Narayana Hrudayalaya Ltd IPO Review (Apply)

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Review By Dilip Davda on December 12, 2015

NHL was founded in 2000 by Promoter, Dr. Devi Prasad Shetty, who has over 30 years of medical experience, including as a cardiac surgeon, the Company is one of the leading private healthcare service providers in India, operating a chain of multispecialty, tertiary and primary healthcare facilities. As of the date of the Red Herring Prospectus, it had a network of 23 hospitals (multispecialty and superspeciality healthcare facilities which provide tertiary care), 8 heart centres (superspeciality units which are set up in a third party hospital) and 24 primary care facilities (including clinics and information centres), across a total of 31 cities, towns and villages in India, with 5,442 operational beds and the potential to reach a capacity of up to 6,602 beds. In FY 2015, the facilities provided care to over 1.97 million patients. Headquartered in Bengaluru, it operates a national network of hospitals in India with a particularly strong presence in the southern state of Karnataka and eastern India, as well as an emerging presence in western and central India. As of September 30, 2015, it had 11,163 employees, which included 344 doctors, 5,587 nurses, 1,996 paramedical staff and 3,236 administrative personnel. Additionally, it had 487 students, which included 469 doctors, 14 paramedics and 4 administrative trainees. Further, it had 1,750 doctors on a consultancy basis (including visiting consultants) engaged in the system. NHL believes in bringing affordable healthcare services to the masses of India in particular and the global masses in general. NHL has four healthcare projects underway at Vaishnodevi, Lucknow, Bhuwaneshwar and Mumbai and all these are expected to be on stream in next 12 to 24 months. These projects will add around 1000 beds on completion. Most of the projects are on PPP model thus it reduces capex for NHL.

For unlocking the value for stakeholders and listing of its equity, the company is planning a maiden IPO via secondary route i.e. offer for sale by existing shareholders who are offering on an aggregate 24523297 equity shares of Rs. 10 each via book building route in a price band of Rs. 245-250.  Minimum application is to be made for 60 shares and in multiples thereon, thereafter. Issue opens for subscription for Anchor Investors on 16.12.15 and for others; the issue will remain open from 17.12.15 to 21.12.15. This offer will constitute around 12% of the post issue paid up capital of the company. BRLMs to this offer are Axis Capital Ltd, IDFC Securities Ltd and Jefferies India Pvt Ltd and Karvy Computershare Pvt Ltd is the registrar to the issue. Post allotment shares will be listed on BSE and NSE. With this offer, seller stakeholders will realize around Rs. 613 crore at the upper price band.  As this being an offer for sale, no funds are coming to the company. Discount to retail investors that was planned while filing DRHP is missing.

The company having issued initial capital at par during 2000 and 2001 and then issued 75414 equity share of Rs. 10 each at a price of Rs. 53040.55 per share in February 2008 and 20339 shares at a price of Rs. 98336.27 in December 2014. It also issued bonus in the ratio of 577.45 shares for every 1 share held in March 2015 and then converted OCDs into 4360804 equity shares at a price of Rs. 244.67 per share in December 2015. Its current paid up equity is at Rs. 204.36 crore.

On performance front, the company has posted an average EPS of Rs. 0.50 (on consolidated basis) and Rs. 1.56 (on standalone basis) for last three fiscals. In fact for the fiscal 2015 it reported loss and thus its RoNW turned negative. For the fiscal 2015 it has posted loss of Rs. 10.86 crore on a turnover of Rs. 1371.58 crore. For last four fiscals it has reported CAGR of 30% in total revenues and 23.80% in EBITDA. For the first half of current fiscal, it has posted net profit of Rs.  12.49 crore on a turnover of Rs.788.56 crore (on consolidated basis). If we annualize these and attribute to the existing equity capital of Rs. 204.36 crore, the EPS will be around Rs. 1.22 and thus the issue is at a P/E of around 200 plus. Its peers (although not comparable on strict norms and business model of NHL) trading at a P/E of around (55) Apollo Hospital, (17) Fortis Malar, (23) Kovai Medical etc. The basic difference between all peers and NHL is the business mix. While others have Premium verses General ratio of 75:25, NHL has the reverse one i.e. 25:75 as it believes in growth via volumes at affordable pricing and is the most preferred partner for many NGOs for the said cause.

According to market sources, this IPO is generating fancy despite being aggressively priced as it is the first mover in business model (affordable world class healthcare services) and may have re-run of IndiGo. IPO pricing largely discounts near term prospects but has bright prospects ahead once it’s all plans are afoot.

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