Near term looks bleak.
NH’s popularity may attract investing public and make the stock very active on the trading screen but healthy returns could be a distant dream as the company’s track record of completing projects on time is very poor.
|
OFFER AT A GLANCE |
|
|
Issuer Name |
Narayana Hrudayalaya Ltd |
|
Public Offer |
Offer for sale of 245.23 lakh shares Rs 10 each |
|
Offer % on Total Equity |
12% |
|
Post-IPO Promoter Stake |
64.85% |
|
Offer Price |
Rs 245-250 |
|
Offer Amount |
Rs 601 cr to Rs 613 cr |
|
Application Quantity |
60 & Multiples of 60 |
|
Bid/Offer Opens |
December 17, 2015 |
|
Bid/Offer Closes |
December 21, 2015 |
|
Listing |
BSE and NSE |
|
IPO Rating |
Nil |
|
Book Running Lead Managers |
Axis Capital, IDFC Securities & Jefferies India |
|
Registrars |
Karvy Computershare |
The IPO
The present issue is an `offer for sale’ of 2,45,23,297 equity shares Rs 10 each at a price band of Rs 245-250 a piece aggregating to Rs 601-613 cr. The offer for sale is being made by five existing shareholders who collectively hold 85.69% of the company’s paid up capital of Rs 204.36 cr. The IPO constitutes 12% of the total equity. Whereas non-promoter shareholders J P Morgan Mauritius Holdings is offering 12,261,648 shares (6%), Ambadevi Mauritius Holdings is offloading 1,886,455 shares (3.1%) and Ashoka Holdings 6,287,978 shares (0.9%), promoters Devi Prasad Shetty and Shakuntala Shetty are selling 2,043,608 shares or 1% each. The promoters and their associates, who currently hold 66.85% of the equity, would control 64.85% post-offer.
Of the total offer, 50% (1,22,61,648 shares) is earmarked for QIBs. Not less than 15% (36,78,495 shares) is assigned for non-institutional investors and at least 35% (85,83,154 shares) is reserved for retail investors. Investors should apply for a minimum of 60 shares and multiples of 60 thereafter. Axis Capital, IDFC Securities and Jefferies India 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 facilitating the offer for sale by the 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.
Lineage
The Bengaluru-registered Narayana Hrudayalaya (NH) was founded in 2000 by the well known heart surgeon Devi Prasad Shetty who has over 30 years of medical experience. NH operates a network of hospitals in India with strong presence in Karnataka and eastern India and an emerging presence in western and central India. NH’s first hospital was established in Bengaluru with 225 beds and it has since grown to 56 facilities with 5,442 operational beds through a combination of green field projects and acquisitions. NH currently operates its business through a combination of the following: 1) Hospitals that it owns and operates; 2) Hospitals and heart centres that it operates and pays a revenue share to the owner of the hospital premises; 3) Hospitals, standalone clinics and primary care facilities that it operates on a lease or licence basis; and 4) Hospital management services that it provides to third parties for a management fee.
As of the date of the Red Herring Prospectus, NH had a network of 23 hospitals (multispeciality and superspeciality healthcare facilities which provide tertiary care), 8 heart centres (superspeciality units which are set up in a third party hospital) and 24 primary care facilities (including clinics and information centres), across a total of 31 cities, towns and villages in India, with 5,442 operational beds and the potential to reach a capacity of up to 6,602 beds. In aggregate, our centres provide advanced levels of care in over 30 specialties, including cardiology and cardiac surgery, cancer care, neurology and neurosurgery, orthopaedics, nephrology and urology, and gastroenterology.
As of September 30, 2015, NH had 11,163 employees, which included 344 doctors, 5,587 nurses, 1,996 paramedical staff and 3,236 administrative personnel. Additionally, it had 487 students, which included 469 doctors, 14 paramedics and 4 administrative trainees. Further it had 1,750 doctors on a consultancy basis (including visiting consultants) engaged in the system. In FY 2015 NH had a daily average of 534 in-patient admissions and performed a daily average of 312 surgeries and procedures (of which 39 were cardiac surgeries, 142 catheterisation laboratory procedures, and 2 kidney transplants), and 513 dialyses.
In fiscal 2015, NH facilities provided care to over 19.7 lakh patients and generated 91% of its revenue from 19 hospitals offering multispecialty and super-specialty services, 7% of its revenue came from heart centres and the remaining 2% was derived as management fee from our 4 Managed Hospitals, ancillary businesses and other standalone clinics and primary care facilities.
Financials
NH’s operations have steadily grown over the years. From Rs 480 cr in fiscal 2011 the company’s consolidated top line has reached Rs 1370 cr in 2015. Nevertheless, EBITDA has witnessed a drop last year. The company’s operating margin too has been fluctuating between 9.5% and 12.5% during last five years. Particularly, the company’s performance in last fiscal was far from satisfactory. On a consolidated basis its bottom line turned negative in fiscal 2015. In fact, against its large equity base of Rs 200 cr its bottom line has never exceeded Rs 32 cr. What’s more, the fifteen year-old company is yet to join the dividend list. However, the company has been continuously generating positive cash flows from operations in recent years and its asset base (net block) too is worth more than Rs 860 cr.
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NARAYANA HRUDAYALAYA CONSOLDATED FINANCIALS |
|||||
|
(Amount in Lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
|
Operating Revenue |
136385 |
109512 |
83929 |
65778 |
47758 |
|
Other Income |
774 |
2239 |
1516 |
290 |
263 |
|
Gross Income |
137159 |
111751 |
85445 |
66069 |
48021 |
|
Operating Profit |
13693 |
14248 |
9642 |
8513 |
5829 |
|
Operating Margin % |
9.5 |
11.0 |
9.7 |
12.5 |
11.7 |
|
Interest |
4089 |
2836 |
1661 |
924 |
533 |
|
Depreciation |
6669 |
5744 |
4601 |
3723 |
3214 |
|
Tax |
1752 |
2135 |
997 |
1293 |
718 |
|
Net Profit |
1183 |
3533 |
2384 |
2572 |
1364 |
|
Profit/(Loss)-Associate |
-2513 |
-585 |
23 |
0 |
0 |
|
Minority Interest |
244 |
223 |
73 |
3 |
|
|
NP Re-stated |
-1086 |
3171 |
2480 |
2575 |
1364 |
|
Net Oper. Cash Flow |
7672 |
10999 |
4462 |
5286 |
2970 |
|
Net Worth |
76477 |
58040 |
54702 |
51534 |
48094 |
|
Equity Cap |
20000 |
33 |
33 |
33 |
33 |
|
Reserves |
56477 |
58007 |
54670 |
51502 |
48062 |
|
Dividend % |
0 |
0 |
0 |
0 |
0 |
|
Net Block |
86388 |
75721 |
66472 |
57815 |
53012 |
|
Long Term Loans |
20658 |
22723 |
18734 |
11574 |
9001 |
|
Short Term Loans |
9853 |
5222 |
3131 |
50 |
0 |
Valuation
Even while the promoters’ average cost of holding is not even 2 paise per share, NH is asking the public to shell out Rs 245-250 for the share. The price band puts a market cap of more than Rs 5000 cr for the company. In the absence of profit at the net level, one cannot derive a P/E to compare with peers. However, in terms of profitability (OPM) NH is better (9.5%) than Fortis Healthcare (4.6%) though it is much lower than industry leader Apollo (14.1%).
In terms of discounting, Apollo is currently trading about 6.1 times its net worth, 3.7 times its revenue and 5.1 times its net block. On the other hand, Fortis is quoted only 2 times its net worth, 1.9 times its revenue and 2.1 times its net block. Compared to these, at the upper band, NH is discounted 6.6 times its net worth, 3.7 times its revenue and 5.9 times its net block. Perhaps, for a growing company of NH’s nature the valuation may be justified. However, the following may advise caution.
The 15-year old company has not yet paid any dividend. Fiscal 2015 performance is far from encouraging. Current profit margin is unimpressive. The company also has a pathetic track record in new project implementation. During the years 2009 and 2010 the company had got land allotments from the governments of Gujarat, Odisha and West Bengal for setting up new hospitals but, could not implement the projects within the stipulated time. In fact, the company is likely to lose the rights over these properties resulting in loss of investments made in land to the tune of over Rs 48 cr!
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HOW NARAYANA HRUDAYALAYA COMPARES WITH PEERS |
||||||||||
|
CO_NAME |
M-CAP |
EQ |
NB |
REV |
P/E |
P/BV |
P/R |
P/NB |
OPM |
PRICE |
|
|
(Rs Cr) |
(x) |
(%) |
(Rs) |
||||||
|
Apollo Hosp |
19,327 |
70 |
3,777 |
5,228 |
63.8 |
6.1 |
3.7 |
5.1 |
14.1 |
1,389 |
|
Fortis Health |
8,127 |
463 |
3,856 |
4,235 |
450.2 |
2.0 |
1.9 |
2.1 |
4.6 |
176 |
|
Narayana |
5,109 |
204 |
864 |
1,364 |
– |
6.6 |
3.7 |
5.9 |
9.5 |
250 |
|
|
5,007 |
204 |
864 |
1,364 |
– |
6.5 |
3.7 |
5.8 |
9.5 |
245 |
Lead Manager’s Track
NH’s IPO is handled by three investment bankers whose record is mixed. Of the three, Axis Capital was the most active IPO manager in terms of number of issues managed. Axis has associated with as many as 21 new listing since fiscal 2006 of which 15 are currently quoting at a discount. Whereas KNR Constructions, Mandhana Industries, Bombay Rayon Fashions, Syngene International and Navkar Corporation have fetched decent returns, Innoventive Industries, Orient Green Power, Jaypee Infra, Shree Ganesh Jewel, KSK Energy Ventures, SEL Manufacturing, Omnitech Infosolutions, Abhishek Corp, JHS Svendgaard, Nitco and Jaiprakash Power have inflicted huge losses (70-90%) on the investing public.
|
AXIS LEAD-MANAGED IPOs |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE |
PRICE |
% |
|
Coffee Day |
14-Oct-15 |
328 |
256.40 |
-21.8 |
|
Pennar Engineered |
25-Aug-15 |
178 |
159.00 |
-10.7 |
|
Navkar Corp |
24-Aug-15 |
155 |
209.60 |
35.2 |
|
Syngene International |
27-Jul-15 |
250 |
358.50 |
43.4 |
|
UFO Moviez India |
28-Apr-15 |
625 |
511.25 |
-18.2 |
|
Inox Wind |
18-Mar-15 |
325 |
342.55 |
5.4 |
|
Monte Carlo |
3-Dec-14 |
645 |
455.40 |
-29.4 |
|
Innoventive Indust |
26-Apr-11 |
117 |
4.20 |
-96.4 |
|
Orient Green Power |
21-Sep-10 |
47 |
13.93 |
-70.4 |
|
Jaypee Infra |
29-Apr-10 |
102 |
11.71 |
-88.5 |
|
Mandhana Ind |
27-Apr-10 |
130 |
280.50 |
115.8 |
|
Shree Ganesh Jewel |
19-Mar-10 |
260 |
9.18 |
-96.5 |
|
Ksk Energy Ventu |
23-Jun-08 |
240 |
47.20 |
-80.3 |
|
KNR Constructions |
24-Jan-08 |
170 |
584.25 |
243.7 |
|
SEL Manufacturing |
26-Jul-07 |
90 |
3.82 |
-95.8 |
|
Omnitech Infosolut |
19-Jul-07 |
105 |
4.16 |
-96.0 |
|
Abhishek Corp |
20-Feb-07 |
100 |
1.72 |
-98.3 |
|
JHS Svendgaard |
26-Sep-06 |
58 |
13.34 |
-77.0 |
|
Nitco |
22-Feb-06 |
168 |
36.00 |
-78.6 |
|
Bombay Rayon |
11-Nov-05 |
70 |
179.90 |
157.0 |
|
Jaiprakash Power |
22-Mar-05 |
32 |
6.44 |
-79.9 |
Another lead manager to NH’s offer, IDFC Securities, has handled 19 IPOs in last eight years of which only eight are trading above the offer price. While Gujarat Pipavav Port, Repco Finance, Va Tech Wabag, Ashoka Buildcon and PNC Infratech have done well, A2Z Infra, Jaypee Infra, Adani Power, KSK Energy and Gammon Infra have been big flops.
|
IDFC LEAD-MANAGED IPOs |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE |
PRICE |
% |
|
PNC Infratech |
8-May-15 |
378 |
534.50 |
41.4 |
|
MEP Infra |
21-Apr-15 |
63 |
47.50 |
-24.6 |
|
Sharda Crop |
5-Sep-14 |
156 |
234.45 |
50.3 |
|
Repco Home |
13-Mar-13 |
172 |
617.95 |
259.3 |
|
Tribhovandas |
24-Apr-12 |
120 |
91.70 |
-23.6 |
|
A2Z Infra |
8-Dec-10 |
400 |
23.30 |
-94.2 |
|
Shipping Corp |
30-Nov-10 |
140 |
89.45 |
-36.1 |
|
Ashoka Build |
24-Sep-10 |
108 |
194.30 |
79.9 |
|
Va Tech |
22-Sep-10 |
262 |
686.90 |
162.2 |
|
Gujarat Pipa |
23-Aug-10 |
46 |
148.50 |
222.8 |
|
Engineers Ind |
27-Jul-10 |
290 |
207.10 |
-28.6 |
|
Jaypee Infra |
29-Apr-10 |
102 |
11.71 |
-88.5 |
|
SJVN |
29-Apr-10 |
26 |
28.85 |
11.0 |
|
Man Infra |
18-Feb-10 |
50.4 |
41.80 |
-17.1 |
|
Godrej Prop |
9-Dec-09 |
245 |
328.45 |
34.1 |
|
JSW Energy |
7-Dec-09 |
100 |
74.90 |
-25.1 |
|
Adani Power |
28-Jul-09 |
100 |
26.20 |
-73.8 |
|
Ksk Energy |
23-Jun-08 |
240 |
47.20 |
-80.3 |
|
Gammon Infra |
10-Mar-08 |
32 |
6.73 |
-79.3 |
The third lead manager to NH’s offer, Jefferies India has associated with just one IPO in the past which has fetched healthy return. Incidentally, the promoter of that IPO is an associate of NH.
|
JEFFERIES LEAD-MANAGED IPOs |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE |
PRICE |
% |
|
Syngene International |
27-Jul-15 |
250 |
358.50 |
43.4 |