Entero Healthcare Solutions Limited (ENTERO) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q4 and FY26 earnings conference call of Entero Healthcare Solutions Limited, hosted by Dan Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, 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 call has been recorded. Before we proceed, this conference call may contain forward-looking statements about the company, which are based on the belief, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance. I now hand the conference over to Mr. Nathan Agarwal from DAM Capital Advisors. Thank you, and over to you, sir.

Thank you.

Hi, good morning, everyone, and a very warm welcome to Entero Healthcare Solutions Q4 F26 Earnings Call, hosted by DAM Capital Advisors Ltd. On the call today, we have representing Entero Healthcare Solutions, Mr. Pravath Agarwal, Managing Director and CEO. I will hand over the call to the management team to make the opening comments, and then we'll open the floor for questions. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our earnings conference call to discuss the performance of quarter four, financial year 26, and the full year. I am joined by Mr. Balakrishnan Kaushik, group CFO, and as GA, our investor relations advisor from the call. I hope everyone had an opportunity to go to the financial results and investor presentation. I will start with the performance update of the full year, followed by quarter update, following which I will cover guidance for financial year 2027 and provide updates on the strategic initiative and operational improvement efforts in the organization. Let me begin. By first reminding ourselves of the vision we have set for our company. We started this company 8 years ago with a vision to create a scalable, comprehensive, and integrated healthcare distribution platform which can add value to the entire healthcare ecosystem. Currently, the healthcare supply chain industry, sized over 33 billion US dollars, is extremely fragmented. This presents a massive opportunity for consolidating the space through use of technology and scale-like benefits, along with capitalizing on available M&A opportunities. We have been on this journey for almost eight years now, and I have made significant strides in creating a pan-India distribution platform, which is today serving more than 100,000 retail pharmacies. That is almost one out of every 10 pharmacy in India and 3,600 hospitals spread over 523 districts of India who get access to one of the largest product portfolio of 97,500 SKUs. The platform also serves over 3,300 healthcare manufacturers who get wide market access. This year, we expanded our presence beyond pharmaceutical to include medtech, especially in the diagnostic and medical device space, which are synergistic and broadens and strengthens our platform. We believe we are in a unique position to create a very impactful and extremely scalable organization that can proudly support the nation's objective of providing quality and reliable healthcare access. To a billion-plus population in India. Now coming to the financial performance summary. At the beginning of financial year, we set out few financial targets for us. And I am pleased to share that we have delivered on each of those parameters. First one, we guided for revenue growth of 30% year on year on life for life basis, that is growth adjusting for the base impact of revenue recognized on net margin basis and divestment of a subsidiary. In line with the guidance, our full-year revenue on like-for-like basis grew by 31.5%, with top-line at INR 6591 crores. We outperform IPM by 1.6 times, delivering an organic like-for-like growth of 15.6%. The inorganic growth was 16% year-on-year during the year. Our second parameter for guidance was achieving EBITDA margin of 4% for the full year. Again, I am pleased to share that we delivered 4% EBITDA margin, which is plus 67 basis points year on year, with EBITDA at INR 266 cross. This came on the back of gross margin expansion of 78 basis points year on year to 10.3%, driven by better product mix and procurement efficiencies. Gross profit came in at INR 680 crores, up 40% year-on-year. Full-year PAC stood at INR 146 crore, with PAC margin of 2.2%. PAC grew by 36% year-on-year. Our third parameter of guidance was operating cash flow. We continued to optimize working capital, and net working capital days continued to improve on a quarterly basis. Through the initiatives taken during the year, our optimization efforts, especially on inventory and accounts receivable side, along with improved EBITDA margin, drove operating cash flow of I&R 96.2 crore for the full year. There is also a steady improvement in the return ratios. Return on capital employed improved to 14.6% in FY26 from 10.7% in FY25. And return on equity increased to 12.5% from 7.7% in FY25. Next, moving on to quarterly performance, in line with our full year results, we saw solid growth momentum in quarter 4. Revenue grew 42.6% year-on-year with organic growth on like-for-like basis at 17.1% and growth led by new acquisitions at 26%. Gross margin expanded by 110 basis points to 10.9% during the quarter. With gross profit growing by 59% year on year to INR 207 crores. Our EBITDA margin was at 4.5%. That is 85 basis points plus year on year with EBITDA at INR 86 crores. Growing by 76%. Fat margin was 2.4%. Fat grew by 44% year on year to 45.1 crore. Our ROC on a quarterly basis improved to 18.4% from 14.8% in the last quarter. Our ROE was 16% versus 10.4% in the last quarter. We achieved operating cash flow of INR 104.6 crores with net working capital days at 59 days versus 64 days in the previous quarter. Now coming to acquisitions. As you are aware, we have closed seven acquisitions during the year, including three in MedTech segment, which is Alan Chemistics, KS Cardiopathy, and BioEdge Technologies. With these acquisitions and existing presence that we had in this segment, we have built significant scale and presence in the MedTech space. The segment now contributes more than 1,000 crore in annualized revenue for us. We have added scale in the key sub-segments of diagnostic reagents and equipments. Cardiology and consumables through these acquisitions. Apart from distribution services, we also play the value-added commercial role for some of the manufacturers, where we market and promote the products using our sales and marketing team. We are further forging new partnerships with innovators and global players and expanding our sales and marketing infrastructure in these segments. Method distribution is a large and synergistic opportunity. And diversifies our revenue mix and strengthens our position in the healthcare distribution platform with wider product offerings. As we close FY26 and move on to next financial year, I reiterate that we have delivered on all parameters of our guidance. With optimism and confidence for the next financial year, let me lay out our guidance for FY27. We aim for consolidated revenue growth of 23% year-on-year, excluding any new acquisitions, with 5% EBITDA margins. Our focus would be on profitable revenue growth and operational efficiencies to drive margins. We aim to deliver EBITDA to operating cash flow conversion ratio to be at least 50% to ensure sustainable growth path for future. and invite people to ask questions.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants, you are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question is assembled. We will take the first question from the line of Govind Rajan Chalappa from CSIM. Please go ahead.

Yeah, hi. Thanks for taking my question. My first question is on the minority interest during the fourth quarter. There's been a significant jump from the third quarter to fourth quarter. And, you know, considering that most of your acquisitions, you have 70 to 80% stake. The incremental minority interest is more than half of the incremental EBITDAO during the quarter. So that somehow doesn't add up. Could you just explain that?

Thank you, Govind. In the last quarter of financial year 26, we had, you know, an abnormal contribution from one of our subsidiaries, you know, which where we have partial stake, not full stake. And that's the reason, you know, the minority interest contribution for quarter four was, you know, abnormally high, right. But over next year, it's going to normalize. The minority interest is not likely to be as high as it was there in quarter four.

Yeah, I mean, thanks for giving us specific guidance for FY27, but honestly, without knowing what the minority's contribution is going to be, it's very hard for us to make sense of the overall numbers.

So what we can say, you know, for next year, you know, you can take around 25 to 27% of FAT before minority interest to be contribution from minority interest. This quarter, the minority interest was almost 38% of our PAT. That's going to reduce by 10 to 12% in the next year.

So you think about 25% being minority interest?

Thank you. We will take the next question from the line of Chintan Shait from Giddick Capital. Please go ahead.

Thank you for the opportunity. Am I audible? Hello.

Yes, yes, we can hear you.

Yeah, yeah. Hi, Prabha. Thank you. Thank you for the opportunity and the great set of numbers. Just to clarify on the growth, you mentioned the organic kind of acquisitions. We will be reporting almost 23% worldwide growth in FI27. Does that include two components? One is the calendarization of the acquisitions which we did this year. So, basically, the 1,000 crore, you know, pro forma revenue which we acquired this year, I think we booked around 500, 550 crore during the year. So, remaining revenue is included in the 23% growth guidance. Is it correct? Understanding, right?

Yes, yes. Good morning.

Yeah, okay. And second is, does this high growth of organic growth, which we are planning, which we are expecting, also include the expectations of the GLP-1 drug, you know, for the full year impact of the generics? And if you can provide some insight into what kind of, obviously, the role you are playing for the other part, but any specifics you want to point out on how are you looking and ensuring that we don't lose out on the GLP-1 in the coming year, if you can provide some insight into how you are approaching GLP-1 as a category. Given it's a kind of a big growth driver for the overall IPM, you know, for expectation for the next year.

Right. So, you know, our product portfolio is very, very wide. You know, DLP forms a small portion of our product portfolio as DLP forms a small portion of overall IPM industry. But our market share in GLP is higher than our overall market share in India. Because, you know, GLP distribution is not as widespread as a lot of other products are, right? A lot of general medicines are, right? So, given the fact that we have the cold chain facility in all of our warehouses, and there are few specific companies doing GLP one, so we would get a disproportionate share of. GLP-1 distribution for sure. It's built into our, you know, in growth guidance.

Got it. Got it. And on the minority, you clarified that, but typically, we take two, three years, right, to fully consolidate and acquire the remaining stake. That level of buying out the business will be considered, or you like to continue the structure with majority ownership, but partial minority with erstwhile owners. How should one think about it?

Right. So, you know, every transaction we do or every, you know, acquisition that we do, whether in pharma space or medtech space, you know, we always have the call option on the remaining of the stake because we clearly lay out the path, how we will take full ownership of the company. Okay. And the timelines, valuation multiples, everything is pre-determined in the first contract itself. So, we have a timeline to, you know, we have an option to buy rest of the stake at pre-determined valuations and on a defined timeline. So, that's the option we always have.

And the timeline is basically two, three years post the equation or more than that? Just to kind of develop on it.

So, in some of the cases, it's a three-year period. In some cases, it could be five years.

Got it. Got it. And last bit on my side, and I'll jump back to you quickly. If I look at your pre-minority network, you know, equity, despite the very strong profitability, the absolute number seems to be flattish or slight dip on the network side. If you can elaborate what went into it, which resulted into slattest network for the year, that will be the last and I will join back. Thank you for more.

I'll take that call Bala here. Basically, since this year we have entities where we are not 100% shareholders and the number of entities where we are not 100% has increased, this is basically the impact of the first time recognition of put auction liability. So, typically, that's the main reason why you're seeing the net worth flattish. The profit moves into my net worth, but the impact of the put option liability is bringing it down to make it flattish. Because this is required under India, so this is more an accounting thing rather than a pure, pure movement of net worth.

Okay, okay. So, okay, I'll jump back in. Yeah.

Thank you. Before we take the next question, ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants in the question queue, we request you to kindly limit your questions to two per participants. If you have a follow-up question, please rejoin the queue again. We will take the next question from the line of Akshat Mehta from 7 Rivers Holdings. Please go ahead.

Hello, sir. Thank you for the opportunity. The first question was, if you can help us, you know, break up the 20% revenue growth in 5% margins, what will be the key drivers, how will you kind of achieve that, can help us with that? And secondly, on the same note, the 20% revenue growth seems to be a bit low, given that, you know, 1,000 crores of revenue is just going to come from the venture capital that we've done on a full year. So how should we kind of look at that?

Right. So, you know, 23% revenue guidance basically based on two, three things. One is, of course, the calendarization impact of the acquisitions done during the last year, right? And the second is the organic growth, right? While calculating the organic growth, we have also taken down some business on net revenue margin basis also. There are certain businesses that we have added where we are only recognizing the net revenue. So that has an impact on overall revenue growth for next year. And also there are certain low margin business that we are giving up, you know, and we are using the working capital to invest in more profitable or more higher return on investment generating assets. So we have factored all this in. While giving the revenue growth guidance of 23%.

And, sir, on the margin side?

Margin side also, you know, we have given 5% EBITDA margins for next year. You know, that factors in, you know, the contribution from MedTech, that factors in the, you know, operating leverage, that factors in certain businesses where we are below margin businesses that we are giving up. This is the net margin guidance for next year after considering all these impacts.

Okay. My next question is about the working capital cycle. So it seems that it's in the working capital cycle, but again, on the face of it, it seems like that's majorly been driven by the payable cycle actually going up rather than inventory or the payables coming out. I mean, how should you look at this in F527? And how sustainable is this number at the end of F527?

So, you know, the payable increase is mainly contributed by higher MedTech contribution, you know. MedTech, the payment cycle is not like 7 and 21 days as in Pharma, you know. There the, you know, the credit provided by all these companies are much higher as compared to, I would say, Pharma type, right. So, that's the reason why you are seeing higher payable days. Going forward for next year, the guidance that I have given is, you know, that whatever EBITDA we generate, at least 50% will get converted to cash flow, for operating cash flow. So that includes both the margin impact and also working capital accumulation.

My exact question was that will we see kind of a working capital, you know, drawdown because, you know, we haven't yet seen the full year impact of the acquisitions that full year, every impact of acquisitions that you've done. And our plan is not to have, you know, too many acquisitions in FY27. So will that have an impact on the overall working capital cycle in FY27?

So, if you look at, you know, my this year quarter revenue itself is more than 1,900 crores, and if you annualize for next year, you know, the annualized number itself is close to 8,000 crores, right? So, I've already built in most of the working capital in this quarter itself. So, new, unless I, our growth rates are much higher than 23%, that... We are guiding for, right? Your incremental working capital is not going to be huge, because a lot of the working capital is already in place at the end of this year's balance sheet.

Okay. And one last question, sir, what can we expect the tax rate to be in FY21?

We expect it to be in the range of about 22-23% for FI27.

Thank you, sir. Welcome.

Thank you. We will take the next question from the line of Sudarshan Pajmanabhan from Ask NDPMS. Please go ahead.

Thank you for taking my question. So, my question is on a strategy. Sorry to interrupt.

In between, Sudarshan, I would request you to please use your handset mode and speak.

Am I audible now?

Yes, sir, audible. Please proceed.

Yeah, yeah. So, my question is, you know, on your strategy, especially, you know, given that, you know, we are going to generate good operating cash flows going forward. So, we have seen a spate of acquisitions in the last three to four or five years. I mean, and we are at a certain scale at this point of time. Going forward, one, if you can give some color on the magnitude of cash flows, especially magnitude of acquisitions, especially given that our minority has reached up to 25% of the PBT or P80 pre-minority. The second is, you know, with respect to the quality of acquisitions, because we have seen that net tech is something that we have focused on. Incrementally, what are we going to focus differently as compared to what we used to focus in the last four or five years?

Yeah, so, you know, if you look at my next year guidance, I've given a guidance without including any new acquisitions, right? So, we have done a lot of, you know, M&A in the last one or two years, you know, so, you know, for next. Six to eight months, we are only going to focus on delivering organic growth because there are a lot of opportunities that is available to us given that huge platform that we have built, you know, and now our platform is including not only pharma but also medtech space. In medtech space, we are, you know, tying up with a lot many new companies, you know, whether it's in imaging segment, whether it's in, you know, neuropsychiatry, whether it's orthopedics, cardiology. You know, multiple new segments, we are, you know, working with a lot of global companies where we can provide them a distribution platform in India, right? So, our job as a management is cut out for next year is to focus on a lot of organic opportunities that can be built over this platform. And that's the reason I have not included in the guidance any new acquisitions as of now. But, as we say, we are not, you know, walking away from looking at any new acquisition opportunity. You know, if something interesting comes up, We would definitely look at it. If it creates value for the shareholders, we would definitely look at it. And if that happens, accordingly we will revise our guidance upwards.

And, sir, with respect to, you know, the GLP-1, I mean, we've seen that this is actually, you know, encouraging to see the scale of happening in the ones that have gone generic. Can you give some color with respect to, you know, the positive impact it is having on our business? And if I take, say, two, three years down the line, I mean, the positive thing is we have made entry into MedTech. Where do we see MedTech as proportion of our business, you know, in terms of both sales and EBITDA?

So, on revenue side, you know, the MedTech contribution now, given all the acquisition that we have done and now everything we have consolidated in our revenues, it will be more than 15%.

And this figure, what would you expect or what would you aspire it to be, sir, in, say, two, three years?

It can go up to 20%. See, Parma will still remain a core part of our business, right, because that's where we have massive scale as well. MedTech is a synergistic opportunity, and if you look at the industry size of MedTech and compare it with the industry size of Parma, this is what the ratio is, approximately.

Sure, and I would assume that, you know, impact on EBITDA would be higher, given that MedTech typically has about 50% to higher, you know, 100% the kind of margins that we make on the pharma side.

Yes, and the reason why, you know, MedTech, the margins are higher than pharma is because we play a more commercial role in those contracts, where we are also responsible for generating demand and sales for the companies, and that's why, you know, we end up enjoying better margins.

Sir, one final thing before I join back is your view on, you know, the GLP-1. How do you see this, you know, positively impacting, you know, this segment?

Sorry to interrupt in between us, Sudarshan. I would request you to please rejoin the queue again for more questions.

I think I will answer the GLP-1 because I think that's a question from many analysts on this call or many participants on this call, right? So, GLP-1, as we said, you know, at end of the day, see, we are doing approximately 10 to 12 crores of GLP sales per month. Okay, which is approximately, I would say, let's say 5% of all, you know, GLP value, GLP, overall industry value.

We will take the next question from the line of Vans Solanki from RSP and Ventures. Please go ahead.

Hi, good morning. My question is on the finance course. Also in last call, Mr. Prabhat mentioned that the finance course will continue to rise. And also, in this quarter, also, Like, it is increased very well. And as you are not going to acquire new acquisitions, I said, I think this finance cost will come down sequentially in FY27. Is my understanding correct?

This is Bada here once. Interest costs to remain relatively stable and then come down in future. So because in the earlier years, we had the IPO funds which were also parked pending investment into acquisitions, which has happened in the last year. So that's the reason you see the higher interest costs in this year. So like you rightly mentioned, this will sequentially come down over the next couple of years. It's expected to remain stable in the near term, maybe in the next couple of quarters, and then you will see some reduction coming through.

Okay. And the second question is on the depreciation. Depreciation is increased sequentially Approx 50%. So is it due to the new acquisitions we have done in the last two quarters or what?

You are right. The depreciation has increased because in the medtech business, it's slightly different from your typical pharma distribution business where there will be assets that will be placed at customer levels as well. And that's the reason why you're seeing a higher depreciation.

Okay, so this depreciation is continue to be in this level, and maybe increase if we acquire new MedTech acquisition in next year.

Not all MedTech, you know, business has this depreciation component. Specifically, I would say in the IVD segment of MedTech. You know, where we are providing machines on reagent dental models, where we are putting our machines in the lab, you know, against a five-year, you know, revenue contract with them, that those machines we are depreciating, right? So, on other parts of business like cardiology and others, you know, we don't have much of a depreciating machine.

That's from my friend.

We will take the next question from the line of Aditya Cheda from Ingrid Asset Management. Please go ahead.

Hi, thank you for the opportunity. So, my question is on the working capital, which is as a percentage of sales, it has been in the range of 22% So, what is your outlook on the best operating efficiency that you can have in this area? So, the math that I did is that for the incremental sales that we have, we will need an additional 300 crores of working capital versus an EBITDA of 400 crores. That would leave us with 100 crores of OCF, which implies a 25% OCF to EBITDA conversion rate. So, whether we expect this working capital as a percentage of sales to come down directionally.

Thanks. No, so what we are comparing is, what you are comparing is year to year, but compare with quarter four to next year number, right? My quarter four already has a working capital investment of almost what? You know, if you analyze 1900 crores of revenue, 7600 crores. Revenue worth of working capital is already there in the balance sheet, right? So we are looking at what? You know, at a revenue guidance, this is only 500 crores plus over quarter four, which is hardly, you know, 50-60 crores.

Got it. So on a reported basis for next year, this ratio will come down, which is working capital as a percentage of sales.

Yes, I mean incremental working capital as a percentage of incremental revenue.

Right. My next question was about the acquisitions that we do. What are the typical valuations that we pay for the valuations that we do?

The same that we have always said before, which is 5 to 7 times of enterprise value to EBITDA.

Thank you.

We will take the next question from the line of Siddharth Negandi from CWC. Please go ahead.

Hi, thanks for the opportunity. Just wanted to understand you've mentioned about certain global customers whom you are disputing products for in India. Given the current Middle East crisis, are you seeing a challenge either on pricing or on availability for this? And how do you see that playing out, especially, say, in the first half of FI27? That was question one. Question two, just a clarification when you mention the minority interest. I'm assuming that is not for the profits, right? That's for your net worth. Just a clarification.

So, I, you know, try to understand your second question better, but the first question that you talked about was the global challenges from the Chinese conflict. No, we are not importing a lot of stuff, okay? So, even if we are working with a lot of partners, you know, we are working with their local subsidiaries in India. So, they are importing the stuff and we are doing the distribution and commercial role for them, right? But our direct imports from abroad is very small portion of our sales, right? So, it's not going to impact, you know, directly anything significant to us in our business plan that we have prepared. But if the whole industry faces a challenge like, you know, the pharma industry faces a challenge or, you know, medtech industry faces a challenge in terms of their own critical inputs, then we might, we will be impacted by that as well.

Sure, I appreciate that. What I'm going to ask is, while you may not be directly importing, if there is an import challenge that, say, their local subsidiary is facing, are you seeing any impact on your business from the local subsidiary not being able to provide products or, you know, anything of that sort? Or do you believe that largely you are insulated from the crisis currently?

Largely, we are insulated, you know, to be honest, like, you look at the last quarter, you know, the conflict started in end of February, our numbers for the quarter was good, next year also we are forecasting good numbers, so I don't see any significant impact coming from, we are largely insulated on this front, you know, because a lot of our business is domestic, you know, our import component is very, very small in our overall business, so we are primarily a domestic player. I hear you.

I'll take the minority one offline later. Just a second question on the breakdown of your 23% growth. If you could give us some color on, you know, medtech versus pharma, and if you could give us some color on organic versus calendarization in this case.

Calendarization impact is around 11%, you know, and the rest is organic in our 22% guidance. And the growth on Pharma and MedTech both are equally, you know, contributing to the organic growth for next year.

Okay. Thank you.

Thank you. We will take the next question from the line of Shubham Agarwal from Buman Capital. Please go ahead.

Hi, good afternoon. Am I audible? Yeah. So my first question is on organic growth. And I asked this question last quarter as well. So if I were to take a 12 quarter average of your IPM outperformance up to Q2, FY26, I come to a number of 1.9. Q3 dipped suddenly to 1.4, and when I asked this question, the response was that IPM numbers sometimes are inflated and it's revised onwards. But what we see is IPM continues to be in that 10-12% range, and 1.4x is again the outperformance in Q4 as well. If I were to think about IPM next year, I don't know, 10%, let's put it at 10%. You just mentioned to the previous participant that out of 23% growth, 11% is from calendarization. So if I just read it back, 12% is basically the remaining growth. If I just add in some benefit because you are reducing some business voluntarily, it will add to that somehow, but maybe like 14-15% is the like for like. If I just add back, the businesses are shutting down. So, again, I'm coming to the 1.4, 1.5x number. Structurally, is the outperformance number reset for us because of the higher scale and because medtech does not really grow in line with IPM, so, you know, we should look at it as more like a lesser rate, or how should we look at it?

You are right, you know. For last two quarters, we have seen that IPM growth rate, which used to be 7-8 percent, has gone to 12 percent. Okay. And that's why our multiplier has gone down from 1.7, 1.8 to 1.4. If you look at our organic growth rate for last two quarters also have been in the range of 16-17% as it was in earlier years as well, right, or earlier quarters as well. But the denominator, you know, has increased significantly, you know, from 7 to 9 percent, it has gone to now 12 percent for last two quarters, and that's why, you know, you see this 1.4x against 1.7, 1.8x that we used to have earlier. Okay. Now, next year, you know, when your question is very valid that, you know, even if, you know, let's say industry grows at 12%, why are we forecasting only 12% organic growth? Okay, right? And the answer to that is the one that I told before that there are certain businesses that we are giving up because, you know, they are not generating very high ROIC for us. And life for life in certain businesses that we are taking up on a net margin basis. Okay? So, like-to-like growth is actually around 15%, you know, which is again coming back to 1.5 times of industry growth rate. But revenue recognized is lower in our financials because of the accounting treatment.

Sorry to interrupt in between. Mr. Shubham, before we proceed with the next question, I would request you to please use your handset mode and speak, and please help you to learn when not speaking to avoid the background disturbance. Now you may proceed with the question.

Is this clear?

Yes, sir. This is clear. Please proceed.

Great. My second question is, again, on minority interest, but I'll ask it in a different way. So, sir, the first time you were asked that question in this call, you responded that there was abnormal profits in one subsidiary, where it's probably close to 50-60%, I'm not sure, but the minority interest hence from that one subsidiary increased. My counterpoint or response to that to you is, wouldn't that also have hence driven a lot of your EBITDA margin expansion quarter and quarter, right? So let's say there is a subsidiary where you have, let's say, 55% or 60% interest. And let's say that's done really well, right? And in terms of margins, that has been consolidated fully in your numbers. So EBITDA has taken the benefit. EBIT, there is a benefit. PBT, there is a benefit. PAD, there is a benefit. But then it gets leaked out to non-controlling interests, right? Right. So when you say, so now number one, is that the case? Is then the right number for EBITDA margin 4.5 not the case if this was an abnormal case? And then the second part to that is, if you should expect a reduction in the run rate of minority interest in the incremental quarters, wouldn't that hence be a headwind to your margins? Because it helped your margins in Q4. I am just trying to understand that. Yes, sir.

Quarter 4 EBITDA margins was 4.5, right? While for next year, the guidance I'm giving is 5%, right? So definitely there is a much higher margin in next year than we are projecting vis-a-vis this year, right? So on overall margin basis, I'm revising my guidance upwards, not reducing. Right. Now, the reason I told you was that, you know, the minority interest was abnormally higher in one subsidiary because they were cut in sales that were prepond by the customer, you know. So the customer, we were planning for that sales in quarter four, quarter one of this year, but the customer requested for those equipments in quarter four itself because the government project, you know, was executed before time. So that's the reason. Otherwise, there's no abnormal as such. And the margin that I've given is not only MedTech now, there are a lot of other factors on margin improvement. There are certain businesses which we are giving up because of, you know, low margin. That also adds to the margin uplift. You know, there are a lot of organic businesses that we are building in the company on MedTech space. So, that's all our higher margin contribution businesses, right? Their operating leverage coming, again, 23% growth we are talking about. So, operating leverage is also contributing. So, there are many factors which is going to impact and keep our margin another 50 basis points higher than what it was in Quanta 4.

Thanks a lot, sir. All the best.

Thank you. We will take the next question from the line of Divya Agarwal from PICOM Family Office. Please go ahead.

Yeah, hi, sir. Thanks for taking my question. Am I audible? Yes. Yeah, so firstly, I just wanted to know, so currently, I believe we have around four MedTech companies. So, is the target for 1,000 crore revenue achievable from these companies, or will we need some additions in this segment?

So, 1000 crores is just based on what we have today, what we are delivering today. You know, we don't need more companies to take it to 1000. 1000 is our base already achieved. You know, next year with organic growth, it will be above 1000 crores, without adding anything more.

So, sir, our earlier growth was 30%. So, now we are coming down to 23%.

So, because, you know, last year, we did a lot of acquisitions also. So, in 23%, next year, we are not including any new acquisition, right? So, last year, I think, you know, the new acquisitions contributed almost 16% to our growth, right? Next year, that component is basically zero.

So, are there limited opportunities available for this MedTech segment acquisition?

No, it's not the question of opportunities. Opportunities are a lot. You know, now, you know, we have already proven that we can, you know, buy medtech acquisitions at a reasonable price and execute it. So, there is no shortage of pipeline. But we have to achieve what we have already acquired, right? So, we need to build on this. We need to spend more time on organically building this business, you know, optimizing this business, going after a lot of opportunities that present itself. Based on the platform that we have. So today, you know, a lot many global companies are looking at us or tying up with us because they know that, you know, this is a business expertise that we have built over the last two years. So we would rather focus our energies on that rather than chasing new acquisition targets.

Right. And lastly, I just wanted to know your...

For this is a help in between, Rivia. I would request you to please rejoin the queue again. Sure, sure. Thanks a lot. Thank you. We will take the next question from the line of Vineet from Toro Wealth Managers. Please go ahead.

Hi, sir. Good afternoon and welcome. This is for the free research.

Sorry to interrupt in between. Vineet, you are not audible. No, you're not audible. Please use your handset and speak. Avinita, sir, is no response. I would request you to please rejoin the queue again. No, you're not audible, sir. I would request you to please rejoin the queue again. Thank you. We will take the next question from the line of Kumar Saurabh from Scientific Investing. Please go ahead.

Hello, sir. My question is around the acquisitions we have done.

I'm not looking at exact number, but in what percentage of these acquisitions, the key management persons are still there with us?

100% of the acquisitions. The recent acquisitions we are talking about?

No, I mean in the last 2-3 years, because my understanding is this is a business where the team management person is very important, you know, for the sales and for the collection.

So, with that intent, my question is there.

So, generally, you know, whenever we are doing an acquisition, even if we are doing a 100% acquisition, you know, the promoters or the selling... Shareholders stay with us for at least one year, right? That's the contract that we negotiate with them, right? So if you look at our earlier acquisitions, the ones that we did in FY19, 2020, 2021, some of the promoters have left because, you know, the lock-in period is over. But the recent acquisitions, you know, everyone is with us, you know, because they want to continue with us, and anyway, we have not bought 100% of their stake in the acquisition that we have done post-IPO. So, they all guys are with us, and you know, they believe in this entire vision, so we are working together and jointly trying to grow business, and since they hold a part of the stake also, there is a skin in the game for them, there is an upside available to them.

Great, sir. One related question. So once some of these promoters leave, how do we take care of that relationship building which they had with the organization?

And second, in the acquired companies, what has been the growth rate of the acquired companies pre-acquisition and post-acquisition, if you have that data?

So, the first question, you know, how do we take care of this? You know, first of all, you know, even if somebody leaves, it's only the selling shareholder leaves. Now, the management team stays with us, right? So, you know, the sales people, the operations people, you know, the customer interface people, they are all staying in the company. It's only one person or two percent that leaves the company, right? So, it's not that, and by the time we have already had forced the relationship ourselves, so, you know, we have, you know, people in our company who are closely working with these companies at a pan-india level. So, we maintain those relationships and carry those relationships even if they exit after their lock-in period is over.

Great. And the second question is on the pre- and post-equation growth rates.

That I will share with you separately. Maybe the finance team can, you know, share with you the data because if I tell you something, you know, it may not be very accurate.

Sure. And the last question is...

Sorry to interrupt in between, Saurabh. I would request you to please rejoin the queue again for the questions. Thank you. We will take the next question from the line of Utkarsh Tomeya from Elko Quantum Solutions, Private Limited. Please go ahead.

Hi, this is Utkarsh from Elko Quantum Solutions. I actually wanted to understand that if you don't do any acquisitions for the foreseeable future, your FI28 growth, assuming 1.4x, Our performance was an IPM should be 14-15%, given that IPM would be 10%. Is that a fair assumption?

See, every FY28 guidance I'm not giving, you know, there are a lot of business that we are trying to build in this year, which will determine the growth rate of FY28. You know, there are a lot of organic opportunities, massive organic opportunities that are available with us, right? So, we are working on that. So, maybe in the second half of the year, I can give you more visibility for FY28.

Okay, and this interest cost and depreciation that you have in this quarter has gone up. Is that sustainable? Is that a sustainable number for the next year?

The interest cost will go up because, you know, we have acquired many entities for which we are paying after, you know, and we have already finished up the, you know, the IPO funds, right? So, that is leading to increasing debt levels or liquidation of the investments that we had, right? So, interest cost will go up for some time, you know, till the time we pay up all those debt levels.

So, what is a number we can work with for the full year, FI20,000?

I'm dressed fast.

Thank you, everyone, and welcome to the call. Why don't we, you know, our finance team will give you a, you know, a range.

Okay, sure.

We will take the next question from the line of Anupam Agarwal from Lucky Investments. Please go ahead.

Thank you for taking my question, and congratulations on good numbers, sir. Just one question, a lot of questions have been asked on EBITDA margin. My question will solely be focusing on gross margins. We've improved about 90 basis points for the quarter of IOI and 80 basis points for the whole year. How are you able to kind of source better from the manufacturers, and what kind of better margins are you being able to take from the entire channel? If you can maybe give some idea and color type, please.

So, why we are able to get a better margin is just because of our scale, you know. Once you buy so much, you know, and those quantities, of course, you can enjoy, you know, economies of purchasing. So, that's number one. Secondly, you know, in many places, as we said, we are playing a commercial role. You know, commercial role means we are also responsible for sales. In that scenario, the gross margin that the companies give us is much higher than the gross margin that they would give for a pure fulfillment role. So the impact of, you know, the reason for increasing gross margin is coming from basically these two reasons. One is, you know, the scale that, you know, purchase economies and secondly is more commercial role being played. When I say commercial role, when I say, you know, for many companies, we are an exclusive distributor for the entire India market, right? So, we are doing end-to-end work for them, you know, from, you know, developing the customer, you know, service, installation of equipments, you know, creating a distributor network in the country, you know, launching new products. So, you know... A full agency model as we say in other countries, you know, where you have full commercial role you are playing. Once you play a full commercial role, you would certainly expect much better gross margins than when you would play a just, you know, demand-fulfiller role.

Understood. Sir, how much would be the contribution of these third-party manufactured products, sir?

More than 10 to 15% of our sales is coming from where we are playing a full, you know, commercial role.

And have you seen that contribution increasing, sir, over the last three to four years?

Yes, and that contribution should increase going forward as well because we are targeting such kind of opportunities.

Understood. How much incremental margins you would be getting, sir, in these kind of models compared to your generic distribution model?

It depends on, you know, what is the scale potential of these companies, you know. It's no uniform number, I can give you, but it could be at least level of normal distribution margin.

Understood. Great, sir. Just last question.

I would request you to please rejoin the queue again.

Sure. Thank you.

Thank you. We will take the next question from the line of Karan Gupta from ACMIL. Please go ahead.

Yeah, hi. Good afternoon. Am I audible?

Yes. This is audible.

Yeah. So, two questions. One on margin, one on working capital side. The gross margin part that you have also mentioned in your TPT is in the range of 8 to 15 percent. It is the gross margin, right? Or what? Sorry, what is the line? Slide number 28. Just a confirmation. The 8 to 15 percent on the distributor's side, it is basically the gross margin that you are saying? Yeah. Okay, okay, okay. So the band, we are at the lower margin side, 9% something. What it will lead to increase the margin maybe in the 11% to 12% kind of range? And what is the margin in core pharma and medtech right now? That's the one question.

Part of, you know, margin expansion, the EBITDA margin expansion that I'm talking about for next year also is going to come from gross margin expansion only. This year also, if you look at large part of our, you know, EBITDA margin expansion has come from gross margin expansion itself.

Okay, okay. So, what is the gross margin right now? Core, Pharma, and MedTech?

The total gross margin for this quarter was 10.9%.

For the interrupt in between, Mr. Karan, I would request you to please rejoin the Q again for more questions. We will take the next question from the line of Bharat Sisha from BCS Capital, Ideas Limited. Please go ahead.

Yeah. Hi.

Thank you. I just wanted to understand what is the desired return on capital employed that you are looking forward to invent? And in sync with that, what is the... Like, sustainable growth, because superior ROC will have impact on your ability to grow, and your growth also will have impact on your ROC through the operating degree. And, therefore, can you first talk about what, in your opinion, is the desirable ROC? Thank you. When do you see that being achieved without diluting capital?

So, the reported ROC for this quarter was 18.4%, right? And with a margin expansion to next year by another half a percent from the current quarter, definitely the ROC for next year will exceed 20%.

My question was, is that the desirable ROC that you look forward to, or in your opinion, that is more or less in the character of business that you can achieve?

Well, if you are asking, are there opportunities to increase the ROC beyond 20%? Yes, it is available, for sure. But it may not happen in maybe next year or next quarter.

Well, what it should be, in your opinion, is the real competitive advantage you bring on the table for you to earn 20, 22, 24% ROC. I mean, at the end of the day, there is a demand for the product and pure distribution, even in consumer businesses we have seen over the period of time. Consumer businesses which were riding on high ROC through impregnable distribution strength, that advantage is eroded. So, what really is the core mode and the sustainable advantage which will protect and enhance the return on capital employment?

So, you know, you have come to a very, you know, strategic point. What is the moat available? You know, I tell you the kind of moat that we have is very difficult for anyone to build. You know, we have 100,000 customers in India, right? And we have more than 3,000 companies for which we are the distributors in the country, right? Nobody has that kind of a network. So, so many customers are there with us because there are so many companies, products we have available. And so many companies are with us because we have so much of customers, right? So, it's a two-way mode, you know, it's a two-way closed-loop system. More companies come to you because you have so much of customers and more customers come to you because you have so many companies, right? So, it's very difficult for anyone to build, you know, this two-way mode. And we have taken like seven, eight years, we have done so many 40, 50 M&A's. To build this kind of a moat, you know, and that gives us a sustainable long-term advantage, because, you know, so many companies, you know, we do a large part of their business in India, you know, there's not much of options available outside us. The option available is going to, you know, smaller distributors who can only do, you know, a limited role, right? So, the ROC's will keep on increasing, you know, as long as we keep on building this.

And if the retail becomes more and more consolidated and institutionalized, much like you are institutionalizing the distribution, will the equation and the terms of the trade change between the two?

Yes. So, you know, the reason why we have this unique advantage is because the supplier base is also very fragmented and the customer base is also very fragmented. And you asked specifically about, you know, the retail being unorganized in India. You know, retail, do you see a lot of consolidation happening in retail space? I don't see that because, you know, India has more than 1 million pharmacy stores. You know, the number of stores that belong to chain stores is hardly 15,000. So, still, you know, 97-98% of store network in India is basically mom and pop. And, you know, even that 1-2% organized detail is happening after 30-40 years, you know. The biggest store network in India is Medplus, which is 5,500 and second biggest, let's say, sorry, first is Apollo, second is Medplus. You know, together they add up to like 10. 12,000 stores in the country, and they are adding like 500, 600 stores every year. So you imagine, and then after Metplus and, you know, Apollo, there is no one having even 500 stores in India, right? So the consolidation pay for retail is, you know, it's not going to be such that, you know, the organized chain will start contributing a large part of India's, you know, pharmacy business, pharmacy retailing business.

And just one last bit. On the other income, I just wanted clarity from Bala. It seems to swing year by year, being high in fiscal 25 and moderating in fiscal 26. So can you highlight the source of the other income, which is swinging? There was one exceptional income or exchange that I'm ignoring, but how is the total income behaviour?

So, basically, FI25, we had a large other income, mainly because we had funds from the IPO that were there during, that were invested during FI25 in deposits, mutual funds, etc. We've utilized those funds for acquisitions and for working capital as a purpose for which the IPO was done. So, since those funds have now been invested into the business, you don't see it in other income in FI26.

Got it. So what, last year is more representative now?

Yes, FI26 is more representative. You're right. Okay.

Thank you.

Thank you very much. Ladies and gentlemen, due to time constraint, we will take that as the last question for today. I would now like to hand the conference over to the management for the closing comments. Thank you, Novachir.

Thank you, everyone, for joining this call. I hope I was able to address some of your queries during this call, but if any queries remain unanswered, please feel free to reach out to our investor relations team. Thank you once again for your support and confidence in the company. Thank you so much.

Thank you, members of the management. On behalf of Dam Capital Advisors, we conclude this conference. Thank you all for joining with us today, and we will now disconnect your life. Thank you.