Sangani Hospitals NSE SME IPO review (Avoid)

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Review By Dilip Davda on August 1, 2023

•    SHL is a multi-speciality healthcare provider from Gujarat.
•    It runs two hospitals - one at Keshod and one at Veraval. 
•    Based on FY23 earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this pricey IPO. 

ABOUT COMPANY:
Sangani Hospitals Ltd. (SHL) is a Sangani group's healthcare arm. SHL is a multi-speciality healthcare provider operating in Keshod and Veraval regions of Gujarat with a combined bed capacity of 68 beds. Its services primarily include super speciality services, speciality services and other support services. The company also operates a pathology laboratory and medical store. Currently, it operates out of two hospitals i.e. Sangani Hospital at Keshod, Junagadh, Gujarat and Sangani Super Speciality Hospital, Veraval, Gujarat.

Sangani Hospital is a 36-bed multi-speciality hospital with primary, secondary and tertiary care facilities. Sangani Super Speciality Hospital is a 32-bed multi-speciality hospital with a significant focus on tertiary care facilities. At Sangani Hospital, Keshod, number of permanent doctors available are 4 and consulting doctors are 12. At Sangani Super Speciality Hospital, Veraval, number of permanent doctors available are 2 and consulting doctors are 9. Other than doctors, the number of staff present at Sangani Super Speciality Hospital, Veraval 14 and at Sangani Hospital, Keshod 24. Also, as per the requirements, SHL exchanges the roles and responsibilities of doctors and staff at both hospitals.

To expand its business, the company recently acquired Ankur Laboratory, Ankur Medical Store, Ankur Medicines, Sangani Super Speciality Hospital and some of its Doctors/staff, at Sangani Laboratory. As of June 30, 2023, it had 70 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route IPO of 3792000 equity shares of Rs. 10 each with a price band of Rs. 37 - Rs. 40 per share. The company mulls mobilizing Rs. 15.17 cr. at the upper cap of the price band. The issue opens for subscription on August 04, 2023, and will close on August 08, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.52% of the post-issue paid-up equity capital of the company. 

From the net proceeds of IPO money, the company will utilize Rs. 8.10 cr. for capex on expansion in Keshod-Gujarat Hospital, Rs. 3.19 cr. for capex on the expansion of Veraval-Gujarat Hospital, and the rest for general corporate purposes. 

The company has reserved 192000 equity shares for the market maker, and from the rest, it has allocated not more than 10% for QIBs, not less than 45% for HNIs and not less than 45% for Retail investors. 

Unistone Capital Pvt. Ltd. is the sole Book Running Lead Manager (BRLM), and Bigshare Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

Having issued/converted initial equity shares at par, the company converted further equity shares at a fixed price of Rs. 19 per share in May 2022. The average cost of acquisition of shares by the promoters is Rs. 4.91, Rs. 5.13, Rs. 6.42, and Rs. 772.81 (?) per share.  

Post-IPO, SHL's current paid-up equity capital of Rs. 9.99 cr. will stand enhanced to Rs. 13.78 cr. (13776990 shares). Based on the upper band of the IPO price, the company is looking for a market cap of Rs. 55.11 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SHL has (on a consolidated basis) posted a total revenue/net profit of Rs. 4.98 cr. / Rs. 0.79 cr. (FY21), Rs. 10.30 cr. / Rs. 2.19 cr. (FY22), and Rs.15.76 cr. / Rs. 1.48 cr. (FY23). Thus while its top line has marked growth, its bottom line has posted inconsistency and has declined for FY23.

For the last three fiscals, the company's PAT margins have declined from 15.90% for FY21 to 9.47% for FY23. Similarly, its RoCE too has declined from 55.71% for FY21 to 11.26% for FY23.  

For the last three fiscals, the company has reported an average EPS of 3.47 and an average RoNW of 35.75%. The issue is priced at a P/BV of 2.22 based on its NAV of Rs. 18.00 as of March 31, 2023, and at a P/BV of 1.66 based on its post-IPO NAV of Rs. 24.06 per share (at the upper cap).

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 37.03. Thus the IPO is aggressively priced. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Artemis Medicare and Lotus Eye as their listed peers. They are currently trading at a P/E of 44.01 and 51.11 (as of July 31, 2023). However, they are not truly comparable on an apple-to-apple basis. These listed peers appear to be an eyewash only. In fact, it could have taken local listed peers like Aashka Hospital, and Aatmaj Healthcare which are currently trading at a P/E of 00, and 21.63 (as of July 31, 2023).

MERCHANT BANKER'S TRACK RECORD:
The BRLM associated with the issue has handled 10 public issues in the past three years, out of which 1 issue closed below the issue price on the listing date. 

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