Narayana Hrudayalaya IPO – Should you invest?

Narayana Hrudayalaya IPO ReviewNarayana Hrudayalaya IPO – Should you invest ?

Bengaluru based, Narayana Hrudayalaya IPO would open for subscription on 17th December, 2015. Narayana Hrudayalaya is one of the leading private healthcare service providers in India. Its revenues grown by 2.86 times in last 5 years. It is growing at 30% CAGR in last 5 years. What are positive factors of Narayana Hrudayalaya IPO? What are the hidden factors in Narayana Hrudayalaya IPO? Should you invest in such IPO or not? Do you know that at company group level, its consolidated nos shows that company has incurred loss in last financial year?

About Narayana Hrudayalaya Limited

Narayana Hrudayalaya is one of the leading private healthcare service providers in India, operating a chain of multispecialty, tertiary and primary healthcare facilities. As of the date of this Draft Red Herring Prospectus, they had a network of 23 hospitals (multispeciality and superspeciality healthcare facilities which provide tertiary care), 8 heart centres (superspeciality units which are set up in a third party hospital) and 25 primary care facilities (including clinics and information centres), across a total of 32 cities, towns and villages in India, with 5,600 operational beds1 and the potential to reach a capacity of up to 6,600 beds. 2 In FY 2015, our facilities provided care to over 1.97 million patients.

Also Read: How my IPO recommendations gave 34% simple returns compared to 17% returns of all IPOs in 2015?

Issue details of Narayana Hrudayalaya IPO

  • IPO opens: 17-Dec-2015
  • IPO closes: 21-Dec-2015
  • Face Value: Rs 10 per share
  • Issue price band: Rs 245 to Rs 250 per share
  • Minimum Shares: 60 shares and multiples of 60 shares there-of
  • Minimum amount: Rs 14,700
  • Issue size: Rs 613 Crores
  • Lead Managers: Axis Capital, IDFC Securities and Jefferies India
  • Listing: BSE and NSE
  • Download Narayana Hrudayalaya IPO Prospectus from SEBI Website at this link

Purpose of the IPO

  • To achieve listing benefits
  • Offer for sale of 2.04 Crore equity shares by selling shareholders.
  • Company would not get any proceeds from this issue.

Company Financials (Standalone and reinstated)

  • Company generated revenue of Rs 475.54 Crores for the year ended Mar-11 and Rs 1,317.61 Crores for the year ended Mar-15.  
  • Company posted a profit of Rs  17.40 Crores for the year ended Mar-11 and a Profit of Rs 28.92 Crores for the year ended Mar-2015.
  • Its standalone restated EPS for FY 2015 is Rs 1.51 and last 3 years average EPS of Rs 1.56.
  • I am giving both consolidated restated nos and standalone nos for reference below.

Narayana Hrudalaya IPO - Consolidated Financials

Narayana Hrudalaya IPO - Standalone Financials

Reasons to invest Narayana Hrudayalaya IPO

  • Good revenue growth in last 5 years. Its revenues increased by 30% CAGR in last 5 years.
  • Good brand in the market which enables consistent increase in revenues.

Reasons not to invest in Narayana Hrudayalaya IPO

  • Company earned thin margins of 2.2% to 4.5% in the last 5 financial years. Last financial year it earned 2.2% margins only. Such margins can be eroded with increase in staff / medical costs in future.
  • Company consolidated nos for FY2015 shows loss of Rs 10.8 Crores. Means its subsidiary companies are incurring losses while this company as seperate entity is generating profits.  
  • Certain criminal proceedings are pending against the Company, one of its Promoters and some of its Directors. Criminal proceedings are also pending against some doctors engaged by the Company for alleged criminal negligence. The outcome of such proceedings may materially affect its business, financial condition, reputation and future prospects.
  • Company is subject to certain legal proceedings. The outcome of such proceedings may materially affect its Company's business, results of operations, financial condition, reputation and future prospects.
  • Certain facilities from which they operate do not possess occupancy certificates or prior environmental clearance for construction. They may not be able to operate from these facilities in the event the relevant authorities prohibit us from continuing to occupy the buildings, which may materially and adversely affect its business and financial condition.
  • They are dependent on obtaining and maintaining certain governmental and regulatory licences and they have not obtained a number of approvals, registrations and licences with respect to its operations in various facilities. Its ability to operate out of such facilities or carry on the relevant activity / procedures in question, may be impeded as a result, thus adversely impacting its operations and revenues.
  • They may not be in compliance with the terms of certain leases granted to them by State Governments and urban development authorities. Company ability to operate out of such facilities, and its ownership over improvements they have made, including building constructed, may be prejudiced as a result of such non-compliance, thus adversely impacting its revenues, operations, financial condition and prospects.
  • Company, Narayana Hospitals and AHDL have not perfected their occupancy rights over certain hospitals and clinics they operate out of. They have also not obtained ownership rights over certain lands forming part of NH Health City and certain superstructures constructed by us in RTIICS. Its rights, and those of Narayana Hospitals and AHDL to these properties may not be enforceable and we run the risk of being dispossessed of these properties, thus adversely affecting its revenues, profits and financial condition.
  • Company sources of revenues are concentrated in three hospitals. We are heavily dependent on these hospitals continuing to grow in revenue terms to be able to maintain a healthy financial position. They are also heavily dependant on two fields of specialty for a majority of its revenues, i.e. cardiac care and cardiology. Any material impact on the revenues from these hospitals or earnings from cardiac care and cardiology will impact its financial condition significantly.
  • They may be viewed as a "foreign controlled" company beginning August 22, 2013, and investments made in its Subsidiaries thereafter may be viewed as indirect foreign investment. Company has not complied with the requirements set out in the Downstream Investment Regulations.
  • Other risk factors (Internal and external) can be viewed in prospectus Page no. 17 onwards.

Also Read: Technical Analysis Vs Fundamental Analysis in Stock – Which one should you prefer?

Recommendation / Investment strategy

  • At an EPS of Rs 1.51 (FY2015) or 3 Years average EPS of Rs 1.56, P/E ratio works out to be between 157x to165x. Industry P/E Ratio is at 62.88. Its peers, Apollo Hospitals is trading at 62.88 P/E Ratio. Hence issue price Narayana Hrudayalaya IPO of Rs 245 to Rs 250 is aggressively priced.
  • Narayana Hrudayalaya Limited revenues are showing good growth in last 5 years. However, it has generated thin margins of 2.2% to 4.5% in the last 5 years. Its consolidated nos shows loss in last financial year. I would personally do not prefer to invest in such low margin companies. I would advise investors to wait and watch for couple of more years on margin improvement. As of now, investors should stay away from Narayana Hrudayalaya IPO.

Caution: Some of the leading websites are indicating that company is generating profits hiding consolidated nos. Those are standalone profit nos. While you should see standalone nos, you should also look at consolidated nos as its subsidiaries might be incurring losses and this would indicate the performance at company group level. Final decision can be taken by investors.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Narayana Hrudayalaya IPO – Should you Invest


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