Entero Healthcare Solutions Limited (ENTERO) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Q3FY26 Earnings Conference Call of Entero Healthcare Solution Ltd. hosted by Dram Capital. As a reminder, all participants' line will be in the listen-only board, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. A brief reminder, this conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on the 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 Ms. Payal Shah from Dev Capital Advisors. Thank you and over to you.

Thank you. Hi. Good morning, everyone, and a very warm welcome to Entero Healthcare Solutions Q3FI26 Earnings Call, hosted by Dan Capital Advisors. On the call today, we have representing Entero Healthcare Solutions, the management team comprising of Mr. Prabhat Agrawal, Managing Director and CEO, Mr. Balakrishnan Kaushik, Group CFO, and Ms. Akansha Gupta, Head Investor Relations. I will hand over the call to the management team for opening remarks, and then we'll open the floor for questions. Please go ahead, sir.

Thank you, and good morning, everyone, and thank you for joining our earnings conference call to discuss the performance for quarter three and nine months of this year. My name is Prabhat, and I am joined by Balakrishnan Kaushik, Group CFO, Ms. Akanksha Gupta, Head Investor Relations, and HGA are Investor Relations Advisors on the call. I hope everyone had an opportunity to go through the financial results and investor presentation, which are uploaded on the stock exchanges, as well as on our company's website. Let me begin with performance update of the quarter, which is another strong quarter for us. Revenue grew by 26% year-on-year and 9% quarter-on-quarter, 2 rupees 1707 crores. After adjusting for the sales, recognized on net margin basis, and divestment of a subsidiary, on like-to-like basis, our revenue growth stood at 28.5% year-on-year, and organic growth was 17.1% year-on-year. This is the highest organic growth for this financial year, and we continue to grow faster than the industry, which grew by 12%, and hereby increased our market share. Gross profit came in at Rs.173 cross, up 29% year on year, with a gross margin improving by 30 basis points to 10.1% versus last year. Compared with last quarter, the GP margin was 10 BIPs lower because of one-time GST incentive amounting to 17 BIPs received from pharma companies, being offset by improvement driven by better business mix, margin accretive categories, and procurement efficiencies. EBITDA for the quarter was Rs 68 crore, representing a growth of 36% year-on-year, with margins improving by around 30 basis points, versus last year to 4%. In this quarter, there is an exceptional impact of new labour code of 6.1 crore on PAT. Adjusted for the one-off impact of new labour code, PAT margin was 2.3%, with PAT at Rs 40 crore. That is a growth of 36% over last year. Our reported profit after tax increased 15% year-on-year to Rs.34 crore with tax margin of 2%. On working capital front, I had shared during the last quarter that this optimization remains a key priority for us. The same is now reflected in our net working capital days on a like-to-like basis that improved to 61 days in quarter 3 FY26 from about 66 days in quarter 1 and 63 days in quarter 2. 2. Reported NWC at 64 days is primarily due to change in grossing of GST tax rate. On sale from 12% to 5% in Q3, which doesn't reflect two days of inventory reduction and one day of receivable reduction. The most important key positive improvements that was reflected in operating cash flows with OCF at Rs.49 in the quarter. This is revealed by our ongoing focus on EBITDA margin expansion and improvement in working capital management. It happens that we are on track to deliver operating cash flow for the year in the range of 100 crores through improvement in EBITDA margin profile and initiatives being undertaken to further optimize working capital. You can also see a steady improvement in the return ratios. Return on capital employed improved to 14.8% in Q3 from 13.8% in Q2 and return on equity excluding impact of new labor code in India. Increased to 12.3% from 11% in the last quarter. Operationally, our reach and network have continued to expand. In the first nine months of the year, we catered to over 97,600 retail pharmacies and more than 3,000 hospitals across five districts in India, supported by 131 statistically located warehouses and 89,200 plus SKUs. Sourced from more than 3,100 healthcare manufacturers. Our relationships with such a huge range of healthcare product companies, nationwide pharmacies and hospital reach, robust and technology-enabled last-mile distribution infrastructure, creates a very strong business moat and differentiated value proposition for both our suppliers and customers. Now, coming to inorganic growth progress, we closed acquisitions of Anand Medilink in Pune. Ace Cardiopathy, Biohead Technologies, and Anand's Chemistetics in MedTech segment. Each of these acquisitions further expands our distribution reach, widens our product segments, and builds new capabilities for us. Particularly in MedTech segment, we have added scale in IVD, cardiology, EOCT devices, lab consumables, etc. As I have already guided, post-completion and integration of all these businesses Annualized revenue will cross over 1,000 crores in MedTech segment. There will be a positive impact of 70 to 90 BIPs on gross margin and 50 to 75 BIPs on EBITDA margin on pro forma basis after all the acquisitions are integrated with us. This segment represents an attractive growth opportunity for Entero along with margin enhancement potential. Overall, We are very well poised to accelerate the growth, margin expansion, and cash flow generation journey, post-integration of the acquisitions, and are on track to achieve our FY26 guidance. With this, I close my opening remarks. and invite people to ask questions. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avneesh Tiwari from Vekaria Change LLP. Please go ahead.

Hi, congratulations on closing these medical device transitions. Pagat, can you articulate your growth strategy in this medical device segment? Let's say for your branded pharmaceutical segment, you needed acquisitions as well to grow. But here, how you think, what kind of levers you can pull to accelerate growth here?

Yes, thank you, Vinish. You know, I believe that, you know, in medtech segment, you can grow much faster without a lot of inorganic acquisitions. Because, you know, unlike pharma, in medtech, you can do a lot of pan-India exclusive distribution deals with a lot of companies. Because there are not many specialized distributors in this space in India, and, you know, the companies also are looking for, you know, people who have pan-India reach, who can give, you know, access to them, who can give customer access at an all-India level to them, right? And there are very, very few players who can do that. So, you know, now we have, you know, kind of built a reasonable scale of 1000 crores plus in MedTech. I think it gives a lot of opportunity for us to grow on from here.

Right. And what is the existing infrastructure you think you can leverage, either physical or human, as you grow, which you already have? If you can just help us understand that part.

Yeah, cool. Like, we have 130 warehouses, you know, we have existing relationships with all these pharmaceutical companies who also have medtech segments, right? For example, Abataz, Ragnostic, you know, devices and stuff like that. Same with Roche, right? So, you know, our existing relationship with the companies, our, you know, distribution infrastructure, you know, further provides, you know, leverage to grow this business together. You know, there's a lot of synergies that can happen between pharma and medtech.

Right. The second question I had on the margin side, if you look at the leverage to over time with the scale improving margins, it was somewhat different here in MedTech because as you can scale, you get better pricing terms compared to more association driven segment, which is branded pharmaceutical.

Avril, can you repeat the last part? I didn't understand very well.

Sorry. I meant to say, thank you. As you grow in this business, do you have an ability to get better margins or better pricing, volume-based pricing in med tech? Is it better than you would have in branded pharmaceuticals?

Yes, certainly. The reason is because, you know, in the med tech segment, the distributors not only play only the demand fulfillment part, but they also play an active role in demand creation part, right? So the companies also depend on distributors to grow sales, right? And for that, you know, if you grow their business, they are ready to part with more margins with distributors.

And lastly, is there an opportunity for over time getting to private level here, which you have seen some places, but in India, you think, not today, but over time when you scale up in this business, you can think on that line?

Yeah, one can think on those lines, you know, on launching some of your labels as well. We have, you know, some private labels on home healthcare, but as of now, it's not scaled up. It's still pretty small, right? But over a period of time, we will definitely push for it.

Thank you.

The next question is from the line of Dave from Seven River Holdings. Please go ahead.

Hi, good morning, Prabhat. Congratulations on a great set of numbers. You know, just to clarify, you had given a guidance of achieving a CFO of 100 crores in FI26, and so far in nine months, we've achieved a negative 8.5 crore CFO. Does that mean that you're looking to generate over 100 crores in CFO in Q4 alone?

Yeah, that's what we are shooting for, Dev.

Got it. Now, the earlier guidance that we were given is on your EBITDA margins for the full year to be north of 4%. And looking at the trend so far in nine months, we have achieved around 3.8%. So to meet that guidance, we'll have to cross 4.5% in EBITDA in two fall alone. Are you still holding on to that guidance of achieving a 4% EBITDA margin?

Yes, so I think, you know, now all the eyes will be on quarter 4 because, you know, everyone can work out this match that, you know, on a full year guidance and subtract 9 months actual. So what is it that needs to be done to, what needs to be done in quarter 4 to achieve the full year numbers, right? And we are on track to deliver our full year guidance.

Got it, got it. Lastly, just a bookkeeping question from my end. Why has your interest cost gone up significantly while the working capital days have improved? Or rather, you've generated a CF for this quarter. Why is the interest cost going up?

You know, because we have been, you know, acquiring companies, right? So, we have been investing in acquisitions so that, you know, cash is going out, which was earning interest for us before. IQ funds are almost used now.

Are there any plans for a further fundraise or loading on some additional debt for the next set of acquisitions?

So, broadly, we have completed all the big acquisitions now. As of now, we are not, you know, looking forward to raise any equity capital. There could be some movement in debt, but, you know, overall, we are not looking to do more meaningful acquisitions from here on. You know, I think next few quarters, we will spend in, you know, consolidating what we have acquired because we have made big moves in this financial year. So, we'll wait for some quarters. You know, stabilize the operations, improve margins, improve cash flows, and then we will, you know, look for new acquisitions.

Got it. Thank you, Prabhupada.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. The next question is from the line of Naman Bhagrecha from IIFL Capital Services. Please go ahead.

Thanks for the opportunity. One question.

Our listed, let's say, peer highlighted that they have discontinued their Amazon partnership. Does this benefit MPROM in any way?

Sorry, I didn't hear very well. What have they discontinued?

They have discontinued the partnership with Amazon, one of our listed players highlighted on the call. They have discontinued the partnership with Amazon. So, does this in any way benefit Entero?

Yes, it does.

Okay, thanks.

Thank you. The next question is from the line of Chintan State from Giri Capital. Please go ahead.

Hi, Prabhat and the team. Good show. Congratulations. One question on the acquisition you mentioned to slow down a little bit for the next couple of quarters. So next year, the capex required will be lower, right? It will be focusing more on generating cash, retain that, and then maybe look out for acquisition maybe in FI28. That understanding stands correct?

Yeah, so that's what I said, you know, next two, three quarters, you know, we have done some big acquisitions in this year, you know, so we'll focus on integrating those with us, you know, and there are a lot of other businesses that can grow significantly. So, and MedTech segment also, as I said, is a focus area for growth for us. So, you know, I think next two, three quarters will be a little bit slow on acquisitions, you know, next three quarters, we, we. Focus and, you know, improve our margins, you know, improve our cash flows, and then we'll evaluate more opportunities.

Right, and on the competition front, as I'm seeing, you know, farm is kind of getting back on its feet, not completely, but they are at least recovering over time. Does that challenge us in a way that by the time we get into the market for right acquisitions, there will also be a party competing with us in acquiring businesses, which we are kind of looking forward to. Thank you.

In my view, that's not any much of a concern for us right now, because when we started off, you know, FarmEasy was acquiring new businesses, right, and we were also acquiring at the same time. And then, you know, FarmEasy went through its own set of issues, and they kind of quickly stopped that question. I'm not sure if they are, you know, looking to get back into this space aggressively in future. Even if they choose to do so, I don't see much of a problem because the set of distributors available for acquisitions are huge while the buyers are only two or three.

That dynamic remains the same. That's what you're trying to say.

Yes, it doesn't change the dynamics much.

Got it. And on the employee cost, you know, the provision which you have made, that's kind of retrospective. But does that, you know, on the decorating basis going forward, does have any implication towards employee cost and margins because of the new labor code? Do we see or expect some incremental pressure on employee costs because of the high provision required under the new labor code?

Chintan, this is Bala here. So what we have recognized under exceptional is the past service cost, which is a one-time cost. Going forward, we don't expect the numbers to materially affect our overall margins. We don't expect that.

So, Bolpak, what we are currently or historically being operating as a percentage of revenue, we kind of try to maintain and improve upon it, if I tell.

Yes, that is correct.

Okay, got it, got it. But I will jump back into it. Thank you. And all the very best.

Thank you. The next question is from the line of Bhargav Buddhadev from Ambit Asset Management. Please go ahead.

Yeah, good morning, team, and congratulations on your performance. So my first question is, is it possible to share what could be the cross margins and the EBITDA margins in our ethnic business?

So, Bhagav, we have not disclosed, you know, product-wise margins, you know, but we have given you a performa impact of that, you know, like 70 to 90 basis points improvement on overall basis for us, right? On the gross margin and 50 to 75 basis point improvement on the EBITDA on overall company basis.

Okay, so this is primarily contributed by MedTech.

Yeah, because what we said in the investor presentation, this is just a proforma impact, not including impact from anything else.

Okay, understood.

And making the next three years, where do you see this business shaping up for you?

We are very, very bullish and optimistic about this business. This is a unique opportunity in India, in a very large... You know, market size, more than 3 lakh crore of market size available for us to go and with a very clear right to win in this segment, you know. The value proposition that we offer both for our customers and to our vendors is very unique, you know. Not many people can offer the same value proposition. I give, for example, you know, like GLP drugs, you know, it is being launched. Almost, I would say, 10% of GLP drugs is being sold by us. The reason being because we have a pan-India presence, we can enter into relationship with the companies, and then at one point in time, they get access to a huge market through us.

And lastly, sir, you said that in terms of acquisition, now it's time to sort of slow it down. Does that mean that organically only we are seeing almost 20-25% revenue growth opportunity? And therefore, it makes sense to first integrate the acquisition made so far and then maybe one year down the line again relocate both acquisitions?

If you look at the next year, you know, all the acquisitions that we did this year are basically in the second half of this year, right? And part of it in quarter three and some in even quarter four. So, you know, the full impact of these acquisitions will be visible in the next financial year. So, a lot of growth will come just because of the timing impacts of acquisitions that we did this year, right, plus the organic growth. So, I mean, next year, the revenue growths are all, you know, sorted, and we would want to focus on first few quarters on, you know, improving it, and then anyway, you know, once we see the cash flows and all that coming, we'll keep identifying opportunities and maybe, you know, do something next year for FYI. FY28, but FY27 It's more or less ordered just because of the work that we have done in this year.

And, Latv, sir, do we have any exposure to this nutraceutical market? How big is that for us? Is it likely to become big?

I mean, we have exposure to nutraceutical, like we are doing distribution for Himalaya, Dabar, Jeena Sikho, many, many, you know, companies' well-being. Many, many nutraceutical companies, right? So, it's part of our portfolio. I mean, you know, if they grow at a rate higher than the overall IPM growth rate, we will enjoy that growth rate in our business as well.

And hearing the margins may also be better, right? Because they need you more than you need them already. I'm wrong.

I mean, both need each other. So, you know, it's like, you know, if those products are being sold at a, you know, medical counter, pharmacy counter, or hospital, we will, it will become, or it is part of our portfolio, you know. So, so the retailers will, you know, take it from us. I don't see any, any big meaningful difference coming from there. See, we are an aggregator. We have all, as I told you, we have, I see, 7,000 SKUs. In our portfolio with more than 3,000 plus companies. I don't think anyone would have such a big portfolio, right? So, any few companies will not make a big difference in that portfolio. Sure.

Great, sir. Thank you very much. And all the good news.

Thank you. Ladies and gentlemen, you are requested to restrict your questions to two per participant. The next question is from the line of Akshat Mehta from Seven Rivers Holding. Please go ahead.

Hello, sir. Am I audible? My first question is on the growth path, sir. This year that will guide it for 30% life-for-life growth rate. That implies that we will have a 35%, you know, growth requirement in Q4, you know. Will we be able to achieve that? And, sir, who are we planning to get to a 35% revenue growth rate? And on the other side as well, sir, given the acquisition slowdown that we are expecting next year, what is the kind of growth that we should look forward to? Is it 30% or 20%, 25%? What should we kind of make it into our assumptions?

You know, first to, you know, answer your question on this year, which I answered also previously in this call, that, you know, Q4, we can work out the math, you know, and you are right in your math that, you know, to deliver 30% like to like, we'll have to grow 35% in quarter four, right? And same for margin, same for OCF, everything goes. So what I've said, we are on track to deliver full year, which means we are on track to deliver Q4. Okay.

And so next year, how should we look at growth?

So, next year, you know, whatever acquisition that we have done this year, you know, the impact of this will be felt in the next year, right, in terms of, you know, revenue growth, right, so, plus there will be organic growth as well. So, even without much of an acquisition, our growth rate is not going to materially come down.

Yeah. Okay, sir. Next is on the margin factor.

Maybe I'll give you, you know, in Q4 conference call, we'll probably I'll give you, you know, the broad range of numbers that we can look for next financial year.

Okay. Sir, next question is on the margin factor. You said earlier that we are obviously looking at doing 4.5%. Can you help us understand, you know, what will be the factors that will drive 4.5% margins in Q4?

See, the impact of MedTech acquisitions will drive the margins up, plus all other factors that we continuously work on.

Okay, okay. Just a small bookkeeping question as well, sir. Our other expenses have kept on increasing, you know, very sharply, you know, every quarter on quarter. So, what is the key factor behind increasing other expenses?

So, when I see, you know, the Metac acquisitions and all, they come with a higher gross margin, but at the same time, they come with a higher cost also, because they are in the business of demand generation also. So, the cost structures are not as lean as, you know, farmer distribution. At the same time, their gross margins are also high. So, one should look at the net margin, net EBITDA margin, rather than, you know, only gross margin or only operating leverage. It's under... Excluding that, there is a good operating leverage on our business. In fact, if you look at even inclusive of that, you know, our total, we were like 20 basis points improvement over quarter one of this year. You know, quarter one, our expenses were like... It was 6.4%, now it has gone to 6.1%.

Okay. One last question, sir. Just wanted your views on, you know, what will be the impact of these new trade deals that have happened with US and EU on the industry as a whole and probably for the company, if you want to share your views on that.

So I can speak about our company, you know, so in our company, we are insulated from these, you know, global trade deals and all that, because You know, we are focused on domestic India market, right? So, we are not exporting anything out of India, and our import component is also very low, right? So, we are practically more impacted by what happens in India consumption story, you know, what happens in India macro, you know, what happens in India healthcare, rather than, you know, US or, you know, EU trade deals with India.

Will it not be positive for us?

Sorry to interrupt you, Akshar. Can you please rejoin the queue for more questions?

Sure. Thank you.

Thank you. Ladies and gentlemen, you are requested to restrict your questions to two participants. The next question is from the line of Rakeem Dalal from Fincom Advisors LLP. Please go ahead. Rikin, you can go ahead with your question.

Hi, thank you for taking the question. It's Ronald Dhanal. Sorry, I think I'm mistaken again. So my first question is that on the cash flow from operations, you know, you had mentioned to an earlier participant that we're on track to do over 100 cross for the fourth quarter. So what could be the drivers or mathematics behind that? What are your assumptions there?

The assumption would be increase in EBITDA margins and reduction in days of working capital. I mean, basically, cash flow is a function of these two only, right? How much margins we are generating adjusted for change in working capital.

So we are still on track for working capital days moving towards 60.

Yeah, I mean, what we are saying is we should be, we are on track to deliver that 100 crores of OCF, right, on a full year basis, which means that it will have to happen in the fourth quarter, because we are, ITD basis, we are almost breaking even on cash flow, which is a significant improvement if you consider what is last year, you know, so it's not that everything is going to happen in last quarter only, in quarter three also, you know, we generated almost 49 crores of positive cash flow compared to negative 21 crores in the last year quarter. So it's almost like 70 crore improvement has happened in this year also in one quarter itself.

Sure. The next question is that, you know, I just want to check, you know, some of your older acquired companies, like Nidhi, if I give an example of GS Pharma, is reporting losses while the revenues are still increasing. So, what factors are contributing to this? What are the thoughts around shutting down companies which are loss-making for extended periods of time in case any such companies you are having here?

We have done similar actions before. We have closed down a company called CPD Pharma before. We closed down a branch in Tirupati before. We closed down a branch in Belgaon before. So that's a normal process where we see that particular subsidiary is not making sense, then we kind of walk away from it. Specifically for GL Pharma, I think it's also because of the interest being charged from Endero to their subsidiary. On a beta level, they are not at loss.

Right. Next is that, you know, is procurement from pharmaceutical companies currently centralized, or does it occur at the individual entity or pharmacy level? And the second is, do you operate on a hub-and-spoke distribution model in markets such as Mumbai, Bangalore, and Hyderabad?

So, the first question that whether it's centralized, so all the procurement is happening at the local level, you know, so the supplies are being received at the local level from the local CFA, the discussions, negotiations, and anything like that is happening at central level, but the supplies are happening at local level.

So we get the benefit of standardized courses.

Sorry to interrupt you, Mr. Dalal. Sorry to interrupt you. Can you please interrupt you?

Yes, same question. I think that the question is not answered.

Okay.

No, no, I was just saying that the question was left unanswered. So the second part was on the hub and spoke. And do we get the benefits of centralized purchase?

So, yes, the centralized, you know, the discussion, negotiations, and all that happen at the central level, but supplies happen at the local level, because it doesn't make sense to buy centrally in one warehouse and then redistribute to 130 warehouse, right? Because that will just add to your cost. So, all the, you know, deals and discussions happen at the central level, but supplies we are receiving at the local level, because that's the most efficient way to do it.

Can the hub and spoke stop?

What exactly would you mean by Herb and Spoke?

No, so I was saying that, say, supposing, like, Mumbai, Bangalore, Hyderabad, places where you have, like, a lot of, you know, volumes, instead of having many warehouses, would you maybe have some centralized warehouses? Because earlier, we didn't have that. So, I was just wondering, in case we have transitioned to having large warehouses, which then cater to... Thank you.

It is not possible to supply Hyderabad from Mumbai, okay, for two reasons. One that, you know, we are in the last mile business where the, you know.

No, no, not Hyderabad. Sorry, sir. Sorry to clarify, but not Hyderabad from Mumbai. In Mumbai, you would have large warehouse catering to Mumbai. Bangalore larger warehouses catering to Bangalore. For example, earlier, you know, you may have had. Maybe 10 warehouses in the city of Mumbai, which are smaller inside. Maybe then you move to a large warehouse, which then caters to 2-3 smaller ones. So then you move from 10 warehouses to 4, for example.

Yes, yes, that we have, you know. So we have a large warehouse in Mumbai, which is, you know, catering to large parts. And from there, we supply to other smaller, you know, places also like Thana and others, right? So that always happens.

Right, right. Okay, thank you. I'll get back in the queue.

Thank you. The next question is from the line of Once Solanki from RSP and Ventures. Please go ahead.

My question is particularly on private labels and Chandrik and MedTech. So currently, how much revenue contribution is from these segments and after the acquisition of the Anand, what will be the revenue contribution you are expecting from these segments for private labels, Chandrik and MedTech?

So, MedTech, I think we have given that, you know, with the post this thousand crores coming into our books, it will reflect almost 15% of our business. Right. Generic and private label are still very small part of our business, you know, in low single digits.

Okay, and the second reason that our effective tax rates are continuously lower, like 16%, 18%, I think quarter one and quarter two, and quarter also it is 13%. So are we getting benefit from taxation style, any tax sales, or this will continue, or we will come to the normal 25% corporate tax level soon?

So, once currently we have certain losses available to us, carry forward losses, on account of which currently you are seeing the effective tax rate at about 18%. As and when those losses get completely consumed, the tax rate obviously will slowly go up a bit. But for this financial year, we are holding on to our 18% of effective tax rate.

Okay. Can you give me a number? How much accumulated losses are there as of now? Or maybe if you are not, the number is available for now, then you can give also for September if you have.

So if you look at the losses, probably we will utilize all those losses maybe by next year.

Okay, okay. That will be also helpful. And the last question on the bookkeeping, how much is growth debt and net debt level we have as of for the 300?

So net debt is at about 200 crores, and we had cash of about 250 crores.

Thank you. That's from my side and all the time.

Thank you.

Thank you. The next question is from the line of Swaraj Mehta from Perpetual Capital Advisors. Please go ahead.

Hi. Thank you for the opportunity. I'm relatively new to the company. I just had one question. What metrics do we look at before acquiring companies, and what is the reason for acquiring companies? Is it scale or reach to plan? Thank you.

What do we look at when acquiring companies, and what is the reason to acquire?

So, we acquire distributors to gain entry into those geographic segment and product segment, right? So, with any acquisition, what comes to work is basically a portfolio of companies, a portfolio of customers, right? Operating in a particular product segment or in a particular geography. Did I answer, or do you want me to elaborate more?

Yes, and what metrics do we look at before acquiring a company? Like, what are the key things we look at before acquiring a particular company?

So, basically, the most important criteria we look at before acquiring a company is what is that company going to add to us? You know, because we are already sitting on a wide network today, right? We don't want a duplication of our network. So, you know, what is it that unique thing that is going to add to us which will be more difficult or time-consuming for us to build ourselves? So either he is giving us a new geography that, you know, is a difficult geography for us to go on our own, or he is giving a product segment that is very difficult to build on our own or will take time to build on our own. So if you look at last year's acquisitions, and I have given that in one of the slides, and rationally for each of those acquisitions, so some acquisitions gave us entry into MedTech segment which was not our, you know, forte before. Some people gave us, you know, energy exposure. You know, one of the acquisitions gave us one of the largest presents in Pune as a market, which is a large market. So, like that, you know, every acquisition has to add something to us, you know, either a new geography or a new product segment, like that.

Got it. Thank you.

Thank you. The next question is from the line of Pranay Roop Chatterjee from Burman Capital Management. Please go ahead.

Hi, good morning. Am I audible?

Yes.

Hi, yeah. My question is pertaining to the launch of GLP-1 products expected in the near term. So, and I'm thinking about it from two perspectives. One is you have an existing product which contributes Obviously, you put it the other way, where you sell 10% of GF1 products, based on the numbers I can see at an ITM level, that would likely be high single-digit to low double-digit percentage of your existing business. So, it's a meaningful contributor. One impact would be when these cheaper alternatives come into the market, there could be some hit to your existing business, or there could be a cap to further growth, because this existing product has been growing tremendously on a month-on-month basis. The other second-order impact is that if there is a new product that is expected to be launched, I would expect that a pan-India distributor to get an upfront disproportionate benefit just for the sake of, you know, easier access to the market or, you know, wider access before it normalizes and all the smaller guys also get a piece of the pie. So, from these two perspectives, netting off against each other, how do you see your overall throughput expanding over the next, let's say, four quarters, simply because of these new products launching?

Yeah, Pranay, we have to look at our base, you know, our base is huge, you know, our base is today more than 7,000 crores annual revenue, right? So, you know, any one particular product is not going to make a very meaningful change in our, you know, growth profile or anything like that, right? Because even if we are doing, you know, let's say, the GLP one is still a very small proportion of our sales because we are selling so many other products at the same time. And, you know, let's say by end of March or April, there is semagrotide, you know, new players come in, generic players come in, and we will continue to sell their products also. How much share they will take from the innovator, because today, you know, most of the sales is only from the innovator, right? So, overall the market is going to expand. So, but how much it will impact our own growth, I don't think so any very meaningful. But I can estimate right now.

Got it. My second question is on, it's more a hygiene question. If I simply divide... By your organic like-for-like growth of 17%, by the IKM growth of 12%, it comes to about 1.4%. I know it might be a myopic way to look at your business on a quarterly basis, but that being said, mathematically, this is the lowest quarterly outperformance we have seen, at least since I have started collating the numbers from back in FY23. So, is there any one-off, or we should just ignore this quarterly one?

I would say just ignore this quarterly one. I mean, I was also surprised to see such a huge growth on the IPM side, because, you know, last four, five quarters, the IPM had been growing by 7-8%, and in this quarter, it grew by 12%, right? So, the denominator completely changed. So, I wouldn't read much into it, you know.

Got it, sir. Thanks, sir. All the best. Thank you.

Thank you. The next question is from the line of Benoy Jariwala from Opatchia Investments. Please go ahead.

Yeah, hi. Thanks for the opportunity. Prabhar, two questions from my side. So one is that you've already called out, you know, that next two, three quarters, the focus will be on integrating the acquisition, improving the margin profile, and working on reducing working capital. Is there any target for FY27 that you'd like to call out in terms of cash flow generation, as well as working capital day reduction? And the second question is, how many more 100 crore plus revenue size acquisitions are actually available now for you?

So, you know, your first question, on FY27, I am not giving the guidance, except that I can only say that FY27 is going to fall better than FY26, given the fact that a lot of work we have done in the second half of FY26 is going to have a full year impact for next year. Okay. But we will talk about the next year numbers in the next fall, you know, when we will have the full business plan and everything ready. Coming to your second question, you know, how many distributors of above 100 crores are available? There are many available. So when we want to go back, even today we have so many in our pipeline. So when we decide to go back to the market and shop for more, we would find enough targets.

Just to follow up on this, would you say that whenever you go back to the market, you have a pipeline visibility of at least a couple of years?

The pipeline is already there with us, you know. There are many people who keep approaching us for, you know, collaboration. So we have the pipeline ready. You know, once, as I told you, next two, three quarters, we improve on our own internal operations, you know, internal metrics. And then we will go and see which of those pipelines are still there and which of those pipelines would make sense to us.

If I may ask one more question.

Sorry to interrupt you, sir. Can you please rejoin the queue for more questions?

Sure, I'll come back.

Thank you. Ladies and gentlemen, you are requested to restrict your questions to one per participant. The next question is from the line of Vineet from Toro Wealth Managers. Please go ahead.

Hi, sir.

Am I audible?

Yes, yes, you are.

Yes, sir. So, my question was with respect to, like, one of the participants asked you about the other expenses being increased this quarter, right?

But if you can, like, mention about the few of the line items, few of the top five line items in the other expenses, because I didn't exactly get what

MedTech is actually making the other expense to increase.

So, in Medset, you know, we are doing demand generation also, which means higher manpower because, you know, and more qualified manpower, you know, as compared to, you know, warehouse and delivery manpower in demand fulfillment business, right? There are other marketing and promotion expenses also there in Medset. So, these are the two big cost items that are there when you do demand generation activity as well. That helps you to drive higher gross margins, but at expense ratio, they will be higher compared to, you know, pure play farmer distribution.

Got it.

And, sir, like, if you can also, as we have a long queue, can you please rejoin the queue for a follow-up question?

This was my second question, Andrew.

Yeah, but we are restricting to one question for participant to ensure that the management answers all the questions.

Okay, I'll join with you.

Thank you so much. The next question is from the line of Rishabh Sitsusuriya from Bashan Research. Please go ahead.

Hi, sir. Thank you for the opportunity. Am I audible?

Yes.

Yeah, I have a slightly longer term question about the business. So, if you could just explain the levels behind the organic growth, you know, which we have at, you know, 1.5x and more higher than that. So, what are the levels that you could just quantify? Let's say, is it the increase of the wallet share of the existing customer? Is it the cross-sell that we do to the new or acquired customers via the MN activities? The reason I'm asking and trying to understand what would be a sustainable growth rate for a business, you know, let's say five years down the line when we would be out of any sizable or meaningful acquisition.

Yeah, so, you know, very good question, actually, you know, and this is basically the core of our business. Why should we grow faster than the industry or why should we grow faster than our competitors, right? And this is totally dependent on the value proposition that we offer to our customers, you know. So, what do we offer to our customers? We offer to our customers a very huge product portfolio, right? Today, the pharma market is so fragmented that for any retailer, you know, to run a shop, he needs. You know, 6000 different items, right? Those could be divided over 300, 400 companies, right? We offer him an opportunity to consolidate his buying through one buyer, one supplier, right? So he gets a huge amount of convenience in terms of getting a large portfolio fulfilled through us. Secondly, you know, our service levels to him in the sense that, you know, we are delivering two to three times per day. We are running our warehouses 24 by 7. So, you know, he can place the order right before closing a shop and he gets the goods just before opening a shop in the morning, right? So, he can order on our app so he doesn't have to, you know, do manual ordering and all that. So, all this is a big value add for a customer and that helps us to gain wallet share at his counter. Okay, and at the same time, we also expand our customer base. You know, we keep hunting for new customers, new shops that are open in the area. We expand our geographical reach. So, you know, we are going from main center in the city. We are also going to the, you know, nearby districts where we offer the same value proposition because we are sitting on a huge portfolio, you know, the portfolio of products. And that gives you a huge, you know, advantage over anyone else in business. And that's the reason why we have been acquiring also companies to build that portfolio because we have the customer. It's like a two-way mode, you know, why do so many companies come to you because you have such a huge customer base and why do so many customers come to you because you have so many products to sell to them or they can buy from you. So that mode reinforces itself every time, you know, every time we add companies or every time we add customers.

So, can I have a small follow-up on this? So, can you just give me any guidance for any, you know, maintenance for our business? So, if you could just explain that. So, we have been continuously increasing our overall warehouses. So, I'm just trying to understand what is, like, a peak, you know, asset turns for us. So, if any color on that part, it would help us understand better what would be the incremental, you know, return on capital potential for our business. You know, we are continuously decreasing our working capital days, and we, what would be, what are operating leverage benefits for our business?

So, as you know, our business is not capital intensive. It's only working capital intensive. So, you know, fixed assets point of view, we have a very small fixed asset base because most of the, I'm not most, all of the warehouses are on leases, right? So, the only equipment that we would put there is storage equipment and cooling equipment, right, to maintain the temperature and stuff like that. So, capex point of view, it's very minimal compared to the revenues that we generate from that warehouse. Probably to do one warehouse, you would not need more than 30-40 lakhs of capex.

Understood. So, understood. That's it from my side. Thank you. All of it.

Thank you. The next question is from the line of Pratish Revasava from Nivish Wisdom. You are requested to limit your questions to one for participants. Please go ahead.

Sure, sir. Sir, I recently attended one of the phone calls for the Ayurvedic health care provider. I think they have, they were mentioning in the, openly mentioning the call that they have tied up the queue for the distribution of their Ayurvedic products. But they also mentioned that, you know, for allopathic and other devices, the margins are high, but for these, the margins are low. So, is that true? And why are we getting into low margin if that is true? So, I want your, you know.

What did you say in the last, I didn't hear that conference call, so you will have to tell me what, what, what did they say?

So in that conference call, sir, they were saying that they have anyways tied up with Entero for their Ayurvedic, you know, supplements and other products for distribution. But they were also saying that, you know, it is better for them to die up and they were saying they are getting that at a lower margin than what typically used are for other like allopathic sort of products, like other electronic devices or other things, right? So, is that true? I want to hear from you also on that. What are the margins? What are the margins going to be in the Ayurvedic products distribution?

So, Ayurvedic products don't carry lower margins than other pharmaceutical products, right? So, the normal pharmaceutical product margins are like 10% plus, right? So, it's in the same line or it could be more, it won't be less.

Okay. All right, sir. Okay. I can ask just one more question, sir, because on the U.S. Now, there are other U.S. devices also coming in.

Mr. Pratik, sorry to interrupt you. Please rejoin the queue if you have a follow-up question.

Okay. Sure. Okay.

Thank you. The next question is from the line of Sumit from FinServ Analytics. Please go ahead.

Thanks for the opportunity. I have a simple bookkeeping question on data outstanding for more than six months. What is the amount of data outstanding for more than six months as on December 25?

Hello.

Am I audible?

So, you know, all the debtors, you know, which are at different edging profile, they are adequately provided. We are not giving the data edging separately in the debt. Whatever, you know, as per the accounting policy of the company approved by the auditors and the board, whatever, you know, provision is required to be made is being made based on the edging profile of the debtors.

Okay, I wanted to understand what is the amount of data that's outstanding for more than six months as of December 25th.

We don't give that kind of data. Why would you need that data? What would you do with that data?

Okay, just for the evaluation, to understand how much provision can come in future.

Just based on that data, you won't be able to take a judgment on how much provision is required, right? That judgment is being taken by the management.

Okay. Understood. Thanks.

Thank you. The next question is from the line of Chintan Seth from Girik Capital. Please go ahead.

Yes, hi, Prabhat. Just a follow-up and clarification on the cash flow. Sorry to half on it. You mentioned third quarter last year was negative 23-odd crore, and first half, I think it was 62-odd crore negative. So, nine months, we were down 85 crore, and the full year was down 77 crore. And this year, we have kind of recovered from 85 negative to negative 8 crore. Already, 100 crore delta is largely, you know, has been covered. Is the numbers right? I'm just trying to reconcile that. We mentioned 23. Last year, it was 62. 85 was 9 months negative.

And when you're looking at operating cash flows, yes, there has been a significant improvement in Q3. So, like Prabhat mentioned earlier, we've done 49 crores of positive in Q3 itself. And we were 47 negative in Q1, 10 negative in Q2. So, we are about it as of YTD. And we maintain our full-year cash flow projections, operating cash flow projections. We maintain that.

Great, great. You know, last year on a full-year basis, we were 77 negative.

Down 77, correct. So fourth quarter implied was positive only.

Yes, last year fourth quarter was positive, yes.

Got it, got it. I think it's great. Thank you for the clarification. I'll jump back.

Yeah, okay.

Thank you. Ladies and gentlemen, we'll take this as a last question for today due to time constraint. I now hand the conference over to Mr. Prabhat Agrawal for his closing comments. Over to you, sir.

Well, thank you, everyone, for joining this call, and thank you for your trust in the company. You know, if you have any questions which has been left unanswered, please do reach out to SGA or to our IR team. Thank you once again for joining. Bye. Take care.

On behalf of Dam Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.