Vijaya Diagnostic IPO opens tomorrow; grey market premium weak, should you subscribe?

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Updated: August 31, 2021 2:09 PM

Vijaya Diagnostics Rs 1,894 crore IPO (initial public offering) will open for subscription tomorrow on September 1.

IPOVijaya Diagnostics IPO opens tomorrow. (Image: REUTERS)

Vijaya Diagnostic Rs 1,894 crore IPO (initial public offering) will open for subscription tomorrow on September 1. The Sout-India based integrated diagnostic chain’s IPO is entirely an Offer For Sale (OFS) by existing shareholders of the company and won’t include any fresh issue of equity shares. The OFS will see promoter  S. Surendranath Reddy sell part of his holdings in the company along with investors such as Karakoram Ltd and Kedaara Capital AIF 1. Ahead of the public issue of the company, shares of Vijaya Diagnostic are trading with a weak premium of Rs 30 per share in the grey market, according to Yash Gupta, Equity Research Analyst, Angel Broking.

Issue details

Investors can bid for the shares of Vijaya Diagnostic through the IPO in a fixed price band of Rs 522-531 per share. The bid lot for the issue has been set at 28 shares and multiples thereafter. This translates into a minimum investment of Rs 14,868 per investor. However, employees of the company, applying for the IPO, are slated to get a discount of Rs 52 per share. 

Half of the issue is reserved for Qualified Institutional Buyers (QIB) while 15% is for Non-Institutional Investors (NII) and the remaining 35% for retail investors. 

The IPO is entirely an OFS, where the promoter S. Surendranath Reddy will sell upto 50.98 lakh equity shares. Karakoram Ltd, an investor in the firm, will be offloading 2.94 crore equity shares from the 3.93 crore owned by them. Further, Kedaara Capital AIF 1 will sell 11.02 lakh equity shares of Vijaya Diagnostic. Currently, Kedaara Capital AIF 1 holds 14.69 lakh shares of the company. The promoter shareholding in the company will drop to 32.78% post issue from the current 37.78%. Meanwhile, public shareholding in the firm will increase to 45.22% from 40.22%.

Should you subscribe?

Vijaya Diagnostic Centre is the largest integrated diagnostic chain in southern India, by operating revenue, and also one of the fastest-growing diagnostic chains by revenue for the financial year 2019-20, according to CRISIL. Othe strengths of the company include high brand recall and commitment to a superior quality driving high individual consumer business share and customer stickiness. Vijaya Diagnostic also boasts robust technical capability and state of the art technology with Strong IT infrastructure. 

The company has a long track record of delivering consistent profitable growth, with strong cash generation and return metrics. “Considering the FY-21 adjusted EPS of Rs.8.26 on post issue basis, the company is going to list at a P/E of 64.26 with a market cap of Rs.54,144 mn while its peers namely Dr. Lal Path Labs and Metropolis Healthcare are trading at a P/E of 80.66 and 56.55 respectively,” said analysts at Marwadi Shares and Finance Limited. The brokerage firm has a Subscribe rating on the IPO,  while adding that Vijaya Diagnostic is well-positioned to leverage the high growth in the Indian diagnostics industry.

Meanwhile, Yash Gupta, Equity Research Analyst, Angel Broking believes the IPO price pinned by Vijaya Diagnostic is on the higher side of the recently listed diagnostic companies. “IPO has been priced at price to earning of 64 times of FY2021 earning which is near around the listed players in India. We have a neutral outlook on Vijaya Diagnostic centre IPO,” he added.

Shortage of skilled manpower, high cost of technical advancement, intense competition, and Geographical concentration to south India are some of the risks associated with the company, Kotak Securities highlighted. The brokerage firm has no rating on the public issue. 

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