Considering its better operating metrics, attractive valuations which are justifiable to listed peer Dr Lal Pathlabs, brokerages advise subscribing the issue for listing gains as well as for long term
Subscription for Metropolis Healthcare's Rs 1,204-crore initial public offering begins on April 3 at a price band of Rs 877-880 per share.
The 1.37 crore shares public issue consists of an offer for sale of 62.7 lakh shares by the promoter Dr Sushil Kanubhai Shah and of around 74.1 lakh shares by CA Lotus Investments.
The issue will close on April 5. After the issue, total promoter shareholding will be reduced to 55.3 percent from 67.8 percent.
Metropolis Healthcare (MHL), one of the leading diagnostics companies in India, by revenue, offers clinical laboratory tests which are used for early detection and diagnostic screening of a disease. MHL also offers analytical and support services to clinical research organizations for clinical research projects.
Considering its better operating metrics, attractive valuations which are justifiable to listed peer Dr Lal Pathlabs, brokerages advise subscribing the issue for listing gains as well as for long term.
"We believe Metropolis is well placed in the rising healthcare sector and enjoys the second largest market share diagnostic player in India. The company has shown healthy financial performance in past backed by inorganic expansions and better service offerings," Mehta Equities said.
IIFL Securities said considering that Metropolis barely lags in or has similar operational parameters (like EBITDAM and asset turn) like Dr Lal Pathlabs, it seeking similar valuations is justifiable.
Profit after tax of the company remained unchanged at Rs 102 for FY17 as well as FY18, against Rs 77 crore in FY16. In nine-month period of FY19, profit stood at Rs 86 crore.
Here is what brokerages say about the issue:
The brokerage feels that the company has a long way for growth owing to its young network and consolidation opportunities in the Industry.
Moreover, the penetration of diagnostic services in non-metro regions have room to scale up with the help of facilitators like increasing insurance penetration as in vitro or pathology diagnosis generally influences clinical decision making. Metropolis business is more comparable to Dr Lal Pathlabs than Thyrocare.
At Rs 880/share (upper band), Metropolis is seeking around 39x / 26x its FY19 annualised/FY21E EPS against around 43x/ 27x FY19 annualised/FY21E EPS for Dr Lal Pathlabs. We recommend subscribe to the issue from a longer-term perspective.
Given the vast geographical presence, diversified and large tests menu catering to several ailments, along with ability to capture future opportunities by way of presence in key growth areas, is likely to help MHL maintain its position and boost growth. Hence, we suggest investors to subscribe for long term to this IPO.
At higher end of the price band of Rs 880, issue is priced at 40.2x its FY18 earnings and 37.3x its 9MFY19 earnings on annualised basis which appears fairly priced. Further, MHL also has better return ratio with RoNW at 24.7 percent for FY18 versus 21.6 percent for Dr Lal Pathlabs and 20.4 percent for Thyrocare Tehnologies.
At the upper end of the price band, the issue is asking for a market cap to sales of 6.7x times (FY18), which is relatively lower to its peers and in terms of PE ratio company’s issue is being offered at a PE of 43x versus higher peers.
Hence, looking at lower valuation compared to its listed peers, better-operating metrics, we recommend investors to invest in the IPO for a limited 10-12 percent listing gain.
We expect MHL to maintain healthy growth rate of 15-18 percent going forward, marginally ahead of industry.
Being a leading player in the segment, we believe MHL would be able to maintain healthy growth rates and stable margins going forward on the back of (i) the growth of its network as well as the expansion of the portfolio of diagnostic and related healthcare tests and services, (ii) improvements in the operating efficiency (iii) low requirement of capex due to asset Light model.
Considering the healthy balance sheet, improving growth prospects and strong profitability, we recommend subscribing the issue for long term gains.
With fundamentals such as widespread operational network, young patient touch point network, Strong and established brand with a focus on quality and customer service and asset light growth of service network, the company is expected to see good growth going forward.
Moreover, the company has shown good revenue growth in the last 5 years. It is a debt free company. Investor should opt the issue.
BP EquitiesThe industry is poised to grow in favor of the organised sector with rising requirement for high end testing & consolidation in Industry. The company
is seeking to expand its presence in a large under-penetrated market which is dominated by smaller, unorganised players.
Though the issue appears fully priced, asset light and debt free status makes this offer lucrative. Considering the superior band trust, strong growth potential in underpenetrated tier2 tier3 cities coupled with better margins, we give a subscribe rating on this issue for the long term investors.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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.