

Congratulations on the good results, Prem and Prabhat. Just wanted some more 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, I told you that on second half of this year, which Bala explained, we were OCF positive, right? 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. And you will 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 this -- once the margin trajectory continues to grow and working capital improves through our focused efforts, then next year, we'll definitely be OCF positive on a full year.

Can we see any guidance on the net working capital days which you plan to make next year?

See, our net working capital days on a quarterly basis is close to 66 days in quarter 4. There's definitely 5% improvement that we are planning for next year.

We'll take the next question from the line of is Ishmohit from SOIC Research.

Congrats for a decent set of numbers. Sir, can you just reiterate what was the guidance for FY '25 when it comes to full year margins and the working capital days if they're improving?

Sorry, can you please repeat again?

Sir, I was just saying can you basically say reiterate the guidance that we have for FY '26 when it comes to growth and full year EBITDA margins that we're seeing, not on a quarterly basis, just a broad direction for FY '26?

Yes. So 3 guidance items. One is on the 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% plus 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, right. And sir, just in terms of like the industry environment right now, how are you seeing the IPM industry environment right now because we've seen a lot of domestic pharma companies reporting basically growth slowdown, which is happening. So how are you seeing the industry environment?

Yes, 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 2 quarters was like 7%, right? So historically, industry has grown in double digits earlier and which has come down to single digits for the last year, right? So we are seeing definitely a slowdown in the industry growth rate. And that's the reason why I always give a guidance in terms of our growth rate relative to industry growth rate.

Right, right. And I think we have finalized some 5 acquisitions in -- for I think, which will get executed in FY '26. Are there any more acquisitions in the pipeline?

Yes, there are more acquisitions in the pipeline.

We'll take the next question from the line of Shivkumar Prajapati from AMBIT Investment Advisors.

So sir, my first question...

Sir, I'm sorry to interrupt. Shivkumar sir, could you please move to a quieter area, there's a lot of background noise or you may rejoin the call.

Am I audible now? Is it clear now?

Yes, yes, yes. You are audible.

So my first question is on stand-alone basis, you are not doing that great. So sir, could you please throw some light like why there's such a poor performance on a stand-alone basis? And on the following part, when will we turn EBITDA positive on the standalone for financial statements? And third one is what's the guided tax rate for FY '26?

So we are not looking at stand-alone. Entero is a network of subsidiaries, both holding company and subsidiaries, right? So it is difficult to give stand-alone or subsidiary by subsidiary guidance. So we always give a guidance on a consol basis, which I just gave in the previous question.

Okay, sir. And sir, what would be the tax rate for FY '26?

See, our tax rate -- the corporate tax rate is 25%. So we will make an effort to optimize our tax rate through more tax-efficient strategies. But for the time being, you can take your guidance of 25% corporate tax rate.

Next question is from the line of Romil Jain from Electrum PMS.

Sir, my first question is, I just want to understand the companies which we have acquired. So one, they would be at what margin level at the gross EBITDA, whatever you can give some color on? And where are they included in our organic kind of pool. So 1 year, 2 years down the line, they come in the organic pool. Just some color on that.

Yes. I mean only in the first year of acquisition is 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. And what margins they would be at just like I think between the earlier businesses that you have acquired and the new businesses?

So I can only say that the businesses that we have acquired are margin accretive. So they are at a margin higher than our current margin. So it's going to add to our overall margin profile. We're not acquiring anything which are margin dilutive.

Okay. And 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 2, so your guidance is definitely 1.5 to 2x the growth rate of IPM. So do we still see that the IPM grows at about 8% to 10%, probably we should grow between 15% to 20% when the acquisition slow down.

Yes. 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 0.5 to 1x.

Sorry, how much, sir?

1.5x to 2x of industry growth rate.

Okay. And the margins are broadly on track to reach 4% or maybe higher than that in 2 years' time? What would contribute to that?

I just gave a guidance that in FY '26, we should exceed 4% on a full year basis.

Next question is from the line of Gautam Gosar from Monarch AIF.

My question is basically on the organic business. So basically, you explained that we will grow at 1.5 to 2x of the IPM growth. But my question here is that in the last like Q4 FY '25, you have done 11% organic growth versus earlier in the year during 15%, 16%, 17% growth. You are saying that we'll have a similar rate in FY '26 as well. So can you explain like 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 '26?

Yes. So except for this quarter, if you look at our growth rate for the full financial year for FY '26, our growth rate was 2x of industry growth rate, which is on the higher end of our range that I gave you, right? And we expect that the same will continue. Typically, what happens in fourth quarter, there's a little bit of slowdown from our side also because at the end of the year, most of the accounts and all -- we kind of reconcile with our customers. There is a lot more focus on collections rather than on sales.

Understood. Secondly, sir, on the acquisition part, so we've roughly done around more acquisition of around INR 400 crores. Sir, I would like to know more about the payout which we've done for these acquisitions and understand like we have cash on books of around INR 250-odd crores. So will that cash be enough to fund our future acquisitions? Or do we envisage a further fundraise plan or a the 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. So I don't envisage any immediate fundraise plan in our thinking.

Sir, basically...

Once we start generating positive operating cash flows, that amount will be available for acquisitions without fund raise.

Understood. But sir, this acquisition, which we've done recently, this acquisition, how much payout you've done for the same because this will come in the FY '26 balance sheet, right?

Yes. So normally, we don't give exact payouts for -- even for both seller and buyer perspective. But I can tell you that the multiples are in the same range that we had guided before.

Okay. Okay. I think we can take it offline.

We'll take the next question from the line of Akshat Mehta from Seven Rivers Holdings.

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% to 40%. And we have kind of missed that mark by at least 5% to 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%, right, after adjusting for the quarter 4 change in recognition method. So it's like 4%, we are below in terms of guidance that I gave. And it is primarily because in the delay in timing of acquisition.

Next year, should we see a kind of higher organic growth because the acquisition will ramp up -- part of the acquisition will be shifted a bit to next year. So should we see higher growth from...

Akshat sir, I'm so sorry to interrupt. There seems to be a lot of disturbance from your end.

Sorry, I should be much better now.

Yes. Is there a -- if you're corrected on 2 devices, there's an echo.

No, no, sir. I'm fine now. Sorry, sir, I just wanted to ask if next year, there will be a better organic growth since the ramp-up of the acquisitions will take place majorly in the next year of these 10 acquisitions?

Next year, growth will be a combination of 3 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. So it will be a combination of organic growth on continuing business, full year impact of acquisitions that we did this year, but we'll 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 we want to do this year as well in FY '26?

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.

Last question, sir, I just wanted to understand, we have written in our Board meeting outcome that we have canceled the acquisition of one of the companies, I think, Radha. 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.

We take the next question from the line of Harshal Patil from Mirae Asset Capital Markets.

Sir, just one clarification I wanted to know for FY '25, did you say that 11% of the growth in organic revenues for '24?

Yes, only for quarter 4.

Okay. And sir, what would it be for the full year?

16%.

Okay. And the balance, I guess, would be through the inorganic acquisitions that would have come through?

Right.

Okay. Sir, and one thing, sir, would it be a good thing to kind of assume that probably go ahead that in FY '26 also, we should be doing almost a similar level of acquisitions as we did in FY '25?

What we said next year, I gave you kind of a revenue guidance, 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.

Next question is from the line of Binoy from Sunidhi Securities and Finance Limited.

Okay. So one question on the recent acquisitions that you've made, a few of them have -- 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're absolutely right. The Northern part of the country is a little more competitive than the Southern part. But the acquisition that we have done, it is in specialty pharma. It's not a pure generic retail business, right? So the margins are higher in that segment, and that's 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 are today. It's a range. Some are a 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 acquisitions EBITDA margin range is roughly about 6% to 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 '25. Likewise, how much revenue came from the hospital segment for FY '25?

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?

Yes, for the pharma companies, yes.

Still less than 5%.

Okay. And how much of the revenue would be coming from medical devices and surgical instruments, et cetera?

At level across all our geographies, less than 10%, close to 10%, close to 10%, I would say.

Okay. One last point. I was just looking at the warehousing network. The number of warehouses on a Q-o-Q basis have been kind of 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. So anything to highlight out here?

No, no, no significant highlight here. These marginal small plus and minuses is difficult to explain, but no major or significant thing to talk about.

The next question is from the line of Sidharth from YES Securities.

Sir, I just want to understand one thing. I mean, we have a long list of subsidiaries. I think if I missed this question, if somebody asked this earlier. Sir, do we ever intend to merge this into Entero or we plan to continue running it in like a subsidiary only? And why so. Because I mean, do you think it's operationally better that way? Or just the rationale behind this?

In an ideal world, you would want one company to operate across India, right? But then because of our acquisitive nature of business, whereby we have bought stakes in multiple companies. So -- and 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 yes, in the longer term, we will definitely kind of 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 -- like this year, we did 10 acquisitions. Coming year also, we'll probably be a similar number...

There is a little bit of higher compliance costs and all because of this structure. And they are integrated on our technology base. So operationally, it's much easier to manage.

Next question is from the line of Krupa Desai from Electrum Capital.

My question was in the medium term, where could the EBITDA margin grow, can you give a ballpark guidance on that 3 to 5 years in?

I've given for next year, right?

Yes. 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?

And when you say medium term, how -- what's the time frame that you're looking at?

3 to 5 years.

So for example, I've said that next year is 4% plus. And earlier, I had told about we should be targeting close to 5%, right? So the year beyond, we should reach towards that or move towards that.

We'll take the next question from the line of Govindarajan Chellappa from CSIM.

Just a housekeeping question. For your FY '26, 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. Yes.

Sorry, you've done acquisition of about INR 780 crores last year, right, in FY '25? Part of it already came in FY '25. So my question is in FY '26, I mean, how much was recorded in FY '25 and the remainder, of course, will be the delta for FY '26?

So delta would be around INR 500 crores.

Okay. So, so far, you've recorded about INR 250 crores for in FY '25.

INR 250 crores was for quarter 4. So overall, we've recorded around INR 500 crores.

Okay. So the delta is about INR 250 crores for next year?

No. Yes, these business are also growing, right? So...

Of course. Of course. Of course. And secondly, what's the IPM growth and organic growth assumption that you have in this 30% guidance that you've given?

8% IPM growth, 15% to 16% organic growth.

Okay. And lastly, in the long term, where do you think the working capital settles?

I think is long term, this is very long, but near term.

60 days?

Yes. In the next 2, 3 years, we should target at 60 days.

Okay. And the delta, the improvement will come from -- will it come from receivables or will it come from the inventory in warehouse?

It will be a combination of both.

[Operator Instructions] Next question is from the line of Mayank Agarwal from Scientific Investing.

So I have one question on the working capital. Like right now, we have a 70-day cash conversion cycle. And if we estimate like you would need around 20% of sales as working capital. Now 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. So how do you see the debt and equity playing a role in this funding this growth? And would you agree with this assessment? And how are you planning for the CapEx structure accordingly going forward?

So that's what I said in the previous guidance that once we move to 4% plus margin structure and 60 days of working capital, the internal fund approval will be more than enough to support organic growth. And only for inorganic, we will use external capital, which we have already raised through IPO.

Mr. Agarwal, I'm so sorry to interrupt. May I request that you rejoin the queue for follow-up questions, there are several other participants waiting. We'll take the next question from the line of Vansh Solanki from RSPN Ventures.

I just want to understand that last year, we were talking about that we are doing the acquisitions which have EBITDA margin to 6% to 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?

So I'll stick only to guidance for next year. Longer-term guidance, the FY '27 guidance, maybe I give sometime during the year -- by end of the year.

Okay. And just one more. Like I have gone through the SI RK which you have acquired, which is the acquisition value is around INR 70,000, but annualized revenue for financial '25 is more than INR 100 crores. So what kind of arrangement is there? Because you have given that it is a proprietary form and you have acquired that?

No. So the model that we operate with, we create an SPV in which the business is slump sale into, right? And 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. So that value is not included in the value that we give because it's not directly paid to the seller.

Mr. Solanki, May I request that you rejoin the queue for follow-up questions, and I'm so sorry to interrupt.

What I'm saying is you can please connect with our to our CFO offline on this, he will be able to explain you better the structure that we follow. And this is -- consistently, we have been following this structure beginning.

Next question is from the line of Ajeesh from Investor Things.

My question is that do you have any long-term target of ROE? I mean 5, 6 years, what will be our ROE?

Yes. So once we are able to reach those margins that we spoke about and that working capital target, we should be 15%, 20% ROE.

Next question is from the line of Swayam Ranabhat Pinpoint Capital.

Yes, sir. Sorry, sir, I joined a bit late. So pardon me if my question has already been addressed. So I have only one question. Could you elaborate on the direct benefits of pharmacists 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?

Yes. See, The biggest challenge that 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. And as you know, very fragmented and low entry barrier industry, that's why you have so many regional companies, local companies, national companies operating, right? And a retailer is struggling typically to provide all the items of the prescription to the patient. Typically, we see that the fill rate of a retailer is not more than 60%. So if 5 drugs are written, a prescription is only able to offer 3 or 2 or 3, right? Because we just can't store and manage so many SKUs. The problem that we are solving for the customer 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 means his buying much less complex, his experience much better. And most of the geographies, we are delivering 3x or 4x during the range. So our delivery TAT time is also much lower. So combined with the lower delivery time line 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.

Next question is from the line of Naman Bagrecha from IIFL Capital Services Limited.

Sir, just one question. Our second half OCF is positive for this year. Last year also our second half OCF was positive. So is it a second half phenomenon where OCF is positive or, let's say, working capital is lower? Or 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. And by fourth quarter, generally, the sales taper down because of end of the year and low season. And that's how it is also followed in our case also. Typically, you see the highest level of working capital in September because that's 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, and which kind of normalizes by end of the year, right? So you are right that last year, we were operating cash flow positive for the second half of the year, but not for the entire year. And that's what I guided that next year, we are targeting to be OCF positive on a full year basis.

Okay. Okay. Sir, if I may ask 1 more question.

Sir, may I request you to rejoin the queue? [Operator Instructions] We'll take the next question from the line of Ankur Gulati from Genuity Capital.

Just if you can give us some -- I mean, how the industry has played out in the U.S. And how do you see it playing out in the industry. Any lessons to learn from the U.S. consolidation.

U.S. is on the other extreme of consolidation. There are 3 distributors who have more than 90% market share. India is also moving towards consolation, but it's not likely to go at that extreme level in the near term at least.

And 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. So you can't supply to Guwahati from Mumbai, right? So we will have a 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, it is not a branded generic. India, every molecule has 100 brands. So these complexities add to the challenge of consolidation.

Mr. Gulati, I'm so sorry to interrupt. May I request that you please rejoin the queue for follow-up questions. We take the next question from the line of Naman Bagrecha from IIFL Capital Services Limited.

Sir, just one thing on the revenue growth. So we've guided for 30% growth in FY '26, which is equally divided between organic growth and the impact of last year acquisitions and the new acquisitions. If I look, if we do just a simple math, a 15% kind of growth on FY '25 number, which is closer to INR 764 crores, what we have announced, the acquisition, if I look, the revenue would be closer to INR 300 crores, given that the consolidation will happen post 15th of August, right. So is the guidance a bit lower because then INR 300 crores or INR 320 crores kind of number is the balance number, which is your revenue from last year's, let's say, acquisition. So is the guidance a bit lower or the organic growth might be slower than our expectation? It would be helpful to...

You are working out the math very well, Naman. And 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, sure, sir. All right. And sir, just one...

I'm so sorry to interrupt. I request you to rejoin the queue for follow-up questions. Next question is from the line of Binoy from Sunidhi Securities and Finance Limited.

I had one strategic question on the industry. So Indian government is mulling OTC health care policy, and it has been mulling this policy since quite some time. Off 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 store, et cetera, right? So just your thoughts on this, where are we in terms of OTC health care policy? And if it gets implemented? how does that impact our business?

So as of now, our customer base does not include kirana stores, okay. It doesn't include kirana stores. So we are focusing only on the retail pharmacies and hospitals, right? So 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 we'll -- the industry size will become smaller for us. Our addressable market will become a little smaller for us.

But what would you be as a...

Mr. Bijoy may we request to rejoin the queue.

Continue.

As a distributor, since you are one leg before the retailer in the chain, wouldn't you 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 stores or we don't because we'll have to work out the economics of doing that because your average order values will not be that high, right?

Next question is from the line of Harshi Shah from Beas Capital.

Two quick questions. What is the time line to complete remaining acquisitions? And second, all of the newer acquisitions made last year will have a full year revenue. So can we see margin upwards of 4% because they are margin accretive, right?

On a full year basis, yes, so -- but we are declaring quarterly margins, right? So the acquisition that we did in the middle of the year, in the last quarter, they are included -- or quarter 3 is included, but not in the full year. So full year basis yes.

Yes. And the time line...

Harshi ma'am, may I request that you rejoin the queue.

My suggestion to you will be -- let's continue the question. So their flow is complete. Otherwise, they will have to come back and then again reiterate the whole thing. Sorry, what are you saying?

The time line to complete the remaining acquisition.

I think the time line has been in 2 months, right, 2.5. But we'll try to close it faster than that.

Next question is from the line of Krupa Desai from Electrum Capital.

Sir, my question was what is the plan for write-off of intangibles in future or now?

So basically, what we are doing is we have goodwill, which is tested for impairment at every financial year. So 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.

Next question is from the line of Naman Bagrecha from IIFL Capital Services Limited.

Just a quick one. Just wanted to know what is the total purchase cost of all the 7 transactions. So 6 new entities. So I mean, you could give also the only 6 new entities. I mean, seventh is available. Peerless and...

So the total consideration, we don't disclose because of confidentiality reasons from the seller side also.

So I guess the multiple will be at an aggregate level will between 0.3, 0.35x of revenue? Or is there any deviation?

The guidance that we give is the multiples are 5 to 7x EV-to-EBITDA. So within that range.

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 have not been answered, please connect with our Investor Relations team, okay? 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.