Prabhat Agrawal, MD, CEO & Co-Founder, Entero Healthcare Solutions Limited

8 Feb 2024 , 11:15 AM

What are the key milestones of the company’s journey so far?

Our journey began in 2018, when we successfully secured funding from prominent investors. OrbiMed, a healthcare-focused fund, became one of our key backers early on, aligning with our vision, market opportunity, and business model. Despite the challenges posed by the COVID-19 pandemic in 2020, we forged a significant partnership with Roche Pharma, a leading global biopharmaceutical company. This collaboration granted us exclusive marketing rights for their nephrology drugs in India, demonstrating a high level of trust in our capabilities despite us being a relatively young company.

Since then, our growth trajectory has been remarkable. From starting at ground zero in 2018, we have achieved substantial growth, with a turnover reaching ₹4,000 Crore in just five years. This validates the acceptability and viability of our envisioned business model in the market. Along the way, we have also completed 34 acquisitions and formed strategic partnerships with numerous distributors, who have not only sold their businesses but also reinvested capital in Entero, recognizing the value we bring to the table.

It has been an incredible journey so far, and I believe the next five to ten years will be even more exciting. With the upcoming fundraising through the public markets, we plan to expand our presence across more regions in the country, explore new opportunities, and forge additional partnerships.

Acquisitions have played an important role in your journey so far. How do you identify companies which are a strategic fit with yours? How do you then go about realizing the synergies there of.

Our business model revolves around establishing India’s largest tech-driven distribution platform. Given the vast geographic landscape of India, each market operates differently, and our strategy involves entering various markets strategically. While we have established our own units in multiple cities, our approach also includes acquiring local distributors in target markets.

Our team, comprising seven to eight members in the M&A team, has extensive experience and networks within the distribution community. Over the years, our 34 acquisitions and established presence have made us well-known within the distributor community, leading to inbound interest from potential partners.

We have developed a playbook to evaluate potential distributors based on factors such as financials, growth potential, and alignment with our business objectives. Typically, local distributors have limited resources and technology deployment, which we address by providing access to our relationships with over 1,900 pharmaceutical companies, institutional capital, technology solutions, and management talent.

By partnering with us, distributors gain access to a broader portfolio of companies, expanded customer coverage, and improved buying experiences through our customer-facing app. Additionally, they benefit from our national relationships with various companies, further help in enhancing their capabilities and market presence.

The synergies resulting from these partnerships are evident, with some acquisitions experiencing significant growth, increasing in size by 7-8 times since our inception in 2018.

When considering EPS accretion, is there a specific target timeframe in mind for certain acquisitions to begin contributing to EPS?

We anticipate that the acquisition will yield returns within two to three years at most. Typically, the majority of the funds from the acquisition are allocated towards financing working capital. Regarding the intangible portion of the acquisition cost, we anticipate recouping these investments within the same timeframe. It is important to note that we focus on acquiring profitable distributors, which mitigates the risk of any negative impact on our earnings from the acquisition.

Could you elaborate on one of the intended uses of the IPO proceeds, which is the repayment of debt? Will the company become debt-free following this repayment?

The company will not become entirely debt-free; we are only retiring a portion of the debt. Given that this business is primarily driven by working capital, it is essential to manage it effectively using both equity and debt. We have access to working capital lines from various banks at reasonable rates. Therefore, we utilize a combination of debt and equity to fuel our business growth. While debt remains a component of our capital structure, it is maintained at manageable levels to optimize our cost of capital.

We are in a flurry of IPOs. Why should investors consider your IPO?

Investors should consider our track record over the past five to six years and the immense market opportunity we operate in. We have achieved significant milestones during this time, and our addressable market presents substantial growth potential. At the same time, the market is growing in double digit. Next, what is our right to win? Why should we be successful versus our peers? We are fighting with several small and unorganized distributors. They do not have national level partnerships, technological capabilities, access to capital, management talent which we have. The right to win is quite clear to us. Number three is unit economics. This year we are at a 3% EBITDA margin. Our business model works on a Return on Capital basis. The sustainable return on capital in this business is more than 25-30%. If you generate 5% EBITDA margin in this business, and rotate your capital 6 times because our working capital cycle today is at about 6 times. 6 times multiplied by 5% gives us a 30% return on capital. So unit economics is sound. And the fourth is the strong execution capabilities of our management team.

Run us through the company’s growth strategy of the next few years.

These are the pillars of our growth strategy.

• We will continue to assess investment and acquisition opportunities in new markets to drive growth.
• Expand our footprint to cover more cities and districts across India, tapping into previously untapped markets.
• Strengthen market position through increases in customer base, wallet share and geographic penetration
• Pursue comprehensive marketing and distribution collaborations with healthcare product manufacturers
• Expand our product adjacencies, private label and service offerings
• Continue to invest in and leverage our technology, scale and synergistic adjacencies to drive efficiencies and profitabilit

Does the company have a clearly defined dividend policy in place? And if so, can you provide a brief overview of the same?

Currently, we are experiencing a phase of substantial growth. The profits we generate are primarily reinvested internally to fuel further expansion and development. However, decisions regarding our dividend policy require deliberation with the board and engagement with shareholders.