What you must know about Entero Healthcare Solutions IPO?

Entero Healthcare Solutions Ltd – About the company

Entero Healthcare Solutions Ltd was incorporated in the year 2018 to distribute healthcare products in India through an organized technology-driven platform. The company actually provides healthcare product distribution services to pharmacies, hospitals, and clinics. For retail pharmacies it provides a huge array of over 64,500 SKUs (stock keeping units) with real time inventory records. They also offer order fulfilment and claims settlement. For hospitals, Entero Healthcare Solutions Ltd supplies a range of pharmaceutical and nutraceutical products; apart from vaccines, medical devices, orthopaedic implants, and coronary stents. Under the medical devices and consumables vertical, the company sells private label products under the brand of Entero Surgicals. This includes product categories like monitoring devices, nursing products, rehabilitation products, and consumables. The integrated healthcare products distribution platform of Entero Healthcare Solutions Ltd  has the potential to add value to the entire healthcare ecosystem.

Today, the platform is one of India's largest and fastest growing healthcare products distribution platforms. Entero Healthcare Solutions Ltd is among the top-3 healthcare products distributors in India in terms of revenues in FY22. It has the largest hospital customer network among pharma products distributors in India. Entero Healthcare Solutions Ltd is among the top-3 healthcare products distributors in India and has achieved the fastest scale-up of operations among healthcare products distributors between FY19 and FY22. The company currently boasts of over 81,400 retail customers, over 3,400 hospital customers and 1,900 pharma & healthcare product manufacturers. Its portfolio of 64,500 SKUs is managed through 73 warehouses with total possession of 4.24 lakh SFT of warehouse area. In terms of geographical coverage, Entero Healthcare Solutions Ltd covers 495 districts and has presence in 37 cities. It currently employs more than 3,401 personnel.

The fresh funds will be used to repay / prepay some of the high-cost borrowings of the company and its subsidiaries, as well as to fund long term working capital needs and pursue inorganic growth. Promoters currently hold 76.54% in the company, which will get diluted post the IPO. The IPO will be lead managed by ICICI Securities, DAM Capital (formerly IDFC Securities, Jefferies India, JM Financial, and SBI Capital Markets. Link Intime India Private Ltd will be the registrar to the IPO.

Highlights of the Entero Healthcare Solutions IPO

Here are some of the key highlights to the public issue of Entero Healthcare Solutions IPO.

• Entero Healthcare Solutions IPO will be open from February 09th, 2024 to February 13th, 2024; both days inclusive. The stock of Entero Healthcare Solutions Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹1,195 to ₹1,258 per share.
   
• Entero Healthcare Solutions IPO will be a combination of a fresh issue of shares and offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the IPO of Entero Healthcare Solutions Ltd comprises the issue of 79,49,125 shares (79.49 lakh shares approximately), which at the upper price band of ₹1,258 per share will translate into a fresh issue size of ₹1,000 crore.
   
• The offer for sale (OFS) portion of the IPO of Entero Healthcare Solutions Ltd comprises the issue of 47,69,475 shares (47.69 lakh shares approximately), which at the upper price band of ₹1,258 per share will translate into an OFS size of ₹600 crore.
   
• Out of the OFS size of ₹600 crore, the promoter shareholders (Prabhat Agarwal, Prem Sethi, and OrbiMed Asia III Mauritius Ltd will offer the bulk of the shares in the OFS. Other investor shareholders will offer much smaller quantities.
   
• Thus, the total IPO of Entero Healthcare Solutions Ltd will comprise of a fresh issue and an OFS of 1,27,18,600 shares (127.19 lakh shares approximately) which at the upper end of the price band of ₹1,258 per share aggregates to total issue size of ₹1,600 crore.

The IPO of Entero Healthcare Solutions Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Prabhat Agrawal, Prem Sethi, and OrbiMed Asia III Mauritius Limited. As per the terms of the offer, not less than 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while not more than 10% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is no employee quota that has been communicated by the company, and we await the final announcement of that by the company. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Entero Healthcare Solutions IPO?

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Entero Healthcare Solutions Ltd, the minimum lot size is 96 shares with upper band indicative value of ₹14,880. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Entero Healthcare Solutions Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Entero Healthcare Solutions IPO and how to apply?

The issue opens for subscription on 09th February 2024 and closes for subscription on 13th February 2024 (both days inclusive). The basis of allotment will be finalized on 14th February 2024 and the refunds will be initiated on 15th February 2024. In addition, the demat credits are expected to also happen on 15th February 2024 and the stock will list on 16th February 2024 on the NSE and the BSE. Entero Healthcare Solutions Ltd will test the appetite for such HealthTech stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 15th February 2024 under ISIN (INE010601016). Let us now turn to the practical issue of how to apply for the IPO of Entero Healthcare Solutions Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Entero Healthcare Solutions Ltd

The table below captures the key financials of Entero Healthcare Solutions Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Entero Healthcare Solutions Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust and stable at around 35-40%, which has led to the sales nearly doubling in the last two years. However, the company continues to make net losses, even in the latest year. This is generally a low margin business, as the companies generally operate on volumes and it remains to be seen what levels of net margins the company is able to maintain post turnaround.
    
2. For Entero Healthcare Solutions Ltd, the profits being negative, all the key ratios like the net margins, ROE and ROA will be negative. Hence, it is hard to find any logical financial comparison in such cases. The only positive takeaway is that the losses have narrowed in the latest year to FY23 as compared to the previous year.
    
3. The company has a very robust sweating of assets at about 2.5X on average in the 3 years. It remains to be seen if the same can be sustained post the IPO. Also, this is a low margin business, so the ROA levels may not be able to offer much solace.

Let us turn to the valuations part. It would not be possible to arrive at any P/E comparison for the business as it has been consistently making losses. The bet is more on a turnaround and on the future trajectory of the HealthTech business. The only other listed player in this space is Medplus Health; and they currently enjoy a P/E ratio of 216X.

Here are some qualitative advantages that Entero Healthcare Solutions Ltd brings to the table.

• Being one of the most fragmented healthcare service providing company in India, Entero Healthcare Solutions has the ability to scale up rapidly at low costs.
   
• The supply chain solutions offered by the company are comprehensive and intense and that could act as an entry barrier, keeping valuations robust.
   
• The technology platform and the business intelligence tool integration are entirely based on propriety technology help them become scalable and flexible.

The nature of the HealthTech business is one of higher risk in the initial phase and lower risk in later phases, once the roll out is completed. That is what the investors can bet on in the IPO at this juncture, considering that the company is making losses. However, investors in the IPO of Entero Healthcare Solutions Ltd must be prepared for higher levels of risk, and larger upfront investments.