IPO Analysis: Thyrocare Technologies

After a fabulous success of Dr Lal Pathlabs, investors are looking forward for Thyrocare Technologies. It will hit the capital markets on April 27 to raise funds through an Initial Public Offer (IPO) for raising Rs 452-479 crore by selling over 1.07 crore shares at a price band of Rs 420-446 a share.

The issue is entirely 100 per cent Offer for Sale (OFS) and by CX Partners, which holds 22 per cent stake in the company and will be selling 19 per cent. While promoters who hold 65 per cent will be selling 1 per cent, which translates to a total of 20 per cent stake in the company, being put up for sale. Samara Capital holds 2.25 per cent, Norwest Venture Partners holds 10 per cent and ICICI's Emerging India Fund holds 2.25 per cent. These three investors will not be exiting through the IPO. Minimum application is to be made for 33 shares and in multiples thereafter.

Company Background:

Thyrocare Technologies is one of the leading pan-India diagnostic chains and has strong presence in more than 2000 cities / towns in India and internationally. As of February 2016, the company had a network of 1,041 authorised service providers, comprised of 687 Thyrocare Aggregators (TAGs) and 354 Thyrocare Service Providers (TSPs) spread across 466 cities, 24 states and one union territory.

Thyrocare operates with a Centralised Processing Laboratory (CPL) in Mumbai - India for esoteric tests; and Regional Processing Laboratories in major metro cities of India and other parts of Asia. Laboratories process over 30,000 samples and above 1 lakh investigations every day. Its profile of tests includes 17 profiles of tests administered under the “Aarogyam” brand, which offers patients a suite of wellness and preventive health care tests. Through its wholly owned subsidiary, Nuclear Healthcare Limited, they operate a network of molecular imaging centres in New Delhi, Navi Mumbai and Hyderabad, focused on early and effective cancer monitoring.

Objects of the Issue:

1) Achieve the benefits of listing the Equity Shares on the BSE and the NSE; and 2) Carry out the sale of up to 10,744,708 Equity Shares by the transaction

Industry Outlook:

The Indian Diagnostics Industry has been witnessing burgeoning growth in the last few years. The Indian diagnostics industry currently stands at Rs 377 billion as of 2014-15. For the next three fiscal years, it is estimated that it will grow at a CAGR of approximately 16-18% to reach Rs 585-616 billion in the fiscal year 2017-2018. It is also estimated that per capita healthcare expenditure in India will grow at a CAGR of approximately 10-12 per cent to reach Rs 5,194-5,481 in the fiscal year 2017-2018. The reasons are rise in ageing population, growing awareness and interest in healthcare leading to increased demand for diagnostic services.

Challenges for Company:

Company has achieved a good reputation driven by customer perception, and any negative publicity can harm the brand. Potential competitors and their price sensitive strategy could force company to lower listed price of tests. Any disruption in tests, services, transportation of samples and operations at authorised service providers could adversely affect business, financial conditions and results of operations. Company is also exposed to risk of fine and penalties by Government of India, if they fail to comply with any laws and regulations. Success of company depends upon ability to compete effectively, providing distinguished product service, and expanding its portfolio.

Financial Front:

The Company posted Compound Annual Growth Rate (CAGR) related to revenue, at over 23 per cent from FY11 to Rs 187 crore in FY15; and Rs 174 crore in the first nine months of FY16. The earnings (EBITDA) CAGR of nearly 20 per cent has resulted in operating profits of Rs 80 crore in FY15; and Rs 76.21 crore in the first nine months of FY16. Bottom-line grew by CAGR of 15.66 per cent at Rs 44.43 crore in FY15; and Rs 40 crore in the first nine months of FY16.

Valuation:

Coming to the valuation at higher price band the company is available at around P/E of 48x as we annualised 9MFY16 earning of Rs 10 per share whereas Dr. Lal PathLabs is currently trading at P/E of 64.5x on TTM basis with EPS of Rs 15.11. Thy to care Technologies has earned operating margin more than 40 per cent; whereas Dr. Lal PathLabs margin stands at around 26 per cent. Looking at the company’s fundamentals and valuation we believe the subscriber should apply for this IPO due to its lower valuation and higher margin as compared to Dr. Lal PathLabs. Subscriber will get listing gains and even from a long-term perspective, it’s a better option.