Impressive operating margin notwithstanding Goodwill Hospital fails to pass the muster on corporate governance, compliance and issue pricing.

OFFER AT A GLANCE
Name	Goodwill Hospital & Research Centre Ltd
Offer Quantity	33.5 lakh to 35.4 lakh shares of Rs 10 each
% on Total Equity	27.13% to 28.25%
Offer Price	Rs 175 to Rs 185
Offer Amount	Rs 62 cr
Application Qty	35 & Multiples of 35
Offer Opens	December 30, 2011
Bid/Offer Closes	January 9, 2012
Rated By	CARE
Rating	3 out of 5
Lead Managers	SPA Merchant Bankers
Registrars	Beetal Financial

 

Issue Objective 

Goodwill Hospital proposes to spend the IPO proceeds of Rs.62 cr in the following manner: Setting up of a diagnostic centre at Faridabad costing Rs 16.43 cr, creating six new poly clinics in different cities at a cost of Rs 32 cr and pre-payment of long term debts Rs 10 cr. The balance is earmarked for general corporate purposes. 

 

Parentage

Goodwill Hospital and Research Centre (GHRC) was incorporated in June 2000 by a team of 10 doctors and commenced operations as a nursing home in July 2002. The management of the company was taken over in December 2007 by Ojjus Medicare Private Limited (OMPL) promoted by Harvansh Chawla who has business interests in the areas of consulting, real estate, healthcare, etc., through various entities. K.R. Chawla & Co. is the flagship of his group engaged in the business of providing legal services in Delhi, Bangalore, Chennai, San Francisco and Singapore. 

 

Business

Having taken over by the new management, GHRC’s operations have been reorganized and the company currently operates a 220-bed multi-specialty hospital at Noida with focus on cardiology, orthopedics, laparoscopic surgeries and neuro-sciences. The hospital’s specialty is its Gamma Knife Machines used for non-invasive treatment of brain tumors, vascular malformations and functional diseases like Parkinson’s disease, trigeminal neuralgia and psychiatric disorders using precise focused gamma rays.

 

Financial Track

In fiscal 2010, GHRC logged an operating income of Rs 22.91 cr on which it netted a profit of Rs 2.75 cr. But, for fiscal 2011, the company reported Rs 53.58 cr revenue and posted a net profit of Rs 15.93 cr.  During the first quarter of current fiscal, the company has earned a profit of Rs 4.64 cr on an income of Rs 16.08 cr. At the end of June 2011, the company’s reserves stood at Rs 28.80 cr against its Capital of Rs 9 cr.  As compared to its net worth of Rs 37.80 cr, the company’s borrowings amounted to Rs 80.57 cr.   

 

Prospects

GHRC’s wholly owned subsidiary, Ojjus Fidelity Health Care Private Limited, is reportedly setting up a 700-bed hospital at Faridabad and GHRC proposes to set up a diagnostic centre at the hospital at a cost of Rs 16.43 cr. The company also intends to set up one poly clinic each in Muzzafarnagar, Bulandsahar, Meerut, Sharanpur, Hapur and Moradabad at a capital cost of Rs 32.74 cr. Both these projects are scheduled to be operational in the first quarter of fiscal 2013 (April-June 2012). Nevertheless, according to CARE report, the company had not spent any amount on the project till mid-November 2011!      

 

Valuation 

The company proposes to raise Rs 62 cr, offering about 27% to 28% of its post-issue equity at a price band of Rs 175 to Rs 185. At this price, the company’s historical earning is discounted about 14 times. Though established players like Apollo and Fortis command a P/E much higher than the market composite, GHRC’s pricing leaves very little scope for capital appreciation considering its credentials which lack conviction. It is worth noting that the promoters’ average cost of holding is less than Rs 15 a share.

How Goodwill Hospital compares with peers
SCRIP	NOS	M-CAP	P/E	P/BV	P/FV	P/R	OPM	YIELD	PRICE
(28-DEC-2011)		(Rs Cr)	(x)	(x)	(x)	(x)	(%)	(%)	(Rs)
Apollo Hospitals		7,034	35.2	4.1	112.8	2.7	16.2	0.7	564.00
Fortis Health		3,320	43.7	1.1	8.2	12.3	1.7	0.0	81.95
Indraprastha		378	12.9	2.5	4.1	0.8	13.2	3.9	41.25
Kovai Medical		118	8.3	2.3	10.8	0.6	21.2	1.2	108.00
Fortis Malar		51	7.8	2.0	2.8	0.6	14.4	0.0	27.50
Health Care	10	11,048	33.6	2.2	16.9	2.9	15.0
Market Compos	2,827	5,354,202	14.1	2.1	25.8	1.2	22.1
Goodwill Hospital	High	229	14.3	6.0	18.5	4.3	71.8	0.0	185.00
	Low	220	13.8	5.8	17.5	4.1			175.00

 

Investment Banker’s Track

The track record of IPOs brought out by SPA Merchant Bankers Ltd is far from acceptable. None of the IPOs has fetched positive returns to investors. In the most recent IPO, investors have lost more than 40% of their capital.

Performance of SPA Merchant-associated IPOs
Sl.	Issuer	IPO	FV	IPO	Listing	3-Mon	6-Mon	Current
No.		Date		Price	Gain%	Gain%	Gain%	Price	Gain%
1	Nu Tek India	7/29/2008	5	96.00	3.80	-78.20	-82.52	1.42	-98.52
2	Infinite Compu	1/11/2010	10	165.00	16.12	3.73	3.45	59.85	-63.73
3	Parabolic Drugs	6/14/2010	10	75.00	-13.60	-23.13	-23.60	31.00	-58.67
4	Cantabil Retail	9/22/2010	10	135.00	-22.41	-58.56	-67.41	14.85	-89.00
5	SRS	8/23/2011	10	58.00	-41.98	-39.22		34.60	-40.34
Note: Price adjusted to post-IPO splits						(Source:India Aarthik Research)

 

Concerns

• Promoters lack credibility with regard to corporate governance and compliance – they have joined and resigned at will from group companies which questions their motives.
• Non-compliance with regard to appointment of MD/WTD and Company Secretary in the past.
• Income Tax Notices to the main promoter involving an amount of over Rs 40 cr.
• Too many companies in the promoters fold with same objective and many of them are in losses.
• Though scheduled to be operational before mid 2012, the properties for the six polyclinics were yet to be identified!
• Cost of the project and financing is not appraised by any independent agency – the entire IPO amount (Rs 62 cr) is left to the discretion of the promoters.
• MRI equipment is taken on lease from a loss-making group company.

• Registered office and Logo/trademark are not in the company’s name.
• Stiff competition from established players in GHRC’s area of operation.
• Impressive profit margins notwithstanding yet to pay dividend.