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Wednesday, April 27, 2016

Thyrocare Technologies Ltd. IPO Review


Issue Highlights

Issue Period
27/4/16-29/4/16
Price Band (Rs.)
420-446
Issue Size(shares)
1,07,44,708
Issue Size (Rs. crore)
479.21
Issue Type
100% Book built
Face Value (Rs.)
10
Listing
BSE,NSE
Industry
Healthcare
Registrar
Link Intime Ltd.
Minimum Bid Quantity
33 shares
Maximum Retail Subscription (Rs.)
1,91,334 (13 lots)
BRLM
JM financial, Edelweiss, ICICI Sec


Issue Details

Offer for Sale: 1,07,44,708 equity shares
 Fresh Issue: Nil
 Equity Shares Outstanding Prior to the Issue: 5,37,23,533 equity shares
 Equity Shares Outstanding After the Issue: 5,37,23,533


Objects of the Issue

     (1)    For listing benefits
     (2)    For providing Exit option to selling shareholders
This issue being a pure offer for sale, no proceeds shall go towards the company

Industry Profile

Indian healthcare industry is supposed to grow at a CAGR of 12-14 % and might reach to Rs. 7 trillion by the end of fiscal year 2018. In comparison with other countries, the healthcare sector in India stands under-penetrated.
Health insurance penetration in India though increasing at a CAGR of 17 % but it still remains under-penetrated. Indian diagnostic industry is growing at an CAGR of 16 % and by the financial year 2018, it expected to become around Rs. 600 billion.
Around 67 % of the diagnostic revenue comes from the urban population while the remaining comes from its rural counterpart.
The diagnostic industry in India can be classified into 2 categories- (1) pathology testing service (2) Radiology or imaging diagnosis services. Diagnostic industry was so far dominated by stand alone centers but organized players are aggressively carving their niches.
Among organized players, diagnostic chains can be classified into large pan-India chains and regional chains. In revenue terms, there are around 7 large chain players in India with a market share (diagnostic chain) falling in the range 35-40% and the rest is being garnered by regional players.

Company Profile

Thyrocare is one of the pan-India diagnostic chains with a wide array of tests (198 tests and 59 profiles) to detect disorders like thyroid disorders, growth disorders, metabolism disorders, auto-immunity, diabetes, cardiovascular, infertility and many more like that.
The wellness and preventive care tests are administered under Aarogyam brand. Thyrocare follows the hub and spoke model and operates its testing services through fully automated CPLs (Central Processing Lab) and a network of RPL (Regional Processing Lab).
The company offers its molecular imaging services in New Delhi, Navi Mumbai and Hyderabad through its fully owned subsidiary NHL, with a focus on early and effective cancer monitoring.
Thyrocare intends to expand its network of RPLs to a greater number of cities across India.
Testing of Blood glucose levels are offered under Sugar Scan brand whereas Water testing services are provided under Whaters brand.
The company runs its business through TAGs (Thyrocare Aggregators) and TSPs (Thyrocare Service Providers.
At CPL vendors provide all the needed equipment and systems for no capital cost in exchange with commitments made for supply purchases from them, while at RPLs, it needs to invest capital for the same.
Thyrocare presently offers Pan-India coverage through 1,041 authorized service providers covering 466 cities and 24 states and 1 union territory.
 As a growth initiative, Thyrocare intends to develop its TPDN-a nationwide network of diagnostic centers that offer diagnostic packages including pathology, diagnostic testing and preventive care tests.

Risks & Threats

1.       The competition in diagnostic healthcare industry is very high due to low entry barriers.Stiff competitions from  hospitals’ in-house testing centers, regional players and other large diagnostic chains are making the same fierce.
2.       The allotment of preference shares to 51 persons was not in compliance with the law and thus the matter is prone to regulatory consequences
3.       NHL-Thyrocare’s fully owned subsidiary that operates molecular imaging business-has a limited operating history and had experienced losses in the recent past
4.       Its business is subject to seasonality as higher volume of revenues comes in the fourth quarter whereas during the festival s this revenue gets hampered


Financial Profile #

Parameter
FY 15
Price to Earnings Ratio
45.02
Net Profit Margin (%)
22.18
Return on Capital Employed (%)
22.14
Return on Equity (%)
14.49
Price to Book Value
6.52
Operating Cash to Net Profit
1.3
EV/EBITDA
23.82
M-Cap to Sales
9.98
Current Ratio
8.14

# using upper end of the price-band

Comparison with the Peers #


PE
NPM (%)
ROCE(%)
ROE(%)
Thyrocare
45.02
22.18
22.14
14.49
Dr. Lal
69.17
13.81
25.95
30



# peer data from moneycontrol

Inference

The valuations of diagnostic sector have always been high on its future prospects and thus PE multiple though being high in numbers but is well within industry standards.
The list of anchor investors includes names like Nomura, Merrill Lynch, DSP Blackrock, HDFC MF and Birla Sunlife MF all garnering shares at Rs. 446 per piece.
The company lacks operating history and hence its future growth prospects cannot be projected clearly but the key factor is the success of the NHL in future, which is presently in losses but could turn out to be a potential revenue-grosser. This sector offers many opportunities as it is presently being ruled by unorganized players.
I expect this issue to be heavily oversubscribed and thus shall be applying in lesser lots with short term gains in mind.

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