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Monday, December 7, 2015

Dr.Lal PathLabs Limited (DLPL) IPO Review


Issue Highlights

Issue Period
8/12/15-10/12/15
Price Band
Rs. 540-550
Issue Size(Equity Shares)
1,16,00,000
Issue Size (Rs. crore)
626-638
Issue Type
100% Book built
Face Value (Rs.)
10
Listing
BSE,NSE
Industry
Diagnostic Healthcare Service
Registrar
Link Intime India Pvt. Ltd.
Minimum Bid Quantity
20
Maximum Retail Subscription
Rs. 1,98,000 (18 lots)
BRLM
Kotak Investment banking, City Group Global India Pvt. Ltd.
Retail discount
Rs. 15 per share


Issue Details

Offer for Sale:
Promoters’ stake sell: 41,07,355 equity shares
Non-promoter stake sell: 7492645 equity shares

Total offer for sale: 1,16,00,000 equity shares

Fresh Issue:  Nil

 Equity Shares Outstanding Prior to the Issue: 8,22,69,877 equity shares
 Equity Shares Outstanding after the Issue: 8,22,69,877 equity shares

Objects of the Issue

This issue being a pure offer for Sale, no proceeds of the issue shall go towards the company.
Except the listing fees all issue related expense shall be borne by the selling stake holders on proportionate basis.

Company Profile

The company offers diagnostic and related health care tests and services in India through its integrated nationwide network. Its customers are mainly individual patients, hospitals and other healthcare provider and corporate. Dr.Lal Pathlab offers over 3,368 diagnostic and healthcare tests.
The company operates  on a ‘hub and spoke’ network model and with a national reference laboratory in New Delhi , 163 other clinical laboratories,1340 patient service centers and over 5,000 pickup points.

Risks & Threats

     (1)    Diagnostic healthcare industry is highly competitive with competitors like Thyrocare, SRL Diagnostics and Metropolis
     (2)    Business activities are mainly concentrated  in northern and eastern India with 85 % of the total revenue generation coming from these regions
     (3)    Key source of income is individual patients and Indian health insurance sector not being developed; company’s revenue may vary due to a variety of factors like disposable income etc.
     (4)    The revenue volumes are impacted by seasons  with Monsoon season being top grosser and winter months being slack season

Financial Profile #

Parameter
FY 15
PEG (Profit, trailing 4 years)
1.6
Net Profit Margin (%)
13.74
Return on Capital Employed (%)
45.5
Return on Equity (%)
32.9
Total Liability to Net worth
.4
Price to Book Value
14.2
Operating Cash to Net Profit
1.6
TIE (Times Interest Earned)
394.8
AR collection Period (Days)
16.8
EV/EBITDA
29.2
M-Cap to Sales
7.1
Current Ratio
2.5
Profit CAGR (%)
32.6

# using upper end of the price-band

Inference

The business model of the company is robust and scalable with the ‘hub and spoke business’ network model. The valuations are though stretched in terms of PEG and EV-to-EBITDA but an awesome profit CAGR of 32 % justifies the premium being charged.
Though presently DLPL’s revenue is mainly attributed to northern and eastern India but its cash-rich business model is favorable for venturing into unexplored areas.
In future more players are supposed to enter in the diagnostic business adding up more competition but rising health awareness coupled with the growing health-insurance penetration shall augur well for this industry.
A discount of Rs. 15 for retail investors makes it an intriguing one.

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