Shalby Hospitals IPO – Should you Invest to this IPO?
Ahmedabad based, Shalby Hospitals IPO would open for subscription on 5th December, 2017. Shalby Limited one of the leading multi-speciality chain of hospitals in India. Its consolidated revenues grew at 10% CAGR in the last 5 years. It posted consolidated profits of 18% for FY2017. What are the positive factors in Shalby Limited IPO? What are the hidden factors in Shalby Hospitals IPO? Is Shalby Hospitals IPO Price is under priced? In this article, I would provide some interesting insights and do Shalby Limited IPO Review.
About Shalby Limited
Company is one of the leading multi-specialty chain of hospitals in India. Its hospitals are tertiary care hospitals, few of which also offer quaternary healthcare services to patients in various areas of specialisation such as orthopaedics, complex joint replacements, cardiology, neurology, oncology, and renal transplantations. Company provide inpatient and outpatient healthcare services through 11 operational hospitals with an aggregate bed capacity of 2,012 beds. As on June 30, 2017, company had nine operational hospitals with an aggregate operational bed count of 841 beds. Company had a 15% market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016. Company also provide outpatient services through 47 Outpatient Clinics and have ten shared surgery centres within third party hospitals, which company call “Shalby Arthroplasty Centre of Excellence”, where company offer orthopaedic healthcare services including surgeries. Since March 2007, company have conducted an aggregate of 92,100 surgeries, and provided healthcare services to an aggregate of 1,025,533 patients, consisting 133,652 inpatients and 891,881 outpatients.
Shalby Hospitals IPO Issue details
- IPO open date: 5-Dec-2017
- IPO close date: 7-Dec-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 245 to Rs 248 per share
- Issue size: Approx Rs 504 Crores on higher price band
- Shalby Hospitals IPO Lot size: 60 shares and 60 shares there-off
- Minimum investment: Rs 14,700
- Leading Managers: Edelweiss Financial Services, IDFC Bank and IIFL Holdings
- Listing: BSE / NSE
- Download Shalby Hospitals IPO RHP Prospectus at this link.
Objects of the Shalby Hospitals Ltd IPO issue
The Issue comprises the Fresh Issue and the Offer for Sale.
a) Offer for Sale
Each of the Selling Shareholders will be entitled to their respective portion of the proceeds from the Offer for Sale. Company will not receive any proceeds from the Offer for Sale.
b) Fresh Issue
Company proposes to utilise the Net Proceeds from the Fresh Issue towards the following objects:
1) Repayment or prepayment in full, or in part of certain loans availed by the Company;
2) Purchase of medical equipment for existing, recently set up and upcoming hospitals;
3) Purchase of interiors, furniture, and allied infrastructure for upcoming hospitals
4) General corporate purposes.
Who are the Company Promoters of Shalby Limited?
The Promoters of the company are Dr.Vikram Shah, Dr Darshini Shah, Shanay Shah, Shah Family Trust, and Zodiac Mediquip Limited.
Dr Vikram Shah, Dr Darshini Shah, Shanay Shah, Shah Vikram Indrajit HUF and Shah Indrajit Chimanlal HUF are the promoters of Zodiac Mediquip Limited.
Company Financials (reinstated-consolidated)
1) The company generated revenue of Rs 229.8 Crores for the year ended Mar-13 and Rs 332.8 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 15 Crores for the year ended Mar-13 and profit of Rs 61.5 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 7.16 and 3 years average EPS is Rs 5.5.
Company Financials (reinstated-standalone)
1) The company generated revenue of Rs 213.2 Crores for the year ended Mar-13 and Rs 330.8 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 19.8 Crores for the year ended Mar-13 and profit of Rs 63.2 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 7.24 and 3 years average EPS is Rs 5.67.
What are the key strengths of Shalby Limited?
Here are the key strengths of the company.
1) Leadership in orthopaedics and strong capabilities in other specialties.
2) Integrated and scalable business model enhancing its patient reach.
3) Experienced player with longstanding presence and brand recall.
4) Track record of operating and financial performance and growth.
5) Ability to attract quality doctors, nurses, paramedical, and other staff.
6) Experienced and qualified professional management team with strong execution track record.
What are the Strategies of Shalby Hospitals Ltd?
Here are the key strategies of Shalby Hospitals which it want to focus.
1) Strengthen hospital presence in western and central India, and continue expanding into new geographies.
2) Continue to enhance its outreach programmes.
3) Continue to strengthen healthcare services across other specialties.
4) Implement initiatives to improve operational efficiencies.
5) Continue to grow its ancillary businesses.
Reasons to invest in Shalby Hospitals IPO
1) It posted good consolidated revenue growth of 10% CAGR and 12% CAGR in the last 5 years.
2) It posted good margins of 18% to 19% (consolidated and standalone) for FY2017.
3) Growing multi-speciality chain of hospitals.
4) Healthcare is going to be evergreen industry and revenues and profits are expected to grow over the period of time for such companies.
Risk Factors / Reasons not to invest in a Shalby Limited IPO
1) A significant portion of its revenue is currently generated from two hospitals SG Shalby and Krishna Shalby. Further, a majority of its hospitals are located in the state of Gujarat. Any material impact on the revenue from these hospitals will impact its business, prospects, financial condition and results of operations significantly.
2) Company are dependent on one field of specialty for a substantial portion of its revenue, i.e. orthopaedics.
3) Any material impact on its earnings from orthopaedics will impact its financial condition and results of operations significantly.
4) Its O&M partner, SMJH Trust, has not perfected its leasehold rights upon the land on which Shalby Jabalpur has been constructed. Accordingly, its rights arising out of its O&M arrangement with SMJH Trust in respect of Shalby Jabalpur may be impaired, thus adversely affecting its revenue, profits, and financial conditions.
5) Company have not executed definitive agreements in respect of some of its Outpatient Clinics with third parties. Further, Zynova Shalby is presently being operated under a memorandum of understanding, and a detailed agreement is proposed to be executed upon completion of 36 months from the date of commencement of its management and operation of Zynova Shalby.
6) Its revenue is primarily dependent on inpatient treatments, which could decline due to a variety of factors. Any such decline will adversely affect its financial condition and results of operations.
7) Company operate some of its facilities under arrangements with third parties such as O&M agreements and lease agreements. Further, its SACE operate at third party hospitals and offer orthopaedic services on the basis of agreements with such third party hospitals. Counterparties may unilaterally terminate these arrangements and may require us to cease doing business out of such facilities, or may refuse to renew such agreements on expiry. Any such action by the counterparties may adversely affect its revenue and financial condition.
8) Company is significantly dependent on one of its Promoters, Dr Vikram Shah, and a loss of his services could adversely affect its business and results of operations.
9) Delay in receipt of payment from its patients / customers may affect its cash flows, which may, in turn affect its financial condition and results of operations.
10) Other risk factors (Internal and external) can be viewed in the prospectus.
Recommendation / Investment strategy – Shalby Hospitals IPO
1) On the upper price band of Rs 248 and on consolidated restated FY17 EPS of Rs 7.16, P/E ratio works out to 35x. Even based on last 3 years restated consolidated EPS of Rs 5.5, P/E ratio works out to 45x. Even on standalone FY2017 EPS of Rs 7.24, P/E ratio works out to 34x and last 3 years average EPS of Rs 5.67 the P/E ratio works out to 44x.
2) Means, company is asking higher price band of Rs 248 in the P/E ratio of 34x to 45x. Its peers like Healthcare Global Hospitals are trading at P/E ratio of 111x (Highest), Apollo Hospitals and Narayana Hrudayalaya are trading at P/E of 72x (moderate) and Fortis Healthcare is trading at P/E ratio of 15 (Lowest) and industry average is at 67x. Hence Shalby Hospitals IPO issue price is reasonably priced.
3) Company revenues grew at 10% CAGR in the last 5 years. It earned decent profits of over 18% in FY17. Healthcare industry is a growing business. Its issue price is also reasonably priced. Considering all these positive factors, investors can invest in this IPO with medium to long term perspective. One may or may not get listing gains.
Disclaimer: I 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.
Readers, What is your view on this IPO? Would you like to invest in such company which is in healthcare industry.
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Shalby Hospitals IPO – Should you Invest to this IPO