Incorporated in 2018 and founded by a former chief executive of Alkem Laboratories, Mumbai-based Entero Healthcare Solutions has grown to be among India’s top three pharma distribution companies. It is launching an initial public offering of Rs 1,600 crore — Rs 1,000 crore of fresh shares and an offer for sale worth Rs 600 crore by promoter shareholders. The offer represents about 30% of the post-issue capital of the company. The proceeds from the sale of fresh shares are going to be used for repayment of borrowings, and funding long-term working capital requirements and acquisitions.

Business:

Backed by healthcare investment firm Orbimed Asia, Entero provides tech-driven healthcare product distribution services to more than 81,000 pharmacies and 3,400 hospitals across India. The company has relationships with over 1,900 pharma and healthcare product manufacturers — essentially handling over 64,500 stock keeping units. It has 77 warehouses in 38 cities across 19 states and union territories. Entero offers both demand fulfilment and generation solutions to healthcare product manufacturers.

Financials & Growth Prospects:

India’s pharma supply chain is largely fragmented with over 65,000 small distributors earning a margin of 8-15%. There has been a consolidation underway in this segment and Entero has been at the centre of leveraging this trend by acquiring regional distributors.

The company has been highly acquisitive in growing its scale and footprint — it has made 34 acquisitions. It built on these acquisitions leading to its revenues almost doubling from Rs 1,780 crore in fiscal 2021 to Rs 3300 crore in FY23. While it has been operationally profitable, Entero reported a net profit for the first time in the current fiscal year. It posted a net profit of Rs 11.7 crore for the first half of this fiscal year with an Ebitda margin of 3%. The IPO will allow the company to cut down its debt and finance cost and improve profitability.

Valuations:

The company has a promising business model with a track record of omni-channel execution. At an implied market cap of over Rs 5,500 crore, the IPO values the company at 127 times its annualised earnings of FY24 and nearly one and half times its FY24 revenues. Long-term investors interested in this pharma supply chain business may want to wait for the company’s listing to enable a better price discovery.

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