SRL Diagnostics, a subsidiary of listed parent Fortis Healthcare which is backed by Malaysia's IHH, and its private equity investors, have initiated preliminary discussions with investment bankers to rope in advisors as the firm is evaluating an IPO via which it may look to raise around Rs 2,000 crore, multiple industry sources with knowledge of the matter told Moneycontrol.
According to its website, SRL Diagnostics is India's largest chain of diagnostic laboratories by geographic presence and the only lab in India with a pan-India presence. Additionally, it is the second largest diagnostics chain in India in terms of revenue after Dr Lal Pathlabs.
"A clutch of investment banks have made pitches for the SRL Diagnostics IPO mandate. A call is likely to be taken soon regarding the selected bankers," said one of the persons above.
A second person told Moneycontrol that the proposed listing was likely to mainly consist of an OFS or offer for sale component. No final call had been taken on the size of the IPO and the timing, but according to early indications, the plan is to mop up around Rs 2,000 crore, he added.
Two other persons confirmed to Moneycontrol that investment bankers had recently made presentations for the IPO and according to them, the process was being driven by the private equity investors of SRL Diagnostics.
According to a fifth person, the key trigger for the proposed listing was to facilitate an exit for the private equity investors who are looking to clock returns.
The promoter group of SRL Diagnostics holds 57.68 percent stake while the bloc of private equity investors, which includes the likes of NY Jacob Ballas and the World Bank's development finance arm IFC and others, holds 31.52 percent.
All the five persons above spoke to Moneycontrol on the condition of anonymity.
Moneycontrol is awaiting the response to email queries sent to Fortis Healthcare, IHH, Jacob Ballas and IFC.
Multiple reminders have been sent to all the parties and this article will be updated as soon as we hear from them.
Diagnostic segment: Pulse test
In recent times, it has not been a healthy outing on Dalal street for the listed peers of SRL Diagnostics and the segment has faced headwinds in terms of competitive pressures.
For instance, in the last three months, Dr Lal Path fell 16.5 percent, Metropolis Healthcare declined 18 percent while Thyrocare lost 26.7 percent. In 2022, Dr Lal declined 40.86 percent, Metropolis fell 61.42 percent and Thyrocare 44.14 percent.
SRL reported revenues of Rs 331.5 Cr in Q3FY23 as compared to Rs 388.5 Cr in Q3FY22. Revenues for Q2 FY23 were at Rs 351.2 Cr. EBITDA for the quarter stood at Rs 71.1 Cr versus Rs 103.4 Cr in Q3FY22 and Rs 72.7 Cr in Q2FY23. EBITDA Margins were better than the trailing quarter (21.5% versus 20.7%), however lower versus Q3FY22 (26.6%)
Commenting on the Fortis Healthcare results for Q3FY23, Dr Ashutosh Raghuvanshi, MD and CEO, Fortis Healthcare stated, "Our diagnostics business, SRL’s performance was impacted by the decline in covid volumes. Non covid revenues, however, grew 7 percent for the quarter and 12 percent for 9MFY23 versus the corresponding previous periods. The business is now showing initial signs of stabilization in the aftermath of the covid surge and the challenging industry environment."
He elaborated, "SRL continues to focus on improving its channel mix and adding to its specialized test menu such as those in the area of genomics. In parallel, it continues to optimize its network and customer touch point to lab metrics in order to improve utilization.”
According to its website, SRL's network of labs and patient service centres can be found in 34 states and union territories and its network consists of 400+ laboratories, 2500+ patient service centres and 5000+ institutional touch points across the country. SRL also has labs in Dubai, Afghanistan and Nepal. The company offers pathology and imaging services, which are used by doctors in routine testing, patient diagnosis and monitoring and treatment of diseases.
According to the 2021-22 annual report of SRL Diagnostics, "The diagnostic industry is one of the fastest expanding service verticals in India. The domestic diagnostic industry is estimated at $9 billion, and it is anticipated to increase at ~10% CAGR over the next five years."
Also Read: Fortis Healthcare shares drop 20% as Supreme Court orders status quo on IHH deal
In November 2018, Fortis had made a preferential offer amounting to 31 percent of its equity base to IHH for Rs 4,000 crore. IHH had also earmarked around Rs 3,000 crore to make an open offer to the public shareholders of Fortis as mandated by Indian law. However, the open offer could not go through since the Supreme Court paused it in December 2018 after Japanese firm Daiichi Sankyo moved the apex judicial body accusing the Singh brothers, erstwhile promoters of Fortis, of diverting funds to avoid paying it an arbitration award.
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