The initial public offerings (IPO) of Thyrocare Technologies Limited (TTL) is going to hit capital markets on April 27. The Mumbai-based diagnostic and pathological services provider has priced its IPO between Rs 420 and Rs 446 per share, aimed at raising nearly Rs 479 crore.
The book running lead managers for the issue are ICICI Securities, Edelweiss Financial Services and JM Financial.
Below are 10 things you should know before investing in Thyrocare Technologies IPO:
Business and Background: TTL is one of the leading pan-India diagnostics chain with focus on preventive and wellness health offerings. The company’s geographic presence is in 483 cities across 27 states and 1 union territory through 1,122 authorised service providers (ASPs). It has a fully-automated central processing laboratory (CPL) in Navi Mumbai. It has five regional processing laboratories (RPL) namely in New Delhi, Coimbatore, Hyderabad, Kolkata and Bhopal. The company has a hub and spoke business model, where sample procurement is done through ASPs under franchisee agreements. ASPs collect samples from local hospitals, laboratories, pathologists, referring doctors, walk-in customers and home collection services.
Promoters holdings: The IPO is an offer for sale (OFS) of nearly 1.07 crore equity shares from the company’s existing shareholders including promoters. The promoter holding in the company will fall from 77 per cent to 64 per cent post the issue. Private equity investor CX Partners (through its subsidiary Agalia), A Velumani HUF, A Sundararaju HUF and Anand Velumani are shareholders who will offload part of their stakes.
Objective of the issue: The entire IPO consists of an offer for sale and the company will not receive any funds raised from the issue.
Financials: TTL’s revenue grew 23 per cent CAGR to Rs 187 crore while profit before exceptional items and tax grew 16.59 per cent CAGR to Rs 69.54 crore over FY11-15. The company also has industry leading margins of over 40 per cent. Due to a low capex business model, the company generates healthy cash flows and is currently debt free. As of December 2015 it had cash and cash equivalents of Rs 62 crore which would support future growth. Further, the company had RoE of around 19 per cent and RoIC of nearly 42 per cent in FY15.
Industry growth: As per a report from CRISIL research the overall diagnostic industry in India is estimated to be Rs 37,700 crore in FY15 and is expected to increase at a CAGR of 18 per cent to Rs 61,600 crore by FY18E. Currently organised players with a pan India presence have a market share of roughly 35-40 per cent. According to Centrum Wealth Research, there is tremendous opportunity for organised players. TTL with its proven track record and expansion plan of opening 20 new RPL’s is likely to benefit from this opportunity.
Valuation: Sharekhan in a research note said, “At a price band of Rs 420-446, the issue is priced at 47.7-50.7x price-earnings (PE) ratio for FY2015 consolidated earnings per share (EPS) of Rs 8.8 and 30-32x EV/EBIDTA for FY2015. The valuations at the offer price are similar to that offered in the public issue of recently listed comparable players like Dr Lal Pathlabs. After listing, the premium valuations of Dr Lal Pathlabs have expanded further due to its strong track record, healthy return ratios and high free cash flows despite the aggressive expansion and exponential growth in the business.”
Should you invest: According to Centrum Wealth Research, at the higher price band of Rs 446, the stock is valued at 25.4x EV/EBITDA and 41.2x P/E on annualised 9MFY16 basis. While this may appear high, the company is expected to command premium valuation due to its strong brand image, proven track record, healthy financials and presence in niche high-growth business. Hence investors comfortable with such premium valuation, can subscribe to the issue.
According to SMC Investment and Advisors, the fundamentals of the company look good. It is expected that the company would see good growth from opening of new regional laboratories, increasing the battery of preventive health care tests and achieving higher economies of scale. It has 16 profiles of tests administered under its “Aarogyam” brand, which offers patients a suite of wellness and preventive health care tests. A long term investor can opt this issue.
Risk factors: Competition from the unorganised sector is one of the key risks for Thyrocare Technologies. Also, high dependence on few specific tests (Thyroid – 17 per cent of revenue), change in testing technology and low-cost services by social organisation are other risks for Thyrocare Technologies.
Diagnostic test growth: TTL’s diagnostic test volumes grew at a CAGR of 38 per cent over FY13-15 from 25,027,132 tests conducted in FY13 to 47,841,710 in FY15 and PET-CT scans performed by NHL grew from 34 scans in FY13 to 11,173 scans in FY15.
Competitors: Thyrocare Technologies competes with diagnostic chains such as Dr Lal PathLabs, SRL Diagnostics, Metropolis Healthcare and Apollo Clinic.