Nidan Lab NSE SME IPO review (Avoid)

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Review By Dilip Davda on October 25, 2021

•    NLHL is trying to encase the boom for diagnostic segment fancy witnessed post-pandemic.
•    Based on financial parameters, the asking price is much high.
•    Sustainability of such margins in a highly fragmented and competitive sector is a concern.
•    There is no harm in ignoring this issue. 

ABOUT COMPANY:
Nidan Laboratories and Healthcare Ltd. (NLHL) was established as a Proprietary Firm in 1994 by Promoter- Dr Nitin Vithalrao Throve in the Northern District of Mumbai where diagnostic services were provided under one roof at reliable and affordable prices. The business was carried out under sole proprietorship, which was later taken over by the Company in 2000. From the year 2000, it expanded the diagnostic's business by setting up various centre's within the Northern District of Mumbai and Pune and Southern District of Pune. As of this date, 30 diagnostics cum collection centres are operational under the brand name of "Nidan Healthcare" and offer radiology, neurology, cardiology, dental as well as pathology services. 

Out of the 35 Centre's, 16 centres are under the Franchisee model where 1 centre acts as a fully operated diagnostic centre and 15 centre's act solely as standalone collection centres. It provides integrated diagnostics services to more than 1 million patients per year. Since 2000, private and government hospitals have been using its services and diagnostics centres for various pathology and radiology tests. After more than a decade of experience, NLHL has successfully set diagnostics centre in Asian Heart Hospital, Mumbai under the name of "Asian Nidan Imaging Centre". To enable its patients to easily distinguish pathology and radiology services, the company introduced "NIDANPATH" and "NIDAN DIAGNOSTICS" respectively in the year 2017. As of March 31, 2021, it offers a comprehensive range of approximately 740 routine and 3000 specialized pathology tests and approximately 220 basic and 320 advanced radiology tests that cover a range of specialities and disciplines.

As of March 31, 2021, NLHL's diagnostic services are provided by a medical professional team consisting of 94 laboratory doctors, radiologists, physicians and 256 well-trained technical staff in an operational network. As of June 30, 2021, all of its centres are having Pre-Conception and Pre-Natal Diagnostic Techniques ("PCPNDT") accreditations.

The Company intends to introduce online Health Care Consultancy Services, Health Care Services (Medical), Hospital and Diagnostic Services under the brand name "HEALTHEXPEDIA", "TRUFIT CLINIC" and "NIDAN HEALTHMALL". Over the next 5 years, NLHL intends to set up more centres PAN India, either by acquiring brownfield projects especially in Rajasthan, Punjab or by using the "Hub and Spoke model" within the Metro cities of India.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment of loans (Rs. 16 cr.), additional working capital (Rs. 26 cr.) and general corporate expenses (Rs. 4.40 cr.) NLHL is coming out with a maiden IPO of 4000000 shares of Rs. 10 each at a fixed price of Rs. 125 per share to garner Rs. 50 cr. The issue opens for subscription on October 28, 2021, and will close on November 02, 2021. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.78% of the post issue paid-up capital of the company. NLHL is spending Rs. 3.60 cr. for this IPO process.  

The issue is solely lead managed by First Overseas Capital Ltd., Bigshare Services Pvt. Ltd. is the registrar and NNM Securities Pvt. Ltd. is the market maker. 

The company has issued entire equity shares at par so far. The average cost of acquisition of shares by the promoters is Rs. 10 per share. 

Post issue, NLHL's current paid-up equity capital of Rs. 9.90 cr. will stand enhanced to Rs. 13.90 cr. Based on IPO pricing, the company is looking for a market cap of Rs. 173.75 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, NLHL has posted turnover/net profits of Rs. 20.97 cr. / Rs. 0.22 cr. (FY19), Rs. 22.19 cr. / Rs. 0.71 cr. (FY20) and Rs. 21.85 cr. / Rs. 2.30 cr. (FY21).  For the first quarter of FY22 ended on June 30, 2021, it has earned a net profit of Rs. 1.09 cr. on a turnover of Rs. 7.85 cr. Thus scale-up in the bottom line is surprising and is the major concern as the segment in which this company is working is fragmented and highly competitive. 

For the last three fiscals, NLHL has posted an average EPS of Rs. 1.44 and an average RoNW of 0.11%. The issue is priced at a P/BV of 8.59 based on its NAV of Rs. 14.56 and at a P/BV of 2.70 based on its post-issue NAV of Rs. 46.34.

If we annualise its super earnings of FY22 on fully diluted equity capital, then the asking price is at a P/E of 39.81. Thus the issue is highly-priced based on its financial parameters and considering near term perspectives. The sustainability of such margins going forward is a major concern. 

DIVIDEND POLICY: 
The company has not declared any dividend since its incorporation. It will adopt a prudent dividend policy post listing based on its financial performance and the future prospects

COMPARISON WITH LISTED PEERS:
As per offer documents, NLHL has shown Metropolis Healthcare and Dr Lal Path as its listed peers. They are currently trading at a P/E of 59.44 and 75.38 (as of October 25, 2021). However, they are not truly comparable on an apple to apple basis. NLHL is way behind its peers in financial parameters. Recent listings of Krsnaa Diagno (11.89 P/E) and Vijaya Diagno (70.81 P/E) failed to live up to confidence. SME IPO of in this segment from Dr Lalchandani Lab (11.37) s still quoting at discount. 

MERCHANT BANKER'S TRACK RECORDS: 
This is the 10th mandate from First Overseas in the last four fiscals (including the ongoing one). Out of the last 9 listings, 1 opened at discount, two at par and the rest with premiums ranging from 1.4% to 139.2% on the day of listing. The last mandate of BEW posted the highest gains on listing day, but it cannot be considered as a benchmark.

Nidan Laboratories and Healthcare IPO FAQs