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Thursday, March 17, 2016

HCG IPO Review


Issue Highlights

Issue Period
16/3/2016-18/3/2016
Price Band
Rs.205-218
Issue Size(shares)
2,98,00,000
Issue Size (Rs. Crore )
610.9-649.64
Issue Type
100% Book built
Face Value (Rs.)
10
Listing
BSE,NSE
Industry
Healthcare
Registrar
Karvy Computershare Ltd.
Minimum Bid Quantity
65 Shares
Maximum Retail Subscription
Rs. 198,380(14 lots)
BRLM
IDFC Sec, IIFL, Yes bank, Kotak, Edelweiss, Goldman Sachs (Ind)
# derived figure

Issue Details

Offer for Sale: 1,82,00,000 Eq. shares
 Fresh Issue:  1,16,00,000 Eq. shares
 Equity Shares Outstanding Prior to the Issue : 7,34,75,986 Eq. shares
 Equity Shares Outstanding After The Issue: 8,50,75,986 Eq. shares

Objects of the Issue

    (1)    Purchase of medical equipment
Rs. 42.20 Crore
    (2)    Invest in IT software ,services and hardware
Rs. 30.19 crore
    (3)    Pre-payment of debt
Rs. 147.04 crore
    (4)    General corporate purposes
NA

Company Profile

Healthcare Global Enterprises Limited is a healthcare services provider company with a strong focus in the field of Cancer and fertility. Under the HCG brand, company provides cancer diagnosis and treatment services at its 14 centers. Fertility services are provided under the Milann brand.
HCG business model works on a ‘Hub and Spoke’ model with Bangalore centre being its hub.

Strengths

1.       Largest provider of Cancer care in India with a proven track record
2.       Competitive pricing
3.       Fertility sector has a significant potential for growth


Risks & Threats

      (1)    The company and its two subsidiaries have incurred losses in recent years
      (2)    Corporate governance issues:  frauds committed by employees and criminal proceedings against promoters and directors are serious concerns
     (3)    Most of the specialist physicians provide their services on contract basis and thus company misses the reputation of exclusivity
     (4)    Both fields of operations especially the fertility one is highly prone to the competition
     (5)    The penetration of health insurance in India being a lower one, does not augur good for the company
     (6)    The company is significantly indebted
     (7)    Weaker Rupee (against dollar) is detrimental for the company as it makes purchases of equipment which are dollar denominated
     (8)    This field is highly liable to claims of malpractices and medical negligence



Financial Profile #

Parameter
FY 15
Price to Earnings Multiple
Negative, NM
Operating Profit Margin (%)
6.32
Return on Capital Employed (%)
NM
Return on Equity (%)
NM
Total Liability to Net worth
1.93
Price to Book Value !
6.3
Operating Cash to Sales
.12
TIE (Times Interest Earned)
.99
AR Collection Period (Days)
46
EV/EBITDA!
30.2
OCF to Sales
.12
Current Ratio
.62
Profit CAGR (%)
NM

# using FY 16 annualized data
#upper end of the price-band
! using post-issue OS shares

Comparison with the Peers #


P/B
OPM (%)
TL/NW
ROE(%)
HCG
6.32
6.32
1.93
NM
Apollo Hospital
6.1
12.3
.84
10.96



# moneycontrol data

Inference

The company is highly indebted and operates in a capital-intensive business sector and this is the sole reason for floating this issue. Though its OCF is positive but is a meager one. At net profit level HCG has been witnessing loss for past several years.
This issue demands valuations (P/B & EV/EBITDA) almost equivalent to its listed peer-Apollo Hospitals-which is a profitable company.
Fertility sector is a promising one but a highly competitive one. 
Besides financials, corporate governance issues are also a major concern.  I shall better avoid this issue and give it some time to prove its mettle.


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