The initial public offering of KIMS Hospitals will open for subscription today, June 16. Analysts have ascribed a 'subscribe' rating to the IPO citing the strong financials, a dominant position in Andhra Pradesh & Telangana, diversified revenue across specialties, strong brand equity, and reasonable valuation compared to peers.
The IPO comprises a fresh issue of Rs 200 crore, and an offer for sale of up to 2,35,60,538 equity shares investor General Atlantic Singapore KH Pte Ltd, promoters (Bhaskara Rao Bollineni, Rajyasri Bollineni, and Bolllineni Ramanaiah Memorial Hospital), and other selling shareholders.
The price band for the offer has been fixed at Rs 815-825 per equity share and the issue will close on June 18.
KIMS Hospitals plans to raise Rs 2,143.74 crore through its public issue. It has already garnered Rs 955.68 crore from anchor investors, at a higher end of price band, on June 15. The net proceeds from the fresh issue will be utilised for repaying debt (Rs 150 crore).
Also Read - KIMS Hospitals mops up Rs 956 crore from anchor investors ahead of IPO
"Amid advantage of regional dominance, operational efficiency, KIMS has demonstrated one of the best financial performances among peers. It also has an almost net debt-free balance sheet, healthy free cash flow in FY21 despite operating in an asset-heavy industry. KIMS' ability to turn around acquired assets also seems one of the best in industry," said ICICI Direct.
Based on current performance, the brokerage assigned subscribing for listing gain. However, due to steep competition, expanding in others geographies may depress its financials, going ahead, it warned.
Anand Rathi has also given this IPO a subscribe rating, given the company's dominant position in Andhra Pradesh and Telangana, diversified revenue across specialties, growth prospects, strong balance sheet along with high return on net worth (RoNW)
KIMS Hospitals consistently delivered strong operational and financial performance through strong patient volumes, cost efficiency and diversified revenue streams across medical specialties. It has achieved healthy profitability in both Tier 1 and Tier 2-3 markets.
Also read - KIMS Hospitals IPO opens: 10 things to know before subscribing public issue
As of December 2020, its debt-to-adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) ratio was 0.95x and gearing ratio was 0.37x compared to the industry range of 0.1 to 5.2. As of March 2021, debt-to-Adjusted EBITDA ratio was 0.71x and gearing ratio was 0.31x. It is one of only three hospitals in India that are rated AA by CRISIL.
"Given the established brand in the hospitals space in Telangana and Andhra Pradesh states, driven by clinical excellence and affordable treatment options, sizeable bed capacity and plans to expand presence in the adjoining states and initiatives to improve operational efficiencies, would be the key positives," said Sharekhan.
KIMS has reported a healthy topline and earnings growth of 18.5 percent and 78.6 percent for FY2021 and has strong return ratios of 23.3 percent which bodes well for the company, the brokerage added.
To Know All IPO Related News, Click Here
KIMS Hospitals provides multi-disciplinary integrated healthcare services across over 25 specialties and super specialties with a focus on primary secondary & tertiary care in Tier 2-3 cities and primary, secondary, tertiary and quaternary healthcare in Tier 1 cities.
It operates nine multi-specialty hospitals under the 'KIMS Hospitals' brand, with an aggregate bed capacity of 3,064, including over 2,500 operational beds as of March 31, 2021, which is 2.2 times more beds than the second-largest provider in Andhra Pradesh and Telangana.
In FY21, its nine hospitals recorded average revenue per occupied bed (ARPOB) of Rs 20,609, a bed occupancy rate of 78.60 percent, and an average length of stay (ALOS) in the hospital of 5.53 days, on an aggregate basis. In FY21, ARPOB for hospitals situated in Tier 1 cities was Rs 39,571 and in Tier 2-3 cities was Rs 11,187.
Ventura Securities expects KIMS to expand the network bed capacity to 3,800 (+1,200 beds) by FY24 through a mix of brownfield and greenfield expansions while incurring a capex of around Rs 815.8 crore.
As a result, the brokerage expects overall revenues, EBITDA, and PAT to grow at a CAGR of 15.8 percent, 12.9 percent, and 15.2 percent to Rs 2,067.1 crore, Rs 534.3 crore, and Rs 314.4 crore, respectively, over the forecast period. "We have modelled a marginal 1 percent growth in ARPOB, while occupancies are expected to climb to 80.2 percent."
Given the strong internal accruals, Ventura expects KIMS to be net debt free in FY22.
"Going forth, KIMS may raise debt for funding its capex. However, the Net Debt / Equity is not likely to exceed 0.3x," said the brokerage which valued the stock at Rs 1,275 (17x FY24 EV/EBITDA) and that represents a potential upside of 55 percent from the IPO price of Rs 825 per share (upper band) over the next 24 months. The brokerage recommends subscribing for long term gains.
Marwadi Financial Services also recommended subscribing to this IPO. "Considering FY 21 Adjusted EPS of 25.68 on a post issue basis, the company is going to list at PE of 32.13X with a market cap of Rs 6,601.4 crore whereas its peers namely Apollo Hospitals is trading at PE of 238," said Marwadi.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.