Dr Lal Pathlab IPO – Should you invest?
Delhi based, Dr Lal Pathlab IPO would open for subscription on 8th December, 2015. Dr Lal Pathlab is engaged diagnostic and health care related services. Its revenues grown by 2.8 times in last 5 years. It earned profits over 13% in the last few years. It is growing at 30% CAGR in last 5 years. What are positive factors of Dr Lal Pathlab Ltd IPO? What are the hidden factors in Dr Lal Pathlab IPO? Should you invest in such IPO or not?
About Dr Lal Pathlab Limited
Delhi based, Dr Lal Pathlab is a provider of diagnostic and related healthcare tests and services in India. Through its integrated, nationwide network, they offer patients and healthcare providers a broad range of diagnostic and related healthcare tests and services for use in core testing, patient diagnosis and the prevention, monitoring and treatment of disease and other health conditions. Its customers include individual patients, hospitals and other healthcare providers and corporate customers. In Fiscal Year 2015, they collected and processed approximately 21.8 million samples from approximately 9.9 million patients.
Issue details of Dr Lal Pathlab IPO
- IPO opens: 8-Dec-2015
- IPO closes: 10-Dec-2015
- Face Value: Rs 10 per share
- Issue price band: Rs 540 to Rs 550 per share
- Minimum Shares: 20 shares and multiples of 20 shares there-of
- Minimum amount: Rs 10,800
- Issue size: Rs 638 Crores
- Lead Managers: Citigroup Global Markets and Kotak Mahindra Capital Ltd
- Listing: BSE and NSE
- Download Dr Lal Pathlab Limited IPO Prospectus from SEBI Website at this link
Purpose of the IPO
- To achieve listing benefits
- Offer for sale of 1.16 Crore equity shares by selling shareholders.
- Company would not get any proceeds from this issue.
Company Financials (reinstated)
- Company generated revenue of Rs 225.28 Crores for the year ended Mar-11 and Rs 640.11 Crores for the year ended Mar-15.
- Company posted a profit of Rs 28.42 Crores for the year ended Mar-11 and a Profit of Rs 87.96 Crores for the year ended Mar-2015.
- Its EPS for FY 2015 is Rs 11.57 and last 3 years average EPS of Rs 10.2.
Reasons to invest Dr Lal Pathlab IPO
- Good revenue growth in last 5 years. Its revenues increased by 30% CAGR in last 5 years.
- It is earning good profit of over 13% in last two financial years.
- Unique business model where none of the companies are listed in such similar business.
Reasons not to invest in Dr Lal Pathlab IPO
- They operate in a highly competitive business environment, and their inability to compete effectively could have a material and adverse impact on its business.
- The trust and confidence of its customers in the “Dr Lal PathLabs” brand are fundamental to its business, and any failure to establish or maintain confidence in its brand and the quality of its diagnostic healthcare services provided under it could materially and adversely affect its business.
- They may not realize the anticipated benefits of its strategy to increase the presence of its network across India as well as of potential future investments or acquisitions, which, in turn, may adversely impact its results of operations. Moreover, its growth strategy of opening several new clinical laboratories and patient service centers may amplify the impact on its results of operations, cash flows and financial condition, immediately following this offering, of the cycle of opening and developing new clinical laboratories and patient centers.
- Business interruptions at its National Reference Laboratory may adversely affect its ability to process clinical tests and highly complex tests. A significant portion of its business comes from Northern and Eastern India, and any loss of business in these areas could have a material and adverse effect on its business.
- Its business depends on the performance of franchisees and business partners. Any non-performance by these franchisees or business partners may adversely affect its business operations, profitability and cash flows. Some of its laboratory operations are undertaken jointly with third parties, whose interests may differ from company and such arrangements entail certain risks.
- Various challenges currently faced by the healthcare industry in India may also adversely affect company business.
- They rely on information technology platform for the proper operation of its business and to protect customers’ personal information, and any disruption to its systems, or failure to protect such customer information, could materially and adversely affect its business.
- Company can receive customer complaints and be subject to litigation relating to its diagnostic healthcare services, which could have a material and adverse effect on its reputation and its business
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 15 onwards.
Recommendation / Investment strategy
- At an upper price band of Rs 550 and EPS of FY2015 of Rs 11.57, P/E Ratio works out to be 47x. For last 3 years average EPS of Rs 10.2, P/E ratio works out to be 53.9x. Means, company is asking the higher price band in in the range of 47 to 54 P/E ratio. There are no listed peers in similar business, hence we cannot say whether the issue price is overpriced or underpriced.
- Dr Lal Pathlab Limited revenues are showing good growth in last 5 years. It is generating competitive margins of over 13% in last couple of years. One should even consider risk factors indicated above. In my opinion, issue price looks on higher side. Considering various positive and negative factors, I would recommend investors to subscribe to this IPO.
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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Dr Lal Pathlab IPO – Should you Invest