Jupiter Life Line Hospitals IPO offers growth, market dominance. Should you subscribe?

Jupiter Life Line Hospitals opened subscription for its public offer on September 6.

Jupiter Life Line Hospitals Ltd (JLHL), which hit the street this week to raise Rs 869 crore via an IPO, has got favourable analyst calls, with some recommending subscribing for listing gains, and others suggesting buying for long-term growth.

The support for the company’s initial public offer stems from its strong financial and operational performance, dominant regional presence, reasonable valuations when compared to peers, and growth outlook.

Jupiter Life Line Hospitals is a multi-speciality tertiary and quaternary healthcare provider in the Mumbai Metropolitan Area (MMR) and western region of India, with three hospitals under its umbrella. The company’s public issue opened for subscription on September 6, and was subscribed 87 percent at the end of day one of bidding, with strong interest from non-institutional and retail investors.

Regional and operational dominance

According to a CRISIL report, the company's Thane and Indore hospitals are among the few hospitals in the western region of India to provide neuro-rehabilitation services through a dedicated robotic and computer-assisted neurorehabilitation centre. Additionally, it operates one of the few multi-organ transplant centres in Thane.

The company currently operates hospitals under the "Jupiter" brand in Thane, Pune, and Indore, with a total operational bed capacity of 1,194 beds. It has delivered high operational and financial performance through robust patient volumes, cost efficiency and diversified revenue streams across hospitals.

Also Read | Jupiter Life Line Hospitals IPO opens | 10 key things to know before you subscribe

Growth drivers

Broking firm Dalal & Brocha sees two major growth drivers for the company, namely, the ramping up of the Indore facility (addition of 200 beds) which currently holds a near around 40 percent occupancy & ARPOB (Average Revenue Per Occupied Bed) of ~Rs 39,000, both of which are expected to increase and reach the consolidated group levels going forward.

Jupiter Hospital is also developing a multi-specialty hospital in Dombivli, Maharashtra, which is designed to accommodate over 500 beds and has commenced construction in April 2023.

Ready to serve growing MMR population

JLHL presence is strong in the Mumbai Metropolitan Region where population is consistently increasing and remains a focused micro market. MMR has 33.0 beds per 10,000 people, which is higher than the Maharashtra state average of 20 beds per 10,000 people. The region has an estimated population of 20.96 million, said Reliance Securities in a note.

JLHL intends to improve occupancy rates and equipment utilisation at hospitals by continuing to maintain and recruit new medical professionals of high calibre in specified fields and focus on clinical excellence, the note added.

Operational efficiencies driving gains

On a consolidated level, the company has an ARPOB of Rs 50,990 with occupancy of 62.61 percent for FY23. ARPOB and occupancy levels have consistently risen over the past three years. Going forward, Dalal & Brocha Stock Broking forecasts that ARPOBs will increase in-line with inflation after the hospital showcased a CAGR (Compounded Annual Growth Rate) of around 8 percent for FY 2021-23.

However, the hospital also faces competition from other larger listed players like Apollo Hospitals and Fortis Healthcare. On that account, brokerages feel a further increase in attrition within the sector will not just hamper the company's smooth operations, but also put pressure on its margins.

Also Read | Jupiter Life Line Hospitals IPO booked 87 percent on the first day of bidding

Valuation and brokerage calls

Reliance Securities: The issue is priced at a P/BV of 11.41 based on its NAV of Rs. 64.39 as of March 31, 2023, post IPO it will be a debt-free company and growth in the healthcare segment, good patient volumes, cost efficiency, strong financials, and expansion to new areas will drive the company’s performance going forward hence, we recommend to ‘subscribe’ the issue from the long term perspective.

SMIFS: At its higher price band, Jupiter Hospital is demanding an EV/EBITDA multiple of 22 times its FY23 earnings, which is at par with peer Yatharth Hospitals (same size of 3 hospitals), which makes the IPO attractively priced. With the advantages of regional dominance, operational efficiency, Jupiter Hospital has demonstrated good financial performances among peers. It has the high level of ARPOB and hence, we ascribe the public offer as a 'subscribe' for listing gains.

Other brokerages, Sushil Financial Services and SBI Securities also support the view backed by the company's growth prospects.

The company’s revenue has significantly increased by 50.80 percent from Rs 486.16 crore in FY21 to Rs 733.12 crore in FY22 and further by 21.75 percent to Rs 892.5 crore in FY23.  The company also reported a net profit of Rs 51.13 crore in FY22, as against a loss of Rs 2.3 crore in the previous fiscal. The bottomline improved further by 42.5 percent on year in FY23 to Rs 72.91 crore. EBITDA margin also touched 14.54 percent, 21.35 percent and 23.45 percent, respectively, in the same years.

Also Read | Jupiter Life Line Hospitals mops up Rs 260.72 crore via anchor book ahead of IPO

Issue details

The public offer of Jupiter Hospital is a combination of a fresh issue and an OFS portion, aimed to mop up Rs 869.08 crore from investors. The public offer comprises a fresh issuance of shares worth Rs 542 crore, and an offer-for-sale (OFS) of 44.5 lakh shares by 10 shareholders including promoter group names Devang Vasantlal Gandhi (HUF), and Devang Gandhi jointly with Neeta Gandhi.

The company plans to use the proceeds raised from the IPO towards repayment of existing debt which as of March 2023 stood at Rs 473.37 crore. It is also worth noting that the company will turn debt-free post the public offer. The rest of the proceeds are also aimed at funding growth opportunities, strengthening marketing capabilities, and working capital requirements.

The debt payment will also help the company other rounds of capital to support its capacity expansion plans, without putting strain on its financials.

The price band of the offer has been fixed at Rs 695 to Rs 735 per share and analysts feel that its valuations are reasonable even at the upper-end of the price band. At the upper price band, the IPO is valued at a P/E (price-to-earnings) of 52.7 on the FY23 basis.

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