IPO Analysis

IPO: Entero Healthcare Solutions

Everything you need to know about the IPO of this healthcare product distributor

Entero Healthcare Solutions IPO: All you need to know

Entero Healthcare Solutions, a healthcare product distributor, will launch its IPO (initial public offering) on February 9, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

  • Quality: Its three-year average ROE and ROCE are -3.4 per cent and 1.8 per cent, respectively. It also reported negative cash flow from operations in each of the last three financial years.
  • Growth: Its revenue grew by 36 per cent annually over the last three years.
  • Valuation: The stock is valued at a P/E and P/B of 499 and 3 times, respectively.
  • Overview: Growth in healthcare spends and gradual consolidation of the healthcare distribution industry should work in its favour. Note the company is presently amid an expansion wave, exploring both organic and inorganic growth avenues. However, its bottomline is yet to improve. Going forward, high capital requirements and intense competition may surface as considerable threats.

About Entero Healthcare Solutions

Entero Healthcare Solutions is a leading healthcare product distributor in India, catering to retail pharmacies, hospitals, nursing homes, clinics, and physicians. It also provides added services across the value chain, such as order and inventory management services.

Strengths of Entero Healthcare Solutions

  • It ranks among the top three healthcare product distributors in terms of operating income .
  • It has a diversified presence across 38 cities and 19 states, with a customer base of over 73,700 pharmacies and 2,800 hospitals.

Weaknesses of Entero Healthcare Solutions

  • It faces stiff competition from other players. The industry is highly fragmented, with local players accounting for 90 per cent of the market share.
  • Its business has high working capital requirements for which the company has relied on debt in the past. Also, it has pledged shares of its subsidiary companies.
  • Weak financials. It has consistently incurred losses, resulting in negative cash flows and low return ratios.

IPO details

Total IPO size (Rs cr) 1600
Offer for sale (Rs cr) 600
Fresh issue (Rs cr) 1000
Price band (Rs) 1195-1258
Subscription dates Feb 9-13, 2024
Purpose of issue Offer for sale, repayment of loan, working capital requirement, inorganic growth

Post-IPO

M-cap (Rs cr) 5471.3
Net worth (Rs cr) 1660.5
Promoter holding (%) 52.4
Price/earnings ratio (P/E) 499.2
Price/book ratio (P/B) 3.3

Financial history

Key financials 2Y CAGR (%) TTM FY23 FY22 FY21
Revenue (Rs cr) 36.2 3612 3300 2522 1780
EBIT (Rs cr) 174 69 40 5 5
PAT (Rs cr) -13.5 11 -12 -30 -16
Net worth (Rs cr) 10.8 658 598 563 487
Total debt 46.8 548 437 355 203
EBIT is earnings before interest and taxes
PAT is profit after tax

Key ratios

Key ratios 3Y average (%) TTM FY23 FY22 FY2
ROE (%) -3.4 1.8 -1.9 -5.2 -3.2
ROCE (%) 1.8 3.8 4.1 0.6 0.8
EBIT margin (%) 0.6 1.9 1.2 0.2 0.3
Debt-to-equity 0.8 0.7 0.6 0.4
ROE is return on equity
ROCE is return on capital employed
EBIT is earnings before interest and taxes

Risk report

Company and business

  • Are earnings before tax of Entero Healthcare Solutions more than Rs 50 crore in the last 12 months?
    Yes. It reported a profit before tax of Rs 17 crore in the twelve months ending September 2023.
  • Will Entero Healthcare Solutions be able to scale up its business?
    Yes. An uptick in healthcare spending and rising demand for healthcare products should help it scale up.
  • Do Entero Healthcare Solutions have recognizable brands with client stickiness?
    No. It does not have any long-term agreements with its clients.
  • Does the company have a credible moat?
    No. It faces stiff competition from other players, and the industry is highly fragmented.

Management

  • Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
    Yes. Post IPO, the promoters' stake will be 52.4 per cent.
  • Do the top three managers have more than 15 years of combined leadership at Entero Healthcare Solutions ?
    Yes. Key managerial personnel and senior management have more than 15 years of experience.
  • Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
    Yes. No information to suggest otherwise.
  • Is the company's accounting policy stable?
    Yes. No information to suggest otherwise.
  • Is the company free of promoter pledging of its shares?
    Yes. No shares have been pledged by the promoters of the company. However, shares of subsidiaries have been pledged, presently and historically, for raising funds.

Financials

  • Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
    No. Its three-year average ROE and ROCE are -3.4 and 1.8 per cent, respectively. In the twelve months ending September 2023, ROE and ROCE were 1.8 and 3.8 per cent, respectively.
  • Was the company's operating cash flow positive during the last three years?
    No. It reported negative cash flows from operations in each of the last three years.
  • Is the company's net debt-to-equity ratio less than one?
    Yes. Its net debt-to-equity ratio, as of September 2023, was 0.8 times.
  • Is Entero Healthcare Solutions free from reliance on huge working capital for day-to-day affairs?
    No. It is a working capital-intensive business, with a reported cash conversion cycle of 70 days in FY23.
  • Can the company run its business without relying on external funding in the next three years?
    No. It has to rely on debt for its working capital requirement despite raising money through IPO.
  • Is Entero Healthcare Solutions free from meaningful contingent liabilities?
    Yes. Contingent liabilities as a percentage of total equity stood at around 0.05 per cent.

Valuations

  • Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
    No. The stock offers a 1 per cent operating earnings yield on its enterprise value.
  • Is the stock's price-to-earnings less than its peers' median level?
    No. The stock is valued at a P/E of 499 times, whereas its only listed peer has a P/E of 136.6 times.
  • Is the stock's price-to-book value less than its peers' average level?
    Yes. The stock is valued at a P/B of 3.3 times, whereas its only listed peer has a P/B of 5.2 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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