Healthcare Global IPO – Should you invest?
You would have been tired of SME IPO’s. Its turn for main line IPO. Bengaluru based, Healthcare Global IPO would open for subscription on 16th March, 2016. Healthcare Global Enterprises Ltd is in Cancer care and fertility treatment. Company posted excellent revenue growth of 25% CAGR in last 5 years. It has a unique business model in cancer and fertility treatment. What are the positive factors in Healthcare Global IPO? What are its hidden factors in Healthcare Global IPO? Should you invest in such loss making company?
About Healthcare Global Limited
Healthcare Global Enterprises is the provider of specialty healthcare in India focused on cancer and fertility. Under the “HCG” brand, they operate the largest cancer care network in India in terms of the total number of private cancer treatment centres licensed by the AERB as of May 31, 2015. Under the “Milann” brand, they operate fertility centres. As of December 31, 2015, HCG network consisted of 14 comprehensive cancer centres, including center of excellence in Bengaluru, three freestanding diagnostic centres and one day care chemotherapy centers across India. Each of its comprehensive cancer centres offers, at a single location, comprehensive cancer diagnosis and treatment services (including radiation, medical oncology and surgical treatments). Its freestanding diagnostic centres and day care chemotherapy center offer diagnosis and medical oncology services, respectively.
Issue details of Healthcare Global IPO
- IPO opens: 16-March-2016
- IPO closes: 18-March-2016
- Face Value: Rs 10 per share
- Issue price band: Rs 205 – Rs 218 per share
- Issue size: Rs 611 Crores to Rs 650 Crores
- Lead Managers: Kotak Mahindra Capital, Edelweiss financial services, Goldman Sachs India, IDFC Securities, IIFL Holdings and Yes Bank.
- Listing: BSE and NSE
- Download Healthcare Global IPO Prospectus from Goldman Sachs India Website at this link.
Purpose of the IPO
a) Offer for Sale
- Company will not receive any proceeds from the Offer for Sale.
b) Company proposes to utilise the Net Proceeds towards funding the following objects:
- Purchase of medical equipment;
- Investment in IT software, services and hardware;
- Pre-payment of debt; and
- General corporate purposes.
Company Financials (consolidated – reinstated)
- Company generated revenue of Rs 216.19 Crores for the year ended Mar-11 and Rs 524.19 Crores for the year ended Mar-15. For 8 months ended Nov-15, it generated revenue of Rs 381.28 Crores.
- Company posted a profit of Rs 6.3 Crores for the year ended Mar-11 and profit of Rs 0.55 Crores for the year ended Mar-2015. For 8 months ended Nov-15, it generated a loss of Rs 3.7 Crores.
- Its restated consolidated EPS for FY 2015 is Rs 0.08 and last 3 years average EPS is minus Rs 1.98.
Reasons to invest Healthcare Global IPO
- It has posted strong revenue growth in the past. Its revenues grew at 25% CAGR in last 5 years.
- It has a unique business model of cancer care and fertility treatment.
Reasons not to invest in a Healthcare Global IPO
- It generated losses for 3 out of last 5 financial years. Even for the 8 months ended Nov-15, it posted a loss of Rs 3.7 Crores. These losses are majorly on account of the initial phase of investments being done by the company.
- Two of its Subsidiaries have reported net losses in the recent fiscal periods.
- There have been incidents of fraud committed by employees of one of its former subsidiaries as well as by senior managers at its cancer centres in the past.
- The success of its business is dependent on its ability to maintain and expand its HCG network and its Milann network. If they are unable to successfully maintain or expand its HCG network and its Milann network its business, financial condition and cash flows could be materially and adversely affected.
- Company cannot assure you that they will be able to successfully execute its growth strategies, which could affect its business, prospects and results of operations.
- Two of its Promoters and one of its Directors are party to criminal proceedings and if convicted, its business and reputation could be adversely affected.
- Most of its specialist physicians are not their employees. If such specialist physicians discontinue their association with them its business and results of operations may be materially and adversely affected.
- They derive a significant portion of its revenue from its centre of excellence in Bengaluru.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 17 onwards.
Recommendation / Investment strategy:
- Company has incurred losses in the last few years, hence negative/Low EPS cannot be compared to determine whether issue price is high or reasonably priced. However, one can check through an appropriate valuation technique which is enterprise value to EBIDTA. EV is calculated as market capitalization after adding all debt less cash. At the higher end of the price band of Rs 218 per share, the company is demanding FY17 EV/EBIDTA of 17x after dilution. Its listed peers, Apollo Hospitals is at 21x and Narayana Hrudalaya is at 23x on respectively based on FY17 EV/EBIDTA. Hence we can say that the upper price band of Rs 218 is reasonably priced.
- Company has posted strong revenue growth at 28% CAGR in last 5 years. However, it incurred losses in previous years. It had thin margins of 0.1% in the last year and incurred losses for 8 months ended Nov-15. Company is in the investment phase and losses are majorly due to higher depreciation and interest costs. Company may post good margins in next 2 to 3 years. Considering high growth potential and reasonable valuations, high risk investors can invest in this Healthcare Global IPO.
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.
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