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Monday, April 25, 2016 Click here for Rating Reckoner
Thyrocare Technologies
Well-tested
CM RATING44/100
Promoted by Dr. A Velumani in 2000, Thyrocare Technologies (Thyrocare) is one of the leading pan-India diagnostic chains service providers. It conducts an array of medical diagnostic tests and profiles of tests that center on early detection and management of disorders and diseases.

The company, through its brands such as Thyrocare, Aarogyam, Nueclear, Whaters offers services in diagnostic testing, wellness and preventives, cancer monitoring and water testing respectively. As of February 29, 2016, Thyrocare offered 198 tests and 59 profiles of tests to detect a number of disorders, including thyroid disorders, growth disorders, metabolism disorders, auto-immunity, diabetes, anemia, cardiovascular disorders, infertility and various infectious diseases. The profiles of tests include 16 profiles of tests administered under the Aarogyam brand, which offers patients a suite of wellness and preventive health care tests.

The company primarily operates its testing services through a fully-automated central processing laboratory (CPL), which is located in Navi Mumbai, and has recently expanded the operations to include a network of regional processing laboratories (RPLs). Since the opening of the RPLs in 2015, there is an increase in the volume of tests that they have conducted from a daily average of approximately 95,610 in Fiscal 2014 to approximately 131,073 in the fiscal ended March 2015 (FY 2015) and approximately 159,350 in the nine months ended December 31, 2015.

Thyrocare collect samples through a pan-India network of authorized service providers comprised Thyrocare aggregators (TAG) and Thyrocare service providers (TSP), operating under franchise agreements with thyrocare. As of February 29, 2016, they had a network of 1,041 authorized service providers, comprised of 687 TAGs and 354 TSPs spread across 466 cities, 24 states and one union territory.

Through wholly owned subsidiary, Nuclear Healthcare (NHL), the company operates a network of molecular imaging centers in New Delhi, Navi Mumbai and Hyderabad, focused on early and effective cancer monitoring.

The company is using the latest technologies to ensure higher volumes. It has India's first and world's longest track automation system. It recently introduced an online client system, through which any laboratories, diagnostic centers, doctors, clinics, nursing homes, hospitals, medical representatives or any organization with sample collection capabilities, can outsource the processing of samples to the company by placing an order at https://www.thyrocare.com/wellness/ and delivering samples to the nearest authorized service providers to be directed to CPL or RPL for processing. Test reports are available online at https://www.thyrocare.com/wellness/.

The company is in the process of establishing Thyrocare metabolic clinics (TMC), nation-wide branded metabolic clinics for individuals with chronic illnesses or who plans to undergo a healthcare procedure. There are plans to open TMCs in Mumbai and New Delhi.

The Offer and the Objects

The issue comprises offer for sale of 1.07 crore of equity shares of Rs 10 each, comprising selling shareholders namely: Agalia, A Velumani HUF, A Sundararaju HUF and Anand Velumani.

The minimum bid lot is 33 equity shares and in multiples of 33 equity shares thereafter. The issue is made through a book building process and will open on 27 April and will close on 29 April, with anchor Investor bidding date of 26 April 2016.

The object of the issue is to achieve the benefits of listing the equity shares on stock exchanges, enhance the visibility and brand image among existing and potential customers and provide liquidity to the existing shareholders.

Strengths

As per a Crisil report, after growing at CAGR of 16% from 2012-2015, the Indian diagnostic sector is expected to grow at CAGR of around 16-18% in between 2015-2018. The share of pan India diagnostic chains is expected to increase from around 35-40% to around 37-42% by 2018.

The company has pan-India collection network supported by logistics capabilities and information technology infrastructure

The focus is on the development of a wide range of tests and profiles in the fast growing segment of wellness and preventive healthcare. According to the Crisil research report, the wellness and preventive healthcare segment is expected to grow at a CAGR of close to 25% over 2015-2018. The company has recognized the growth opportunity in this segment and is well positioned to leverage its expertise and brand. The preventive and wellness segments contributed around 51% of the total revenues in FY 2015 as compared with 41% in FY 2013.

The multi-lab model comprises a fully automated CPL supported by the network of RPLs that conduct routine tests conducive to high volume testing. With the opening of RPLs, the company processed approximately 30% more samples in FY 2015 compared with FYl 2014.

The company will continue to explore growth opportunities in India by opening additional RPLs and ASPs in locations conducive to time and cost efficiencies. As the network of ASPs, RPLs and the number of tests performed continue to grow, the company expects to achieve economies of scale and, accordingly, optimize the cost of samples and tests processed.

Weaknesses

Low entry barrier and a highly competitive and fragmented industry

Many unorganized players have developed brand recognition in the geographies in which they operate. It, thus, becomes difficult to penetrate new markets. Competition from such standalone diagnostic centers operating in India will continue to increase

This industry is sensitive to brand perception, speed and accuracy of information. The business is dependent on reputation and is driven by customer perception for a particular brand. Any delay or inaccuracies, either by the company or the healthcare test centers of franchises, can spoil the benefits of brand building undertaken in the past.

The company will not be able to retain its current high margins given its strategy of increasing reach and penetration as it will face competition from regional and local players. Some gestation period will be involved.

Any state or Central intervention can restrict the maximum amount that a pathology lab can charge to customers. So, while the diagnostic healthcare service industry is presently not subject to extensive regulations, the government can introduce stringent regulations and can restrict the growth and profitability of the company.

Valuation

In FY 2015, the standalone net sales grew 20% to Rs 180.08 crore, OP was up 10% to Rs 75.36 crore and PAT 5% to Rs 48.45 crore. In the 9 months ended December 2015, revenues stood at Rs 170.86 crore and PAT stood at Rs 43.59 crore.

The EPS for FY 2015 works out to Rs 9. EPS for the 9 months ended December 2015 is not annualized due to seasonality of business.

At the higher price of Rs 446, on an equity share capital of Rs 53.72 crore of face value of Rs 10 each, the scrip is offered at a P/E of 49.6 times its FY 2015 earnings. Dr. Lal Pathlabs, its nearest competitor, reported a consolidated EPS for FY 2015 of Rs 11.4. At the current market price of around Rs 975, Dr. Lal Pathlabs is trading at around 85 times its FY 2015 consolidated earnings. Notably Dr. Lal Pathlabs is larger and growing faster than Thyrocare.

Thyrocare Technologies: Issue highlights
  

For Offer for Sale Offer size (in Rs crore)
- On lower price band449.40
- On upper price band477.22
Offer size (in no. of shares )1.07 crore
Price band (Rs)*420-446
Post issue capital (Rs crore)53.72
Post-issue promoter & Group shareholding (%)64.0
Issue open date27/4/2016
Issue closed date29/4/2016
ListingBSE,NSE
Rating 44/100

Thyrocare Technologies: Standalone Financials

1203(12)1303(12)1403(12)1503(12)1512(09)#
Net Sales109.08134.26149.98180.08170.86
OPM (%)44.9%47.3%45.8%41.8%41.5%
OP48.9963.4768.6875.3670.83
Other in. 5.115.736.586.973.69
PBDIT54.1069.2075.2682.3374.52
Interest0.000.000.000.000.00
PBDT54.1069.2075.2682.3374.52
Dep.2.093.326.3610.718.05
PBT 52.0165.8868.9071.6266.47
EO 0.0012.000.000.000.00
PBT after EO52.0177.8868.9071.6266.47
Tax (including Deferred Tax)17.0721.0622.7423.1722.88
PAT34.9456.8246.1648.4543.59
EPS*6.58.88.69.0#
*EPS is on post issue equity capital of Rs 53.72 crore of face value of Rs 10 each
EPS is calculated after excluding EO and relevant tax
#EPS is annualized
Figures in crore
Source: Capitaline Database

   

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