Entero Healthcare Solutions Ltd Management Discussions

INDIAN ECONOMIC OVERVIEW

The Indian economy continued on a steady growth path, retaining its position as the worlds fifth-largest economy, despite challenges posed by higher inflation rates, geopolitical turmoil, and a volatile global economic landscape. Indias GDP rose 7.2% in FY 2022-23 on strong growth momentum propelled by domestic demand from investment and private consumption through the year. Indias GDP estimated growth shall remain at 7.6% in FY 2023-24 compared to 7.2% in FY 2022-231. Furthermore, CPI inflation is on a downward trajectory and eased to 4.9% in March 20242. However, food price uncertainties continue to weigh on the inflation trajectory.

The growth in various economic indicators such as the Index of Industrial Production (IIP), Goods & Services Tax (GST) collections, manufacturing Purchasing Managers Index (PMI), per capita income, and increasing private capital expenditure collectively reflects a strong economic momentum.

Indias economic outlook continues to be optimistic, backed by several factors including increased capital expenditure, positive business and consumer sentiments, proactive government policies and improving rural consumption prospects. Furthermore, the projected growth in Indias population to increase to 1.5 billion by 2030, at a CAGR of 0.8% over 2020-30, Indias median age is 27.3 years, signifies a favourable demographic dividend. The larger mid-age working population is expected to boost per capita income and consumer spending, further strengthening the economic landscape.

According to the IMF, the Indian economy is expected to advance steadily at 6.8% in FY 2024-25 and 6.5% in FY 2025-263. The Indian economy is well-positioned to navigate forthcoming uncertainties and is poised to emerge as a global economic powerhouse. With ambitions to attain the status of the worlds third-largest economy by 2030, Indias economic trajectory holds promise amidst evolving global dynamics.

INDUSTRY OVERVIEW Indian Pharmaceutical Industry

The Indian pharmaceutical industry is the worlds third-largest by volume and was valued at Rs. 3.6-3.8 trillion (including bulk drugs and formulation exports)9 in the fiscal year 2023. India is the largest provider of generic medicines, occupying a 20% share of global supply by volume and contributing to around 60% of the global vaccines4. The Indian pharmaceutical industry experienced steady growth over the last few years with a focus on generic medicines.

According to IQVIAs projections, the spending for medicines in India is expected to reach US$ 38-42 billion by 20285.

Pharmaceutical expenditure constitutes ~35% of healthcare spending in India. Personal healthcare expenditure increased from Rs. 1,813 billion in fiscal 2012 to Rs. 4,135 billion in fiscal 20229, supported by an increase in government schemes, health spending by states, an increase in income levels, and a rise in disease incidence. Various government schemes have contributed to the growth of the pharmaceutical sector. The flagship scheme, Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) has achieved the target of opening 10,000 retail outlets to provide quality generic medicines at affordable prices. 206 medicines have been added to the product basket in 20236. Furthermore, the Ayushman Bharat initiative exemplifies Indias dedication to affordable healthcare for all. The Pradhan Mantri-Ayushman Bharat Health Infrastructure Mission (PM- ABHIM), with an outlay of Rs. 64,180 crores till FY 2 0 25-268, aims to bolster healthcare infrastructure in both rural and urban areas. The Ministry of Health and Family Welfare has been allocated Rs. 90,658.63 crores in the interim Budget for 2024-2025. The Ministry has witnessed a hike of 12.59% per cent over Rs. 80,517.62 crores in the Budget (revised estimates) for FY 20 23-247.

The growth momentum of the Indian pharmaceutical industry is expected to continue in the coming years on the back of

favourable government policies, increasing foreign investment, rising healthcare expenditure, rapid use of innovation and technology, and emphasis on domestic manufacturing of quality pharmaceutical products. With the overall Indian healthcare market growing, the pharmaceutical market is poised to grow at 9-10% CAGR between FY 2022-23 and FY 20 27-289, supported by strong demand as a result of the rising incidence of chronic diseases, increased awareness and access to quality healthcare.

Indian Pharmaceutical Distribution Industry

Indias pharmaceutical distribution market is highly fragmented and competitive with the presence of over 65,000 distributors and more than 9,00,000 retailers. The market served by pharmaceutical distributors in India, comprising pharmaceutical products and medical devices, is valued at Rs. 2.7 trillion in the fiscal year 2023 and is projected to grow at a CAGR of 10-11% from FY 2022-23 to FY 2027-289.

The market is still dominated by traditional local distributors with a market share of 90-92%. The share of large/national distributors in India is 8-10%. The market served by large/ national distributors was valued at Rs. 150-170 billion last fiscal year9. India has a lower penetration of large/national distributors compared with developed markets, thereby presenting growth potential for large/national distributors.

India is witnessing a shift from standalone/traditional distributors to large/national distributors with a wider presence, backed by market consolidation and the demand for a reliable and scalable supply channel by pharmaceutical and healthcare product manufacturers, among other factors. Furthermore, industry players are providing personalised experiences and value-added services to patients and end-consumers.

With the digitalisation of the pharmaceutical supply chain, mergers and acquisitions in the retail pharmaceutical space are supporting overall industry consolidation. This trend is evident in the pharmaceutical distribution sector, where larger players are acquiring smaller traditional local distributors to expand market reach and improve operational efficiency.

COMPANY OVERVIEW

Founded in 2018, Entero Healthcare Solutions Limited is the third-largest and fastest-growing healthcare supply chain company in India. Within a short period, we have established ourselves as a premier specialist in healthcare supply chain solutions. We are engaged in the distribution of pharmaceuticals, medical devices and consumables to retail pharmacies and institutional players. Additionally, we provide value-added services such as marketing and promotion services to pharmaceutical companies thereby acting as a partner to these companies.

Our core business involves providing distribution and logistics services for healthcare products to pharmacies, hospitals and healthcare clinics throughout India. We have an extensive reach, catering to over 86,300+ retail pharmacies and 3,500+ hospitals, addressing both retail and institutional requirements. Our relationship with more than 2,000+ healthcare product manufacturers enables us to provide access to a vast product portfolio comprising 68,900+ SKUs. We serve our customers, including pharmacies, hospitals and healthcare clinics, through a geographically diverse network of 79 distribution warehouses spread across 39 cities in 19 states and union territories.

Our retail distribution channel involves supplying healthcare products to pharmacies, which subsequently sell to end customers. We supply to over 86,300+ pharmacies across 488 districts. Our nationwide distribution network, comprising our delivery fleet, personnel, and third-party courier services, ensures efficient delivery to pharmacies.

Through our hospital distribution channel, we supply healthcare products to hospitals and healthcare clinics across India. We serve more than 3,500+ hospitals located across 277 districts.

Our ancillary business involves providing demand fulfilment and generation solutions to healthcare product manufacturers, along with integrated commercial solutions including sales, marketing, and supply chain solutions, enabling them to expand their presence in the Indian market. Additionally, we sell private label products and medical devices under our brand, Entero Surgicals.

RISK MANAGEMENT

Risk management is integral to our business strategy and operations. We have a Risk Management Framework to mitigate and minimise the impact of risks on our business operations. We have procedures for Risk Identification, Risk Assessment, Risk Treatment/Mitigation and Risk Review & Closure.

Major Risks & Mitigation Actions

Probable Risk	Possible Impact	Mitigation Measures
M&A Risk	To the extent we fail to identify, complete and successfully integrate acquisitions with our existing business or should the acquisitions fail to deliver internal results, our financial performance could be adversely affected.	Entero Healthcares M&A team actively seeks to identify new targets that aid Territorial expansion, Territorial dominance or give a Unique product mix.
		Members within the business team focus on integration of the acquired business with the mainstream by actively providing support and guidance to the newly acquired entities.
Liquidity Risk	Lack of available liquid financial assets such a cash may cause difficulties in achieving projected growth as the business is working capitalintensive.	The Company has raised capital through Initial Public Offering which provides adequate liquidity to fulfil the Companys growth plans.
		The Company is also taking several measures to drive revenue growth and optimise costs to improve cash flows.
Supply Chain Disruption Risk	We have no control over the supply of products from suppliers which could be impacted by a number of factors.	We have contingency plan designed to enable us to transfer goods from alternate locations within the group.
Technology Risk	Loss of data and unauthorised access to information technology systems due to security breach, could adversely impact the business operations of the Company.	The Company has a robust cyber security framework in place through use of antivirus, firewalls to protect against possible breach.
		The Company also uses remote data backups and the latest versions of software to mitigate technology risks.
Talent Acquisition and Retention Risk	Human capital is an important pillar for the Companys success. It is important to attract, engage, develop and retain qualified and experienced employees, including key executives and other talent. High attrition rates could impact the performance of the Company.	Employee retention is managed through learning and skill development workshops, employee engagement initiatives, Entero Cares programme, and rewards/recognition programmes.
		High performers are given opportunities to move to cross-functional roles in order to enhance their overall career.
Operations Risk	Any disruption to the operation of our warehouses, or to the development of new warehousing and logistics facilities, could adversely impact our business, financial health, and operational results. Natural disasters or other unforeseen catastrophic events may disrupt our warehouse operations and hinder new facility development, impacting our business significantly.	We have a nationwide presence of 79 distribution warehouses located across India. This broad network enhances our resilience to potential disruptions by providing redundancy and alternative options for maintaining operations during unforeseen events.
Product Quality Risk	Our business is exposed to risks inherent in the distribution of healthcare products, such as distributing expired, defective or counterfeit products, transportation damage, and customer returns. This could result in financial losses, damage to our reputation, and potential product liability claims, all of which could harm our overall financial performance and customer trust. Any claims, regardless of validity, could tarnish our reputation and confidence in our products.	We have distribution relationships with healthcare product manufacturers. Under these distribution arrangements, we buy products meeting agreed quality standards, with any defects promptly replaced by the manufacturer.
		Furthermore, we have the option to seek reimbursement from suppliers for any payments made to customers or end users due to issues like distributing expired or defective products, transportation damage, or storage spoilage.

OPERATIONAL OVERVIEW

The Companys journey has been remarkable, marked by resilience, dedication and innovation. We have established a solid foundation in Indias healthcare distribution landscape by leveraging our extensive reach, industry expertise, robust infrastructure, experienced leadership, and technology capabilities. This has enabled us to adapt swiftly to market dynamics, address the evolving needs of the market and contribute to improved healthcare access across the country.

We are focussed on strategic acquisitions to consolidate our distribution presence across key markets and fuel our long-term growth. We have acquired 34 entities in the healthcare products distribution industry. Due to our acquisition track record and pan- India approach, we have been able to consistently attract distributors to integrate with us. Moving forward, we plan to complement our organic growth with strategic acquisitions to enhance our customer and supplier network. We are actively pursuing expansion opportunities through strategic acquisitions of regional and local distributors.

Our strategies revolve around strengthening our market position through augmenting our customer base, wallet share, and geographic penetration. We aim to achieve this by forging comprehensive distribution and marketing collaborations with healthcare product manufacturers. Additionally, we are focussed on broadening our product adjacencies, private label, and service offerings. We are committed to consistently investing in technology, leveraging our scale and synergistic adjacencies to enhance efficiencies and drive profitability.

FINANCIAL HIGHLIGHTS Financial Performance

(Rs. in million)

Particulars	FY 2023-24 Consolidated	FY 2022-23 Consolidated
Revenue	39,223	33,002
Gross Profit	3,520	2,683
Gross Margin (%)	9%	8.1%
EBITDA	1,118	640
EBITDA Margin (%)	2.9%	1.9%
PBT	356	(37)
PAT	398	(111)

Key Ratios (Consolidated Basis)

	FY 2023-24	FY 2022-23	YoY Change (%)	Explanation
Inventory Turnover	9.36	9.30	0.6%	-
Interest Coverage Ratio	1.86	1.20	55.1%	Gross margin improvement in the current year
Current Ratio	3.34	1.64	103.7%	Increase in current ratio on account of IPO proceeds in the current year
Debt Equity Ratio	0.17	0.62	(73.1)%	Repayment of debts during the year from IPO proceeds
Debtors Turnover	6.94	7.42	(6.5)%	-
Operating Profit Margin (%)	2.85%	1.94%	47.0%	Gross margin improvement and operational efficiency
Net Profit Margin (%)	1.01%	(0.34)%	(401.6)%	Profit in the current year as against losses in the last year
Return on Net Worth (%)	2.42%	(1.86)%	(230.5)%	Profit in the current year as against losses in the last year

INFORMATION TECHNOLOGY

We leverage our technological platforms and solutions to bolster our healthcare products distribution business, enhance our operational capabilities and drive efficiencies within the distribution ecosystem. Our technology-focussed approach is anchored on our proprietary integrated technology platforms and business intelligence tools.

Our Entero Direct platform, a cloud-based software-as-a- service solution, empowers retailers to streamline their procurement process with us. It offers comprehensive order management, tracking, returns, and claims settlement services, providing real-time visibility of inventory and order status. Additionally, the platform incorporates loyalty programmes to enhance retailer retention. Moreover, it enables our sales force to plan customer visits, access live inventory levels, and view ongoing offers and promotions, facilitating efficient order placement. Furthermore, our delivery fleet utilises Entero Direct to plan deliveries and update delivery status on the application.

Our Entero CRM application serves as our customer relationship management tool, focussing on enhancing customer retention and expanding wallet share. With Entero CRM, our call centre executives can access customer details like past billings and outstanding payments during interactions with customers. Additionally, the application meticulously tracks all customer calling schedules, including missed calls, ensuring effective customer management.

We have developed our in-house Entero ERP system, which has been implemented across multiple locations in India. Our Entero ERP system is a cloud-based ERP tool, which streamlines our operations.

We utilise Teqtic, a cloud-based system designed as a data warehouse, business intelligence, and data analytics tool, to generate customised reports for monitoring various aspects such as sales, purchases, and inventory levels across all our distributors and warehouses in India. Leveraging our previous customer transactional data and records, Teqtic facilitates seamless updates and new feature deployments to all users, including both internal and external customers, with identity- based access control provided to customers.

HUMAN RESOURCE

At Entero Healthcare, we treasure our employees as our most valuable asset, crucial to our growth and business sustainability. Embracing the ethos of empowering our people, we have meticulously crafted our HR policy to create a safe, meaningful, and transparent work environment for all team members. We ensure that Entero Healthcares vision for growth is aligned with our employees aspirations.

Our HR team prioritises identifying, recruiting, and retaining the right talent while fostering continuous employee engagement with the Companys mission and vision. To create an environment of agility and continuous learning, we conduct regular learning programmes to enhance our workforces skills and competencies. Our employee strength at the Entero Group level stood at:

3,240

Employees as on 31st March, 2024

We believe in the holistic development of our employees, creating an environment that fosters growth, celebrates achievements, and promotes continuous learning. Our framework, EMPOWER. LEARN. CELEBRATE. THRIVE, encapsulates our approach to employee development, ensuring that every team member is equipped to reach their full potential and contribute to our collective success.

Empowering Our People

At Entero Healthcare, empowerment is a core value. We foster an inclusive environment where every employee feels valued and motivated to excel. All our people initiatives are aimed at enhancing employee engagement ensuring our team feels connected to the ethos of our companys mission. The outcome of this is that, in our internal Employee Pulse Survey, we found that 95% of our employees are proud to work at Entero Healthcare and 90% are happy with the career opportunities provided here. As a leading healthcare products distributor with a presence in 540 districts across 39 cities in India, we offer employment with varied incentives to our field staff in an otherwise fragmented and unorganised industry. By generating employment PAN India, we are contributing to the economic growth and professional development of our workforce. Since our inception, we have created employment opportunities for nearly 1,300 people pan-India in various cities. Empower is a common theme that runs in all that we do including our core HR processes. Take for instance our Performance Management System - LEAP. Through LEAP, we not only enhance performance through employee development but also give power to our employees - by giving them a platform to voice their performance/achievements in appropriate forums.

Promoting Diversity & Equality

We are deeply committed to gender equality and womens empowerment. Over 26% of our workforce comprises women, in spite of being in industry which has been very traditional in its approach and which is usually dominated by males, we have ensured we have considerable number of female workforce, and we are proud to share that more than 40% of our workforce comprise of women if we include our contractual employees. We take pride in recognising and celebrating womens achievements, and we are glad to see their progress and how they have significantly contributed to our companys growth and success. We would continue our dedication to promoting diversity and equality in our initiatives and we are committed to support a balanced and inclusive workplace.

Over 40%

Of our workforce comprises women including contractual employees

Saritha is our manager in Davanagere, a true role model of dedication and perseverance. She started her journey in the picking team and has since become an essential part of our Entero family. Currently, Saritha is our CRM Manager in Davanagere, handling a team of 26 employees. Her strong leadership, coupled with her fearless attitude and unwavering persistence, keeps our sales thriving. Despite her busy schedule, Saritha remains empathetic and caring towards her team members, always ready to lend a helping hand. Coming from an agricultural background, she understands the value of hard work and dedication, and she tirelessly supports both her work and her family with equal devotion. We are incredibly proud to have her leading the way, inspiring us with her dedication every single day.

Designation: CRM Manager, Davanagere

"I am Sandhya, the Operations Manager in Kollam, and Ive had the honour of being a part of Entero Family. My journey started at the bottom in the expiry department, : j,,- j and Ive worked across various roles like inventory, dispatch, and billing, guiding our growth every step of the way. Due to my education and will to be independent,

Entero has given me and many others like me to fullfil our career aspirations, add value, and grow in a sector Rs. that is predominantly male-dominated. Entero is helping us get employment in places like Kollam and is making a significant difference for women. Today, Im not just self-sufficient but also a pillar of strength for

Name: Sandhya Vikraman

Designation: Operations Manager, Kollam

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

Our Company has an efficient internal control system, commensurate with the nature of its business and the size and complexity of its operations. The internal control framework is responsible for addressing a range of governance, compliance, audit, control, and reporting issues that may impact our business. We follow stringent procedures, systems, policies and processes to ensure orderly and efficient conduct of business, accuracy of financial transactions and reporting, safeguarding of assets and resources, and compliance with applicable laws and regulations.

Our audit committee regularly monitors and reviews the adequacy of the internal control systems and internal audit findings and recommends corrective action plans for the improvement of the business process and internal control system. Key observations and recommendations are communicated to the management, which takes appropriate corrective measures as deemed necessary.

CAUTIONARY STATEMENT

The statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, and expectations, maybe forward-looking statements within the meaning of applicable securities laws and regulations. Such forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties include but are not limited to, the performance of the Indian economy and various international markets, the performance of the industry in India and globally, competition, changes in the government regulations and tax laws as well as the Companys ability to implement its strategy successfully, future growth and expansion, technological implementation, changes and advancements, changes in revenue, income or cash flows, the Companys market preferences and its exposure to market risks, as well as other risks. Actual results could differ from those expressed or implied in the forward-looking statements. The Company assumes no obligation to update, amend, modify or revise any forward-looking statements, whether as a result of any subsequent developments, new information, future events, or otherwise.