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Review By Dilip Davda on November 28, 2017

Shalby Ltd. (Shalby) is one of the leading multi-specialty chains of hospitals in India. Its hospitals are tertiary care hospitals, few of which also offer quaternary healthcare services to patients in various areas of specialization such as orthopedics, complex joint replacements, cardiology, neurology, oncology, and renal transplantations. As on the date of RHP, Shalby provided inpatient and outpatient healthcare services through 11 operational hospitals with an aggregate bed capacity of 2,012 beds. As on June 30, 2017, it had nine operational hospitals with an aggregate operational bed count of 841 beds. Shalby that has earned name and fame for joint replacement had a 15% market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016. As on the same date, it also provided outpatient services through 47 Outpatient Clinics and has ten shared surgery centres within third party hospitals, which are called 'Shalby Arthroplasty Centre of Excellence' ('SACE'), where Shalby offers orthopedic healthcare services including surgeries. Since March 2007, it has conducted an aggregate of 92100 surgeries, and provided healthcare services to an aggregate of 1025533 patients, consisting 133652 inpatients and 891881 outpatients. Indian healthcare industry that was around Rs. 9.2 trillion in 2016 is expected to grow at a CAGR of around 15-16% to reach Rs.17.2 trillion by 2020.

Headquartered in Ahmedabad, India, Shalby has a domestic and overseas outreach through a network of hospitals in India, and Outpatient Clinics and SACE located in India, Africa, and the Middle East. Having strong presence in western and central India and focus on Tier – I and Tier – II cities, its hospitals operate across five states, Outpatient Clinics operate across 37 cities in 12 states in India, and SACE are present in seven cities in six states in India. Shalby's international footprint consists five Outpatient Clinics and one SACE in Africa, and two SACE in the UAE. It is expanding Its footprint in western and central India with hospitals being set up in Nashik and Vadodara. It has also increased services on Home Care front as well.

To part finance its repayment/prepayment of certain debts, purchased of medical equipments, furniture and fixtures for upcoming hospitals, general corpus fund needs, Shalby is coming out with a maiden IPO consisting of fresh equity issue having face value of Rs. 10 each worth Rs.480 crore (approx 19354839 shares) and an offer for sale of 1000000 shares via book building route. Price band for the issue is fixed at Rs. 245-248 and minimum application is to be made for 60 shares and in multiples thereon, thereafter. Issue opens for subscription on 05.12.17 and will close on 07.12.17. Shalby mulls mobilizing Rs. 498.71 – 504.82 crore (on the basis of lower and upper price bands). Post allotment, shares will be listed on BSE and NSE. It issued initial equity at par from inception till April 2011. Thereafter it raised further equity at a price ranging from Rs. 20 to Rs. 70 per share from November 2011 to April 2017. It has also issued bonus shares in the ratio of 3 shares for every 2 shares held in March 2016. Post issue, its current paid up equity capital of Rs. 88.65 crore will stand enhanced to Rs. 108 crore. Average cost of acquisition of shares for the selling shareholders is Rs. 4 per share. BRLMs to this issue are Edelweiss Financial Services Ltd, IDFC Bank Ltd. and IIFL Holdings Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Issue constitutes 18.85% of the post issue paid up capital of the company. Promoters will continue to hold little over 80% stake after the issue.

On performance front, Shalby has (on a consolidated basis) reported turnover/net profits of Rs. 261.68 cr. / Rs. 37.75 cr. (FY14), Rs. 277.63 cr. / Rs. 24.55 cr. (FY15), Rs. 292.56 cr. / Rs. 36.32 cr. (FY16) and Rs. 332.86 cr. / Rs. 61.57 cr. (FY17). For Q1 of the current fiscal, it has posted net profit of Rs. 14.48 cr. on a turnover of Rs. 90.60 cr. For last three fiscals, it has posted an average EPS of Rs. 5.50 and average RoNW of 20.42% for last three fiscals. Issue is priced at a P/BV of 3.55 on the basis of post issue NAV. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of 46 plus against its peers trading at a P/Es ranging from 15 to 111 with a composite average P/E of 68. Company's top line has been showing uptrend, but bottom line has shown non-consistency for FY 14 to FY16 and sudden jump in FY 17. According to company due to its spending for expansion in multi-specialty projects and new project attaining brake-evens, this has happened and such trends will continue as it is still spending for new capacities. Once all its new units turn profitable, its bottom line is set to gallop. Though issue appears fully priced discounting all near term factors, its constant outperformance makes it a bet worth considering. Shalby operates with a mix of asset light model to keep the cost of operations under control.

On BRLM's front, three merchant bankers associated with the offer have handled 35 public offers in the past three years, out of which 10 issues closed below the offer price on listing date.

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