Why Prashant Jain's 3P Investment Managers Bought 2.5% Stake In This Healthcare Firm

Veteran fund manager Prashant Jain's 3P Investment Managers recently picked up a 2.5% stake in Entero Healthcare Solutions. Entero's shares have already risen 60% this year. But the bigger story is what is changing beneath the surface.

For years, Entero relied on acquisitions to build a nationwide healthcare distribution network. That phase is now giving way to a more organic, growth-led strategy focused on expanding its high-margin MedTech business. The shift is translating into better financial performance, with expanding EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins, stronger cash generation and improving return ratios.

A fragmented market gives Entero room to grow 

India's healthcare distribution sector remains highly fragmented, with the top three players accounting for only 8% to 10% of the market. This contrasts sharply with mature markets such as the US and Germany, where leading players control 90+% of the market. The fragmentation leaves significant room for consolidation, creating a long-term opportunity for organised players such as Entero.

Against this backdrop, Entero has emerged as one of India's top three integrated healthcare product distributors by revenue. Operating as a pure-play Business-to-Business platform, its scalable, technology-driven model bridges the gap between healthcare product manufacturers and retail providers.

Entero's network is its competitive edge 

This is Entero's main competitive edge. Pharmaceutical manufacturers partner with Entero for immediate, consolidated access to a national retail footprint of 72,000+ active pharmacies and 2,300+ hospitals across 475 districts. Retail pharmacies buy from Entero because it has product catalogs of 83,400 stock-keeping units (SKUs) from 3,000+ suppliers.

The catalog spans pharmaceuticals, medical devices, surgical consumables, over-the-counter (OTC) medicines, nutraceuticals, and vaccines. Beyond distribution, the company also markets products to doctors and hospitals, enabling higher margins on these sales. This end-to-end model helps Entero to continuously increase its wallet share.

From acquisition-led growth to consolidation 

A major growth driver for Entero has been its active pursuit of inorganic growth. Since 2018, Entero has acquired 51 smaller players to build its national footprint. This model relies heavily on debt, higher interest costs, locked-in inventory, and higher working capital. With a national presence now established, management plans to consolidate its existing network.

Reducing its acquisition-led expansion should lower debt-funded cash outflows, ease financing costs, and improve the working capital cycle. Entero's net working capital cycle has improved to 61 days in Q1FY27 from 66 days a year ago. Management has guided to convert 50% of EBITDA into operating cash flow. The company then plans to use this internally generated cash to fund inorganic growth.

Organic growth is improving profitability 

Meanwhile, Entero has consistently outperformed the Indian pharmaceutical market (IPM). For example, Entero delivered 19.6% organic revenue growth on a like-for-like basis in Q1FY27, outperforming the IPM growth of 14%. Over the next 3-4 years, management expects to deliver 20%+ compounding growth.

As Entero pushes higher organic volumes, fixed costs will not scale at the same pace. More revenue flows directly to the bottom line, driving margin expansion. Entero's EBITDA margin rose to 5% in Q1FY27, up from 4.5% in Q4FY26 and 3.6% in Q1FY26. Entero reached its full-year FY27 EBITDA margin guidance in the first quarter.

Management's medium-term goal is to achieve an EBITDA margin of over 6.0%. The operating leverage is evident in the numbers. In Q1FY27, Entero's revenue rose 38.2% year-on-year to Rs 1,940 crore. However, EBITDA surged faster, up 94% to Rs 97.0 crore as margins expanded. Management has guided for 23% revenue growth in FY27.

The company's capital efficiency has also improved. Entero's Return on Capital Employed (ROCE) nearly doubled year-on-year to 21.1%, up from 11.5% in Q1FY26. Return on Equity (ROE) rose from 9.0% to 20.4%. Management aims to take the ROCE to the 25%-30% range over the next 3 to 4 years.

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MedTech offers another growth and margin lever 

Entero's MedTech business is a key contributor to this growth. Unlike pharmaceuticals, the higher-margin MedTech business focuses on specialised diagnostic and surgical products. Revenue from this segment is highly diversified: consumables (20%), in vitro diagnostics (17%), cardiovascular and orthopedics (15%), imaging (14%), and others (34%).

The segment's higher margins can help lift Entero's blended margins. This is because, unlike pharma, Entero not only distributes MedTech products but also generates demand through sales teams, including medical representatives. MedTech distribution is concentrated among very few organised players, leaving little competition at scale compared to pharma. 

Management expects the MedTech business's revenue to cross Rs 1,000 crore on an organic basis in FY27. The MedTech segment is projected to grow organically at a steady annual rate of 20% over the next 3 to 5 years. Management expects to leverage its existing scale and supply chain infrastructure to expand in the rapidly growing and largely unorganised MedTech industry.

Exiting low-margin business could improve the mix 

Simultaneously, Entero is exiting the low-margin, heavily discounted sub-distribution business. Sub-distribution involves selling products in bulk to small local distributors rather than selling directly to retail pharmacies or hospitals. Management said exiting these contracts negatively impacted revenue growth by 2.5% in Q1 FY27.

Premium valuation leaves less room for error 

At Rs 1,797 per share, Entero trades at a price-to-earnings multiple of 60x, a premium to Medplus Health (38x). The valuation gap persists because Entero has grown faster, with revenue growing at 30% CAGR over the last five years versus Medplus's 18%. Entero's profit has grown at a 57% CAGR, compared with 28% for Medplus.

The premium is therefore not without justification, but sustaining this growth differential will be critical to supporting the valuation. After slowing acquisitions, Entero now has the opportunity to extract greater value from the network. The key, however, will be execution. Entero needs to sustain 20%+ organic growth, expand EBITDA margins beyond 6%, and improve capital efficiency to support its premium valuation. 

At current earnings, the stock leaves limited room for disappointment. If the company delivers on these targets, faster earnings growth could support the premium. If growth or margins fall short, valuation could become a headwind.

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