Avoid Wockhardt Hospitals IPO: SPA Securities

SPA Securities has come out with research report on Wockhardt Hospitals IPO. It has advised to ignore the issue.

Wockhardt Hospitals (WHL), one of the largest private healthcare services companies in India based on the number of hospital beds, is entering capital market with an initial public offering (IPO) of 25,087,097 equity shares of Rs 10 each for cash at a price determined through a 100% book building process.

The price band has been fixed between Rs 280 and Rs 310 per equity share. The issue will open on January 31 and close on February 5, 2008.

SPA Securities report on Wockhardt Hospitals IPO

Company Highlights

• WHL is a private healthcare service company. WHL has a super specialty focus on areas such as cardiology & cardiac surgery, orthopedics, neurology & neurosurgery, urology & nephrology & critical care and they specialize in minimally invasive surgery.
• WHL has shown a CAGR of 35% in the topline; 35% in EBITDA and 245% in the bottomline from FY 2005 to FY 2007.
• Investment Rationale: The company has special focus on tertiary care clinical areas like cardiology & cardiac surgery, etc; Only private hospital group in India associated with Harvard Medical School; Pan India presence; Ability to retain & educate skilled personnel’s.
• Concerns are: Though the company has a national presence, nearly 71% of the revenues are generated by the hospitals in Mumbai & Bangalore; High debt – equity ratio; The company operates brownfield hospitals where the commission earned by WHL is very low; Low margins for the figures recorded in Dec – 07;
• Fitch has assigned an IPO Grade “4/5” to this issue.
• Healthcare spending in India is expected to rise by 12% per annum through 2005-09 and this figure is expected to reach 5.5%, or approximately USD 60.9 billion by 2012, according to IBEF-E&Y. CRISINFAC expects the total healthcare delivery market in India to grow from Rs 1,253 bn in 2006 to Rs.3,642 bn by 2016.

Valuation

The stock is currently available at a P/E of 300x to 332x on the lower & upper price bands respectively of its FY 08E EPS of Re.0.93. The industry P/E is at 25x which shows that this issue is highly priced. The EV/Bed of WHL is at 23x & 26x on the lower & upper price EV bands respectively where as that of Apollo & Fortis is at 4x & 15x respectively, which again shows that the issue is expensive.

The significant revenues of the company will start from 2010 when all the expansion plans of the company will be over & it will start giving higher returns to investors.

Currently, the issue price looks to be on the expensive side. The industry is poised to have an upward trend in the near future and it’s better to invest in peer group companies like Apollo which is available at a cheaper P/E and whose EV/Bed is also relatively cheaper. Hence, we recommend Ignore to the issue.