Is it worth investing in Metropolis Healthcare IPO?
Metropolis Healthcare IPO would open for subscription on 3rd April, 2019. Metropolis Healthcare Limited is one of the leading diagnostics companies in India. Company revenues increased from Rs 395 Crores to Rs 651 Crores in the last 5 years. This company is a niche player and has a debt free status. What are the positive factors in Metropolis Healthcare IPO? What are the some of the hidden factors in Metropolis Healthcare IPO? Should you invest in the Metropolis Healthcare IPO? Let me review this IPO in this article.
About Metropolis Healthcare Limited
They are one of the leading diagnostics companies in India, by revenue, as of April 31, 2018. They have a widespread of presence across 18 states in India, as of April 31, 2018, with leadership position in east and south India. Through their widespread operational network, they offer a comprehensive range of clinical laboratory tests and profiles, which are used for prediction, early detection, diagnostic screening, confirmation and/or monitoring of the disease. They also offer analytical and support services to clinical research organizations for their clinical research projects. During the financial year 2018, they conducted approximately 16.0 million tests from approximately 7.7 million patient visits.
Metropolis Healthcare IPO Issue details
IPO opening date: 3-April-2019
IPO closure date: 5-April-2019
Face Value: Rs 2 per share
Issue price band: Rs 877 to Rs 880 per share.
Issue size: 1,200 Crores
IPO Lot size: 17 shares and 17 shares, there-off
Minimum investment: Rs 14,960 on higher price band
Leading Managers: JM Financial, Credit Suisse Securities, Goldman Sachs Securities, HDFC Bank and Kotak Mahindra
Listing: BSE / NSE
Objects of the Metropolis Healthcare IPO issue
The Objects of the issue are:
To achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the Offer for Sale. Further, the Company expects that listing of the Equity Shares will enhance its visibility and brand image and provide liquidity to our Shareholders. The listing will also provide a public market for the Equity Shares in India. The company will not receive any proceeds from the Offer and all the proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by the respective Selling Shareholders as part of the Offer.
The Promoters of the company are Dr Sushil Kanubhai Shah, Ameera Sushil Shah and Metz Advisory LLP.
Company Financials (Reinstated-Consolidated)
1) The company generated revenue of Rs 395 Crores for the year ended Mar-14 and Rs 651.5 Crores for the year ended Mar-18.
2) The company posted a profit of Rs 62.6 Crores for the year ended Mar-14 and profit of Rs 109.7 Crores for the year ended Mar-18.
3) Its EPS for FY2018 is Rs 20.61 and 3 years average Earning Per Share (EPS) is Rs 19.67.
What are the key strengths of Metropolis Healthcare Limited?
Here are the key strengths of the company.
1) One of the leading diagnostics companies in India, which is well positioned to leverage the expected growth in the Indian diagnostics industry.
2) Widespread operational network, young patient touch point network and asset light growth of service network.
3) Comprehensive test menu with wide range of clinical laboratory tests and profiles.
4) Strong and established brand with a focus on quality and customer service.
5) Robust Information Technology Infrastructure with Focus on Improving Efficiency.
6) Established track record of successful acquisition and integration in India and overseas.
7) Experienced Senior Management Team and Qualified Operational Personnel.
What are the Strategies of Metropolis Healthcare Ltd?
Here are the key strategies of the company.
1) Continue to Focus on Organic Growth Initiatives to Expand their Reach.
2) Continue their Focus on Providing Quality Tests and Services.
3) Focus on the Expansion of their Service Network.
4) Focus on Increasing their Business from Individual Patients.
5) Pursue New Avenues of Growth.
6) Focus on Consolidation Opportunities in a Largely Unorganized Diagnostic Sector
Reasons to invest in a Metropolis Healthcare IPO
1) It has shown good revenue growth in the last 5 years (Rs 395 Crores in FY14 to Rs 651 Crores in FY18).
2) It has shown good improvement in margins in the last 3 years (Rs 81.9 Crores in FY16 to Rs 109.7 Crores in FY18).
3) It is a niche player and leading diagnostic company in India.
4) Company has a debt free status.
Risk Factors / Reasons not to invest in a Metropolis Healthcare Ltd IPO
1) They had certain disagreements with ETA Star Healthcare LLC due to which they have not been able to account for the results of their associate, Star Metropolis Health Services Middle East LLC, in their consolidated financial statements for Fiscal 2012 and there is an auditor qualification in their financial statements in this regard.
2) Their business and prospects may be adversely affected if they are unable to maintain and grow their brand image.
3) Any interruptions at their Global Reference Laboratory may affect their ability to process clinical tests, which in turn may adversely affect their business, results of operations and financial condition.
4) Any inadequacy in collection of, or failure or delay in the delivery of, specimens to their laboratories could compromise or destroy the integrity of such specimens, which could adversely affect their business, results of operations and financial condition.
5) Their operations are concentrated in west and south India, and any loss of business in such regions could have an adverse effect on their business, results of operations and financial condition.
6) They rely on the performance of third parties, including third party patient service centers and pick-up points, for a portion of their business, and any deficiency in services provided by them could adversely affect their business and reputation.
7) Any cancellation of contract or rejection, delay or failure by their institutional customers, including their customers in ‘Laboratory in Hospital’ model and Public-Private Partnership contract with National Aids
8) Control Organization, to make payments under the contract may adversely affect their business, results of operations, financial condition and prospects.
9) Non-compliance with and changes in any of the applicable laws, rules or regulations, including safety, health and environmental laws, may adversely affect their business, results of operations and financial condition
10) They require certain approvals, licenses, registrations and permits for conducting their business and their inability to obtain, retain or renew them in a timely manner, or at all, may adversely affect their business, results of operations and financial condition.
11) Their operations may be adversely affected by the effects of health pandemics, civil disturbances, social unrest, hostilities or acts of terrorism, natural disasters such as extreme they have events and other criminal activities.
12) The diagnostics industry in India is highly competitive and their inability to compete effectively may adversely affect their business, results of operations and financial condition.
13) Implementation of the pricing policies of the Government or other authorities could adversely affect their business, results of operations and financial condition.
14) For complete internal and external risk factors, you can refer the DRP of the company.
Metropolis Healthcare IPO Schedule (Tentative)
3rd April, 2019 – Offer Opens
5th April, 2019 – Offer Closes
10th April, 2019 – Finalization of Basis of Allotment
12th April, 2019 – Unblocking of ASBA / Initiation of Refunds
15th April – Credit of shares to Demat Accounts
16th April – Listing on NSE & BSE
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Is it worth investing in Metropolis Healthcare Ltd IPO?
If we consider consolidated EPS of Rs 20.61 for FY2018 and a higher price band of Rs 880, the P/E works out to 43x. Similarly, if we take consolidated EPS of 3 years average of Rs 19.67, P/E works out to be 45x. Means company is asking highest price band of Rs 880 in the P/E of 43x to 45x. Its only comparable competitor is a Lal Path Lab, which is trading at P/E of 47x, hence Metropolis Healthcare IPO Price of Rs 880 is fully priced.
The company has shown good revenue growth in the last 5 years. It is earning consistent margins. The issue price is fully priced. It has a debt free status, which is positive. Long term investors who are willing to create good wealth can invest in this IPO. Alternatively, if such share prices are available at discounted prices post listing, one can accumulate for medium to long term perspective. Owning to the elections ahead in India, stock markets are volatile, hence one may or may not get listing gains.
Disclaimer: I do not have an interest in investing in this IPO and above analysis is based on my personal views. 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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Metropolis Healthcare IPO Review