Krsnaa Diagnostics, a diagnostics chain in India, opens its maiden public issue for subscription on August 4. Many analysts have assigned a subscribe rating for the IPO given its unique business model, strong revenue visibility, strong balance sheet position and healthy operating cash flow.
The company intends to garner Rs 1,213.3 crore through its initial public offering which comprises a fresh issue of Rs 400 crore and an offer for sale of Rs 813.3 crore by shareholders like PHI Capital Trust, Kitara, and Somerset Indus Healthcare Fund.
The net fresh issue funds will be used for establishing diagnostics centres in Punjab, Karnataka, Himachal Pradesh and Maharashtra, and repaying of debts. The company has fixed a price band of Rs 933-954 per equity share.
Krsnna Diagnostics has already mopped up Rs 537 crore from anchor investors on August 3. The issue will close on August 6.
Anand Rathi recommended a subscribe rating to the issue.
"At the upper end of the IPO price band, the company is available at 77.7x its FY21 earnings with a market-cap of Rs 2,994.1 crore. Further on FY21 earnings basis, the company is trading below the industry average of 85.99x," said the brokerage.
Its listed peers are Metropolis Healthcare and Dr Lal PathLabs.
The brokerage believes that strong balance sheet position and healthy operating cash flows will enable the company to pursue growth opportunities and also fund their strategic initiatives.
The company has strong business operations, which are reflected in its financials. It has exhibited a strong 37.65 percent CAGR on the sales front over FY19-FY21, predominantly led by volumes and partially on the back of pricing. Its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew at a CAGR of 27 percent and profit increased at a CAGR of around 80 percent.
Marwadi Financial Services also assigned a subscribe rating to this IPO as the company has unique business model with strong revenue visibility and is well positioned to capitalize on healthcare spending across public and private sectors.
Krsnaa Diagnostics offers a wide range of diagnostic services such as imaging/radiology services (X-rays, CT scans etc.), routine clinical laboratory tests, pathology, and tele-radiology services to private and public hospitals, medical colleges, and community health centres.
The operating model of the company involves diagnostic centres operated under a hospital partnership model (pursuant to arrangements with public health agencies and private healthcare providers).
The company has an extensive network of diagnostic centres across India with a key focus on non-metro, and lower tier cities and towns. As of June 30, 2021, it operates 1,823 diagnostic centres (1,797 with public health agencies and 26 with private health agencies) that are offering radiology and pathology services in 13 states across India.
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In fiscal 2021, the business has served 5.18 million patients. As of June 30, 2021, the company had a team of 190 radiologists, 30 pathologists, eight microbiologists and more than 2,800 qualified professionals including clinicians, technicians and operators.
The size of the diagnostic industry is estimated to be approximately Rs 71,000 crore in FY21, registering a healthy CAGR of 13 percent to 14 percent over FY17-FY21, echoing the growth from healthcare delivery services. The industry is expected to grow at approximately 15 percent and achieve a value of Rs 92,000 crore FY23. This would be led by increased demand for in-patient treatments and out-patients treatments.
"Krsnaa is well placed to benefit from growing industry trends on the back of its scale, strong brand equity, and extensive footprint across India. Further, its public-private partnership (PPP) agreements, to deploy diagnostic centres for its radiology and pathology services are typically long-term contracts that ensure visibility of revenues for its operations," said Religare Broking.
Going forward, the company plans to expand its network of diagnostics centres and also expand its offerings of diagnostic services. It also plans to increase its digital footprint and continue to focus on improving its profitability and efficiency. The financial performance has been healthy for the company.
With promising industry growth prospects coupled with company's strong execution track record, Religare Broking has a positive on the company for long term.
However, ICICI Direct feels the generation of free cash flow is likely to remain a challenge for the company as Krsnaa Diagnostics operates in a high capex low operating expenses segment. Similarly, the brokerage also awaits for more stability and consistency in the profitability measures, going ahead.
Currently, the grey market premium for Krsnaa Diagnostics stood at Rs 410-450, as per the IPO Watch and IPO Central. This resulted into a trading price of Rs 1,364-1,404 per share, higher by 43-47 percent over its upper price band of Rs 954.
Apart from Krsnaa, three other companies open their IPOs for subscription today - Windlas Biotech, Devyani International and Exxaro Tiles.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.