The Rs 1,204-crore initial public offering (IPO) of
Metropolis Healthcare opened for subscription on Wednesday. The price band for the offer has been fixed at Rs 877-880 and will close on April 5 (Friday). Most analysts have a 'subscribe' rating for the IPO.
The IPO is an offer for sale (OFS) of 1.37 crore shares by promoters and selling shareholders. Of these, 62.7 lakh shares by the promoter Dr. Sushil Kanubhai Shah and of around 74.1 lakh shares by CA Lotus Investments. After the issue, total promoter shareholding will be reduced to 55.3 percent from 67.8 percent.
On Tuesday, Metropolis Healthcare raised Rs 530 crore by selling shares to anchor investors. The company allotted 60,23,293 equity shares to 26 anchor investors at Rs 880 per unit, the company said in a regulatory filing.
Here's what brokerages have to say about the issue:
According to the brokerage, the vast geographical presence, diversified and large tests menu catering to several ailments, along with the ability to capture future opportunities by way of presence in key growth areas, is likely to help the company maintain its position and boost growth.
"At the higher end of the price band of Rs 880, the issue is priced at 40.2 times its FY18 earnings and 37.3 times its earnings for the first nine months of FY19, on annualised basis which appears fairly priced. Hence, we suggest investors to 'subscribe for long term' to this IPO," it added.
This brokerage believes that the company is well poised to leverage on the shifting trend from unorganised providers to organised providers in the diagnostics market and the overall growth in the Indian diagnostics market is expected to be led by eight major cities.
However, the risk of implementation of pricing policies by the government, risk of technological advancement in the diagnostics industry and high dependency on institutional customers are the key concerns to the company.
Geojit Financial Services
Considering lower profit after tax (PAT) reported by the company in FY18, the brokerage believes that the valuation is on premium.
"Metropolis operates through laboratory and service network and has implemented a ‘hub and spoke’ model for quick and efficient delivery of services. Revenue, EBITDA and PAT grew at a compound annual growth rate of 12 percent, 13 percent, and 22 percent, respectively during FY15-FY18. Going forward, the company intends to focus on increasing the number of individual patients through various initiatives such as expanding service network and setting up of Third Party PSCs (Patient Service Centres). Given the economies of scale and wider geographical reach they enjoy, the company is well-positioned to leverage the vast opportunities in the Indian diagnostics space," it said.
The brokerage recommends subscribing to the issue from a longer-term perspective. According to IIFL, the company had room to improve as the penetration of diagnostic services in non-metro regions have room to scale up with the help of facilitators like increasing insurance penetration as in vitro or pathology diagnosis generally influences clinical decision making.