Tight pricing leaves little room for comfort.
Notwithstanding impressive track record, steep valuation, disproportionate equity size, large free-float at abysmally low cost, lean asset base, skewed stock market, poor industry sentiment, etc. dilute attraction.
|
OFFER AT A GLANCE |
|
|
Issuer Name |
Dr. Lal Pathlabs Ltd |
|
Public Offer |
Offer for Sale of 116 lakh shares |
|
Offer % on Total Equity |
14.04% |
|
Post-IPO Promoter Stake |
58.70% |
|
Offer Price |
Rs 540-550 (Rs 15 discount for retail investors) |
|
Offer Amount |
Rs 626 cr to Rs 638 cr |
|
Application Quantity |
20 & Multiples of 20 |
|
Bid/Offer Opens |
December 8, 2015 |
|
Bid/Offer Closes |
December 10, 2015 |
|
Listing |
NSE and BSE |
|
IPO Rating |
Nil |
|
Book Running Lead Managers |
Kotak Mahindra Capital & Citigroup Global |
|
Registrars |
Link Intime |
The IPO
The present issue is an `offer for sale’ of 116 lakh equity shares Rs 10 each at a price band of Rs 540-550 a piece aggregating to Rs 626-638 cr. Investors should apply for a minimum of 20 shares and multiples of 20 thereafter. Retail investors are eligible for a discount of Rs 15 per share. The IPO will constitute 14.04% of the paid up capital of the company (Rs 84.86 cr). The promoters and their associates, who currently control 63.67% of the equity, would hold 58.7% post-offer. Kotak Mahindra Capital and Citigroup Global are acting as book running lead managers to the offer.
IPO Object
The objects of the IPO are to achieve the benefits of listing on the stock exchange and for the sale of 1,16,00,000 shares by seven existing shareholders. Besides the main objects, the company expects that the listing of the shares would enhance its visibility and brand image among existing as well as potential customers and provide liquidity to the existing shareholders and holders of options granted by the company.
Lineage
The genesis of Dr. Lal Pathlabs (DLP) dates back to more than 65 years. Late Dr. Major S.K. Lal commenced the business of providing pathology services and maintaining a blood bank in the year 1949 through sole proprietorship M/s Central Clinical Laboratory and M/s Blood Bank Transfusion Centre. Dr. S.K. Lal entered into a partnership with (Hony.) Brig. Dr. Arvind Lal under the name Central Clinical Laboratory (CCL) during 1974-75 and provided pathology services under CCL and maintained a blood bank for the supply of blood to patients and hospitals under the name Blood Transfusion Centre (BTC). Following the demise of Dr. S.K. Lal, Vimla Lal, wife of S.K. Lal, was inducted into the partnership in December 1977. Following Vimla Lal’s demise, Dr. Vandana Lal was inducted into the partnership in January 2007. Accordingly, as on date, Central Clinical Laboratory is a 50:50 partnership between Dr. Vandana Lal and Dr. Arvind Lal. DLP was incorporated in February 1995 to take over the business of the partnership firm CCL.
Business Profile
Through an integrated nationwide network DLP offers patients and healthcare providers a broad range of diagnostic and related healthcare tests and services. Its customers include individual patients, hospitals and other healthcare providers and corporate customers. Diagnostic healthcare testing is an essential element in the delivery of healthcare services, as it provides healthcare service providers with useful information for the diagnosis and treatment of diseases.
According to CRISIL Research, the size of the Indian diagnostic healthcare services industry was estimated to be about Rs 37,700 cr in fiscal 2015. This was projected to grow to over Rs 60,000 cr by fiscal 2018. Increasing prescription of diagnostic tests and services by healthcare providers in India, combined with the growing focus on early detection and prevention of chronic and lifestyle diseases, such as diabetes, hypertension, heart disease and cancer, creates a significant market opportunity for diagnostics industry.
DLP’s diagnostic and related healthcare tests and services include: a) routine clinical laboratory tests such as blood chemistry analyses and blood cell counts; b) specialized testing services such as histopathology analyses, genetic marker-based tests, viral and bacterial cultures and infectious disease tests; and c) preventive testing services such as screenings for hypertension, heart disease and diabetes. DLP perform these tests and services in its clinical laboratories using sophisticated and computerized instruments.
DLP has built a national, “hub and spoke” network that includes its National Reference Laboratory in New Delhi, 171 other clinical laboratories, 1,554 patient service centers and over 7,000 pickup points. According to the company, the hub and spoke model, whereby specimens are collected across multiple locations within a region for delivery to a pre-designated clinical laboratory for centralized diagnostic testing, provides greater economies of scale and offers a scalable platform for the continued growth of its business. DLP’s network is reportedly spread across India covering large cities such as New Delhi, Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata, etc.
Financials
DLP’s operations have grown rapidly in recent years. In fiscal 2013 the company collected 160 lakh samples from 77 lakh patients, which increased to 190 lakh samples from 90 lakh patients in fiscal 2014, and 218 lakh samples from 99 lakh patients in fiscal 2015. In the six-month period up to September 2015, the collection was 134 lakh samples from 62 lakh patients. Between fiscal 2013 and 2015, DLP’s top line grew from Rs 455 cr to Rs 672 cr, representing a CAGR of 21%. EBITDA grew from Rs 101 cr to Rs 168 cr, representing a CAGR of 26%. The company’s bottom line during this period grew from Rs 56 cr to Rs 95 cr, representing a CAGR of 31%. Net worth has more than doubled, from Rs 162 cr to Rs 341 cr. In the six-month period ended September 30, 2015, the company achieved Rs 408 cr revenue, Rs 88 cr EBITDA and Rs 37 cr net profit. The company has been in the dividend list during the last five years though its pay-out ratio has been inconsistent.
|
Dr LAL PATHLABS CONSOLDATED FINANCIALS |
|||||
|
(Amount in Lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
|
Gross Income |
67193 |
56603 |
45505 |
34448 |
23976 |
|
Operating Profit |
16830 |
14664 |
10104 |
8879 |
5912 |
|
Operating Margin % |
23.6 |
24.8 |
21.6 |
25.3 |
23.9 |
|
Interest |
41 |
20 |
44 |
253 |
78 |
|
Depreciation |
2819 |
2723 |
2040 |
1983 |
1360 |
|
Tax |
4470 |
3894 |
2455 |
2126 |
1519 |
|
Net Profit |
9500 |
8027 |
5565 |
4517 |
2955 |
|
Net Oper. Cash Flow |
9785 |
9796 |
8813 |
6813 |
4179 |
|
Net Worth |
34108 |
23149 |
16205 |
11597 |
9285 |
|
Equity Capital |
8126 |
8031 |
502 |
502 |
506 |
|
Reserves |
25982 |
15118 |
15703 |
11095 |
8779 |
|
Dividend % |
15 |
11 |
154 |
257 |
164 |
|
Dividend Amt |
838 |
571 |
518 |
862 |
557 |
|
Div Pay-out % |
8.8 |
7.1 |
9.3 |
19.1 |
18.8 |
|
Net Block |
10945 |
9842 |
9915 |
9626 |
9411 |
|
Borrowings |
0 |
87 |
37 |
1 |
1830 |
Valuation
Even while the promoters’ average cost of holding is not even 50 paise, DLP is asking the public to shell out Rs 540-550. The price band puts a market cap of about Rs 4500 cr for for the company. Notwithstanding the company’s recent impressive growth, the IPO pricing looks out of sync with the current market discounting. The IPO valuation discounts DLP’s earnings more than 47 times, net worth about 13 times and net block more than 40 times. These multiples are far steeper than both Sensex as well as composite market multiple which are currently at their historical peak. Should the market take a turn, such valuation cannot sustain.
|
Dr LAL PATHLABS DISCOUNTING |
||
|
Offer Price |
540 |
550 |
|
Net Block Per Share |
13.24 |
13.24 |
|
Earnings Per Share |
11.49 |
11.49 |
|
Book Value |
41.27 |
41.27 |
|
Price/Earnings |
47.0 |
47.8 |
|
Price/Book Value |
13.1 |
13.3 |
|
Price/Revenue |
6.6 |
6.8 |
|
Price/Net Block |
40.8 |
41.5 |
|
Dividend (%) |
15 |
15 |
|
Yield% |
0.3 |
0.3 |
Lead Manager’s Track
DLP’s IPO is handled by two investment bankers whose record is none too impressive. Kotak Mahindra was the most active IPO manager in terms of number of issues managed since 2010. It has been associated with as many as 29 IPOs in six years of which 15 are currently quoting at a discount. Whereas Jubilant Foodworks, which tapped the market in January 2010 at a price of Rs 145, has fetched the highest return (921%), Tecpro Systems, offered at Rs 355 in September 2010, has inflicted a loss of 99%! Of the eight IPOs that Kotak handled this year, only three are currently trading above the offer price.
|
KOTAK MAHINDRA-ASSOCIATED IPOs |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE* |
PRICE |
% |
|
S.H. Kelkar |
10/28/2015 |
180 |
214 |
19 |
|
InterGlobe Aviation |
10/27/2015 |
765 |
1016 |
33 |
|
Coffee Day |
10/14/2015 |
328 |
253 |
-23 |
|
Sadbhav Infra |
8/31/2015 |
103 |
98 |
-5 |
|
Power Mech Proj |
8/7/2015 |
640 |
607 |
-5 |
|
Manpasand Bever |
6/24/2015 |
320 |
414 |
29 |
|
Adlabs Entert |
3/10/2015 |
180 |
113 |
-37 |
|
Ortel Comm |
3/3/2015 |
181 |
181 |
0 |
|
Speciality Rest |
5/16/2012 |
150 |
148 |
-1 |
|
Future Cons |
4/25/2011 |
10 |
23 |
125 |
|
Muthoot Finance |
4/18/2011 |
175 |
195 |
12 |
|
Tata Steel |
1/19/2011 |
610 |
240 |
-61 |
|
Coal India |
10/18/2010 |
245 |
335 |
37 |
|
Prestige Estates |
10/12/2010 |
183 |
214 |
17 |
|
Oberoi Realty |
10/6/2010 |
260 |
258 |
-1 |
|
Tecpro Systems |
9/23/2010 |
355 |
5 |
-99 |
|
Eros International |
9/17/2010 |
175 |
256 |
46 |
|
Gujarat Pipavav |
8/23/2010 |
46 |
159 |
247 |
|
Bajaj Corp |
8/2/2010 |
132 |
425 |
222 |
|
SKS Microfinance |
7/28/2010 |
985 |
446 |
-55 |
|
Hindustan Media |
7/5/2010 |
166 |
281 |
69 |
|
Jaypee Infra |
4/29/2010 |
102 |
13 |
-87 |
|
Nitesh Estates |
4/23/2010 |
54 |
15 |
-73 |
|
NMDC |
3/10/2010 |
300 |
92 |
-69 |
|
Rural Electrificat |
2/19/2010 |
203 |
227 |
12 |
|
Hathway Cable |
2/9/2010 |
48 |
45 |
-7 |
|
NTPC |
2/3/2010 |
201 |
131 |
-35 |
|
Vascon Engineers |
1/27/2010 |
165 |
37 |
-78 |
|
Jubilant Foodworks |
1/18/2010 |
145 |
1480 |
921 |
|
* Price adjusted to stock splits & bonus issues |
||||
The other lead manager to DLP’s offer, Citigroup Global, has handled 11 IPOs since 2010 of which seven are traded below the offer price. While Just Dial and InterGlobe Aviation have done reasonably well, MCX, Tata Steel, SKS Microfinance and NMDC have been big flops.
|
CITIGROUP-ASSOCIATED IPOs |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE |
PRICE |
% |
|
Interglobe Aviation |
27-Oct-15 |
765 |
1077 |
41 |
|
Coffee Day |
14-Oct-15 |
328 |
255 |
-22 |
|
UFO Moviez India |
28-Apr-15 |
625 |
562 |
-10 |
|
Just Dial |
20-May-13 |
530 |
827 |
56 |
|
MCX |
22-Feb-12 |
1032 |
854 |
-17 |
|
L&T Finance Hold |
27-Jul-11 |
52 |
69 |
32 |
|
Tata Steel |
19-Jan-11 |
610 |
240 |
-61 |
|
Coal India |
18-Oct-10 |
245 |
335 |
37 |
|
SKS Microfin |
28-Jul-10 |
985 |
446 |
-55 |
|
NMDC |
10-Mar-10 |
300 |
92 |
-69 |
|
NTPC |
3-Feb-10 |
201 |
131 |
-35 |