KIMS IPO opens for subscription, analysts say issue price attractive; should you invest?

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June 16, 2021 9:42 AM

KIMS IPO consists of a fresh issue of equity shares worth Rs 200 crore or 24.24 lakh equity shares of face value Rs 10. The offer for sale will see existing shareholders sell 2.35 crore equity shares.

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Krishna Institute of Medical Sciences initial public offering (IPO) opened for subscription today, with the firm looking to raise Rs 2,143 crore through a combination of fresh issue and an offer for sale (OFS) by existing shareholders. Krishna Institute of Medical Sciences (KIMS) is one of the leading healthcare groups in the states of Andhra Pradesh and Telangana, growing from a 200-bed hospital in the year 2000 to a chain of multi-speciality hospitals now. The IPO, after opening today, will remain available for investors to subscribe to till Friday evening. Ahead of the IPO, the company has raised Rs 956 crore from anchor investors.

Issue details

KIMS’ public issue consists of a fresh issue of equity shares worth Rs 200 crore or 24.24 lakh equity shares of face value Rs 10. The offer for sale will see existing shareholders sell 2.35 crore equity shares. Among the promoter selling shareholders are Bhaskara Rao Bollineni, Rajyasri Bollineni, Bollineni Ramanaiah Memorial Hospital, Seenaiah Bollineni, and Bollineni Aishwarya. General Atlantic Singapore, an investor in the healthcare business will also be selling a stake in the company. Post issue, promoter shareholding will drop to 38.8% from the current 46.8%. The public shareholding will increase from 53.2% to 61.2%.

Investors can bid for the issue at the price band of 815-825 per share, in a bid lot of 18 shares and multiples thereafter. Of the entire issue, 75% is reserved for qualified institutional investors, 15% is for Non-institutional investors, and 10% for retail investors. Employees of the firm can also bid for the issue at a special discount of Rs 40. Proceeds from the fresh issue will be used towards repayment of Rs 150 crore of its total debt outstanding and the remaining funds are to be used partly for capex and general corporate purposes. 

Attractive pricing of IPO

KIMS has gone from being a loss-making entity in 2019 to a profitable firm in the previous financial year. Between financial year 2017-18 and 2020-2021 revenues / EBITDA / PAT of KIMS have grown at a 3-year CAGR of 20.4% / 114% / 105%, according to brokerage and research form Ventura securities. “We value the stock at Rs 1,275 (17x FY24 EV/EBITDA). This represents a potential upside of 55% from the IPO price of Rs 825 per share (upper band) over the next 24 months,” they added, while pinning a ‘Subscribe’ rating on the issue for long term investing. 

KIMS has demonstrated one of the best financial performances among peers, according to ICICI Direct. “It also has an almost net debt-free balance sheet, healthy FCF in financial year 2020-21 despite operating in an asset-heavy industry,” they said. The brokerage firm has a ‘subscribe’ rating on the issue with an eye on listing gains. “Due to steep competition, expanding in other geographies may depress financials, going ahead,” ICICI Direct added.

Analysts at Angel Broking find the IPO is priced better than peers companies. “Company has a very healthy balance sheet with negative Net Debt/ Equity. We believe that the upcoming expansion plan in Bangalore & Chennai can be funded through internal accruals and a minimum amount of debt.  We are assigning a “Subscribe” recommendation to the issue,” they said.

Key concerns

Among the key risks aligned with KIMS, HDFC Securities believes the company is highly dependent on healthcare professionals, that it engage on a consultancy basis. Further the pandemic has hit the business and may continue doing so in the future. The company, according to HDFC Securities, is highly dependent on hospitals in Hyderabad for revenues and also significantly dependent on certain specialities for a majority of its revenues. The brokerage firm has not assigned a rating to the issue. 

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