The Rs 1,600 crore-initial public offering (IPO) of Entero Healthcare Solutions opens bidding today, that is, on Friday, February 9 and can be subscribed till Tuesday, February 13. The company is offering its shares in the fixed price band of Rs 1,195-1,258 apiece. Investors can bid for a minimum of 11 equity shares and its multiples thereafter.
The issue has mostly garnered mixed reviews from the analysts tracking the stock. However, the majority of analysts are positive on the issue and suggest to subscribe to it on the back of rising market shares, strong expansion and integration, and unique business model. However, inefficiency of operations, requirement of high working capital and negative cash flows are key concerns.
Entero Healthcare is valued at FY23 EV/Sales multiple of 1.7 times. The company plans to raise Rs 1,000 crore through a fresh issue which will be used to fund its working capital requirements and reduce its debt levels from Rs 489 crore to Rs 346 crore, thereby reducing the financial cost, said SBICap Securities.
The company’s revenue has grown at a CAGR of 36.2 per cent from FY21 to FY23. Looking at the industry growth, the share of large and national distributors is expected to grow from 8 per cent to 10 per cent in FY23 to 20 per cent-30 per cent by FY28, it said without rating the issue.
At the upper band, the issue is valued at an EV/EBITDA of 12.2 times based on FY23 EBITDA of Rs 64.01 crore and P/E of -405.8 times based on FY23 EPS of Rs -3.1, said analysts from Arihant Capital Market.
Entero prioritizes high fill rates and low turnaround times to enhance customer satisfaction and benefit end consumers. Their growth strategy involves leveraging existing distribution networks, collaborating with healthcare manufacturers and diversifying product offerings, it said.
“They aim to enhance customer reach and retention through technology investments, strategic acquisitions, and integrated commercial solutions in the Indian market. Anticipating sustained growth and market consolidation, they aim to increase competitiveness in the pharmaceutical and healthcare sectors in India,” added Arihant Capital with a ‘neutral’ rating on the issue.
The IPO of Entero Healthcare includes a Rs 1,000 crore fresh share. The promoters and other shareholders will offload up to 47,69,475 shares through an OFS. The net proceeds from the fresh issue shall be utilized towards repayment or prepayment of certain borrowings; funding the working capital requirements; pursuing inorganic growth initiatives; and general corporate purposes.
Entero Healthcare is a distributor of healthcare products in India through its technology-driven platform to pharmacies, hospitals, and clinics throughout India. The company has reserved shares worth Rs 8 crore for its eligible employees, who will get a discount of Rs 119 per share during the bidding.
Ahead of its IPO, Entero Healthcare Solutions mobilised Rs 716.4 crore from anchor investors as it allocated of 56,94,753 shares at a price of Rs 1,258 apeice including Marquee investors including Smallcap World Fund Inc, Government of Singapore, Monetary Authority of Singapore, Carmignac Portfolio, CLSA Global, Societe Generale, Morgan Stanley, Goldman Sachs, and Copthall Mauritius Investment.
The improvement in operational performance is anticipated to be driven by a wide range of products offered, operations aimed at providing high fill rates to customers, technology-driven inventory management and order placing mechanisms for customers, economies of scale advantage, and competitive and transparent pricing, said StoxBox by BP Equities.
“The issue is valued at a P/E of 111.2 times on the upper price band based on FY24E earnings, which we feel is fairly valued in comparison to its peers. We, therefore, recommend an ‘subscribe’ rating for the issue,” it said.
Ventura Securities has also suggested to subscribe to the issue as it sees the company scaling-up through smart acquisitions; transforming pharmacies’ buying experience with technology; and benefitting healthcare product manufacturers, pharmacies, hospitals, and clinics at large.
However, it also flagged anticipated benefits of past or future acquisitions may not be realized successfully, posing a risk to the company’s business, financial condition, results of operations, cash flows, and prospects as a key risk. “Rising competition, operational inefficiency, rising competition, high inventory and lack of compliances and disclosures are other concerns,” said Ventura.
Entero Healthcare Solutions has relationships with over 1,900 healthcare product manufacturers, giving them access to over 64,500 product stock-keeping units as of March 31, 2023. The company has 73 warehouses in 37 cities across 19 states and union territories, and its customer base includes over 81,400 pharmacies and 3,400 hospitals in 495 districts.
The company has reserved 75 per cent of the net issue for QIBs, while NIIs and retailers will get 15 per cent and 10 per cent, respectively. ICICI Securities, DAM Capital Advisors (IDFC Securities), Jefferies India, JM Financial and SBI Capital Markets are the book running lead managers of the Entero Healthcare Solutions IPO, while Link Intime India is the registrar for the issue.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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