IPO

Thursday, November 30, 2017 Click here for Rating Reckoner
Shalby
Specialist in Orthopaedics
CM RATING41/100
Incorporated in 2004 and headquartered in Ahmedabad, Shalby is one of the leading multi-specialty chain 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 November 2017, Shalby provided inpatient and outpatient healthcare services through 11 operational hospitals with an aggregate bed capacity of 2,012 beds. It has grown from 4 hospitals in April 2012 to 11 operational hospitals on Nov 2017 through a combination of greenfield or brownfield projects, strategic acquisitions, and operation and management (O&M) arrangements.

As on June 30, 2017, it had nine operational hospitals with an aggregate operational bed count of 841 beds. It also provides outpatient services through 47 Outpatient Clinics and has 10 shared surgery centres (seven domestic and three overseas) within third party hospitals, which are called Shalby Arthroplasty Centre of Excellence (Sace), where Shalby offers orthopedic services including surgeries. Clinics and Sace have helped increase inpatient footfalls, carry out preliminary assessments to determine the feasibility of setting up full-fledged hospitals at new locations and set up presence overseas.

According to F&S report, the company has a 15% market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016. Since March 2007, Shalby has conducted an aggregate of 92,100 surgeries, and provided healthcare services to an aggregate of 1,025,533 patients.

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 footprints are across 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 at Nashik and Vadodara.

The company has also started services on Home Care front from FY 2015. These services include a wide range of services which, inter alia, include attendant services, nursing services, physiotherapy services, pathology services, and home deputation of medical officers. In FY 2017 and the three-months period ended June 30, 2017, Shalby Homecare provided services to a total of 9,560 and 5,919 patients, respectively.

Shalby also commenced Shalby Academy in FY 2016, which offers various educational programmes including diploma in orthopaedics, fellowship in critical care, and courses offered by the Paramedical Council of Gujarat. In FY 2017 and the three-month period ended June 30, 2017, Shalby Academy catered to 48 and 155 students, respectively. Through Shalby Academy, the company has been successful in creating a pool of resourceful manpower, some of whom, upon successful completion of their respective courses have enlisted with the company as permanent staff.

The Company conducts clinical research trials since 2006 at SG Shalby and Krishna Shalby (both in Ahmedabad). It has undertaken 80 sponsored clinical research trials since 2006.

Majority of the doctors are engaged full time by the company. As of June 30, 2017, Shalby employed 2,049 employees and engaged 319 professional consultants, consisting 294 doctors who are full-time consultants and 25 doctors who are part-time consultants. The staff strength also comprises 699 nurses and 1,350 paramedical, corporate and support staff and pharmacists.

As of June 30, 2017, Shalby has a capital cost per bed of Rs.42 lakh.

Average revenue per occupied bed (ARPOB) for the company stands at around Rs 33032 for FY 17 and Rs 36720 for the three months ended June 17.

The company intends to focus on cities with high growth rate among other factors. Intend to expand its hospital network to northern India, eastern India, and north eastern India. While orthopaedics will continue to be a key focus area, the Company intends to set up multi specialty hospitals which focus on specialties other than orthopaedics. It also aims to enhance its outreach programmes by establishing outpatient clinics and Sace in Tier I Cities, Tier II Cities, and Tier III Cities.

The Offer and the Objects

The offer comprises fresh issue of Rs 480 crore, which at lower price band of Rs 245 per share, works out to 195.92 lakh shares and at higher price band of Rs 248, the offer works out to 193.55 lakh shares. The offer also comprises offer for sale of 10 lakh shares, which at lower price band of Rs 245 per share, works out to Rs 24.50 crore and at higher price band of Rs 248, the issue size works out to Rs 24.80 crore.

The selling shareholder comprises promoter Dr. Vikram Shah

The minimum bid lot is 60 equity shares and in multiples of 60 equity shares. The issue is made through the book-building process and will open on 5th December and will close on 7th December, with anchor investor bidding date of 4th December 2017.

The objects of the issue is to spend around Rs 300 crore on repayment or prepayment of certain loans, Rs 63.58 crore on purchase of medical equipment for existing and upcoming hospitals, Rs 11.18 crore on purchase of interiors, furniture and allied infrastructure for upcoming hospitals and rest for general corporate purposes, apart from the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

Strengths

As per F&S survey, 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.

According to the F&S Report, Shalby is one of the most active healthcare players in international medical tourism, having catered to over 35,000 international patients since 2007.

Leadership in orthopaedics and strong capabilities in providing advanced level of care in various other specialities. The company is a market leader in area of joint replacement surgeries having performed 54105 joint replacements since 2007. Shalby has an integrated and scalable business model enabling it to provide comprehensive healthcare solutions through a network of multi-specialty hospitals, outpatient clinics and Sace.

It incurs lower capital expenses by making optimal use of the available built-up area in the hospitals. The company has been able to set up additional operation theatres (OTs) by achieving optimization of the built-up area. Helps maintain an average bed-to-OT ratio of 200:81 as on June 17.

Shalby carry out the O&M arrangements on an asset-light and revenue-sharing basis with third party healthcare service providers to ensure efficient capital deployment.

Centralized purchase of implants, drugs and various medical consumables help the company to reduce the overall procurement costs.

The company has been able to reduce the average length of stay (ALOS) by patients in hospitals from 4.1 in FY 2013 to 3.88 as on June 17, which has resulted in increasing inpatient turnover rate, thereby improve productivity. The average earnings-per-bed during the first three days of an inpatient's stay is significantly higher than their average earnings-per-bed in servicing such patients for their stay beyond the first three days.

Weaknesses

The National Pharmaceuticals Pricing Authority, vide its order dated 16 August 2017, has fixed a ceiling on the price that can be charged on orthopaedic knee implants. The imposition of this price ceiling will have a negative impact on the revenue from operations and profitability.

There is over-dependency on two hospitals in Gujarat. For the three months period ended June 30, 2017 and FY 2017, SG Shalby and Krishna Shalby, the two major hospitals of the company, together contributed to 68.28% and 77.01% of total revenues. There is a heavy dependency on these 2 hospitals for the company's revenues.

There is significant dependency on orthopaedic services for income. For the three months ended June 30, 2017 and FY 2017, the orthopaedic services contributed to as much as 67.51% and 67.77%, respectively, of the total revenues.

Over-dependency on the promoter

Valuation

For FY 2017, net sales were up 12% to Rs 325.39 crore. The OPM stood at 22.2% and increased by 310 basis points, which resulted in OP growth of 30% to Rs 72.36 crore. Other income stood at Rs 7.48 crore up by 248%. Interest cost was down by 6% to Rs 9.79 crore while depreciation was up by 48% to Rs 16.80 crore. Thus, the PBT growth was up by 48% to Rs 53.25 crore. After providing total tax credit of Rs 8.33 and MI of negative Rs 1 crore, consolidated profit after tax (Pat) for FY 2017 stood at Rs 62.56 crore up by 66%.

For the June 2017 quarter, net sales stood at Rs 89.23 crore with OPM of 28.9% resulting in an OP of Rs 25.75 crore. Other income stood at Rs 1.37 crore. Interest cost was at Rs 4.07 crore and depreciation stood at Rs 4.45 crore. After providing for total tax of Rs 4.12 crore and MI of Rs 0.1 crore, consolidated PAT for the June 2017 quarter stood at Rs 14.39 crore. Due to seasonality of business, the June 2017 quarter profit cannot be annualised.

The diluted equity share capital of the company stands at Rs 108.02 crore of face value of Rs 10. EPS for FY 2017 works out at Rs 5.8. At the higher price band of Rs 248, The P/E on FY 2017 diluted EPS works out to 42.8.

The company utilized MAT entitlement credit of Rs 41 crore in FY 2017, which resulted in tax credit. Post the availment of tax credit, the company will pay normal tax rate from FY 2018 onwards. This can restrict the bottom-line growth in FY 2018.

There has been inconsistency in the bottom-line growth of the company in the past due to company's spending for expansion in multi speciality projects and new project attaining breakeven levels. Such trends will continue as it is still spending for new capacities.

Shalby : Issue highlights
Offer for sale (in Rs crore)
- On lower price band24.50
- On upper price band24.80
Total Issue size for offer for sale ( in no of shares in lakh)10.00
Fresh Issue ( in no of shares in lakh)
- On lower price band195.92
- On upper price band193.55
Total Issue size for fresh issue ( in Rs crore)480.00
Price band (Rs)245-248
Market lot size (in no of shares)60
Post issue share capital (Rs crore) 108.02
Post-issue Promoter & Group shareholding (%)79.4%
Issue open date05-12-2017
Issue closed date07-12-2017
ListingBSE, NSE
Rating 41/100

 

Shalby: Consolidated Financials
1303(12)1403(12)1503(12)1603(12)1703(12)1706(03)
Revenue from operations225.13258.89275.42290.41325.3989.23
OPM (%)18.4%24.2%24.5%19.1%22.2%28.9%
OP41.5362.6567.4955.4972.3625.75
Other in. 4.702.792.212.157.481.37
PBDIT46.2365.4469.6957.6479.8427.12
Interest0.352.285.4210.399.794.07
PBDT45.8863.1664.2747.2570.0523.05
Dep.27.1911.0121.2411.3316.804.45
PBT 18.7052.1443.0335.9253.2518.60
EO 0.000.000.000.000.000.00
PBT after EO18.7052.1443.0335.9253.2518.60
Tax (including Deferred Tax)3.6914.4018.48-0.40-8.334.12
PAT15.0137.7524.5536.3261.5714.48
MI-2.1-1.3-1.2-1.3-1.00.1
PAT after MI17.1039.0325.7337.5862.5614.39
EPS1.63.62.43.55.8#
*EPS is on post issue equity capital of Rs 108.02 crore of face value of Rs 10 each
# EPS not annualised due to seasonality of business
EO: Extraordinary items, EPS is calculated after excluding EO and relevant tax
All the above financials and result are as per New Ind AS
Figures in crore
Source: Capitaline Database

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