Metropolis Healthcare Ltd IPO - Should you subscribe?

Converted from partnership firm into company in July 2003, Metropolis Healthcare Limited is a brand in healthcare sector.  After MSTC Listing failed, Rail Vikas Nigam Ltd has not received good response on the third day of opening, and even by the time this article is being written. Metropolis Healthcare Ltd IPO is  the sixth mainline IPO of the year 2019. This is yet another 100% offer for share.

Overview :

The company offers a broad range of approximately 3,487 clinical laboratory tests and 530 profiles, as of December 31, 2018. The profile comprises of a variety of test combinations which are specific to a disease or disorder as well as wellness profiles that are used for health and fitness screening. It classifies its tests into (i) ‘routine’ tests such as blood chemistry analyses, blood cell counts and urine examination; (ii) ‘semi-specialized’ tests such as thyroid function tests, viral and bacterial cultures, histology, cytology and infectious disease tests; and (iii) ‘specialized’ tests such as tests for coagulation studies, autoimmunity tests, cytogenetics and molecular diagnostics. It is focused on providing reliable test results as well as value-added services such as home collection of specimens and online access to test reports. It also offers customized wellness packages to its institutional customers as per their requirement. Its patient centric approach is a critical differentiator which results in several individuals and healthcare providers choosing it as their diagnostic healthcare service provider.

The company conducts its operations through its laboratory and service network. It has implemented a ‘hub and spoke’ model for quick and efficient delivery of services through its widespread laboratory and service network, which covers 197 cities in India, as of December 31, 2018. As of December 31, 2018, its laboratory network consists of 115 clinical laboratories, comprising (i) a global reference laboratory (“GRL”) located in Mumbai, which is its main ‘hub’ and equipped to conduct majority of the tests offered by it; (ii) 14 regional reference laboratories (“RRLs”) (out of which four are located outside India), which are equipped to conduct routine, semi-specialized and few specialized tests; (iii) 56 satellite laboratories (out of which one is located outside India), which are equipped to conduct routine and semi-specialized tests; and (iv) 44 express laboratories (out of which five are located outside India), which are equipped to conduct routine tests.

The company’s service network caters to individual patients as well as institutional customers. It services individual patients through 1,631 patient touch points (out of which 26 are located outside India), as of December 31, 2018, including 256 patient service centers owned by it (“Owned PSCs”) and 1,375 third party patient service centers (“Third Party PSCs”). It services its institutional customers through approximately 9,552 institutional touch points, as of December 31, 2018, including (i) approximately 9,000 pick-up points; and (ii) 552 assisted referral centers (“ARCs”) (out of which seven are located outside India), which are its exclusive third party referral centers.

Issue Details : The issue is opening on April 3, 2019 and closing on April 5, 2019. The tentative dates of allotments and listing are April 12, 2019 and April 16, 2019. You can check the allotment status on https://linkintime.co.in. The offer for sale is for 1,36,85,095 shares of Rs. 2 FV. Out of that, 3,00,000 shares are reserved for employees. 

  

Object of the issue: As it is 100% offer for sale arrangement, the company shall not receive any proceeds from the issue. The only objective is to get benefit of listing on the recognized stock exchanges. Promoter Dr Sushil Kanubhai Shah and investor shareholder CA Lotus Investment shall sell 62,72, 335 and 74,12,760 shares respectively under this arrangement.

Pricing of the issue: The company has set the price range between Rs. 877 to Rs. 880 per share. Minimum lot size is 17 shares. The basic EPS on consolidated basis as on March 31, 2018 was Rs. 20.61. At upper and lower price band, the PE Ratio ranges between 42.55 - 42.70. The industry highest, lowest and average PE is 50.57.

The price set is 9.40 times to 9.44 times of its NAV as on December 31, 2018. 

Peer Comparison: Dr Lal Pathlabs Limited is the only peer of Metropolis. As on April 1, 2019, Dr Lal Pathlabs share was trading at 50.36 PE and at 10.83 times of its book value. At this front, Metropolis offer price seems to be reasonable. 

On the other hand, RoNW (Return on Networth) of Metropolis was 24.66%, a little higher than Dr Pathlabs i.e. 21.61%.

Profitability:From financial year 2016 to financial year 2018, (i) its revenue from operations grew from Rs. 4,75.47 Crore to Rs. 6,43.57 Crore, representing a CAGR of 16.3%; (ii) its Adjusted EBITDA grew from Rs. 129.80 Crore to Rs.177.38 Crore, representing a CAGR of 16.9%; and (iii) its profit for the year grew from Rs. 81.96 Crore to Rs.109.75 Crore, representing a CAGR of 15.7%. During the nine-months period ended December 31, 2018, its revenue from operations, Adjusted EBITDA and profit for the period were Rs. 5,59.31 Crore, Rs. 145.74 Crore and Rs.88.77 Crore, respectively. Adjusted EBITDA is a supplemental measure of performance and is not prepared under or required by Ind-AS. 

Dividend: The company has paid dividend in three out of five years in the last five years.

Debt-Equity Ratio: The company is cash rich company. Debt-Equity ratio as on December 31, 2018 was mere 0.001.

Conclusion: Prima-facie, the IPO seems attractive. The only issue is long term promoters are exiting. On the other hand, the profitability, debt-equity ratio, peer comparison, dividend are all favorable. It may not give attractive listing gain. So, I would recommend to APPLY for medium to long term

(Note : I write review based on my knowledge and understanding. The reader of this article should do his/her own research before applying)