Fundamentals justify offer price though ‘pre-issue bloom’ is devoid of logic!
|
KIMS OFFER AT A GLANCE |
|
|
Offer Type |
Book Built |
|
Platform |
Main Frame |
|
Fresh Issue |
Rs 200 Cr (24,24,242 shares) |
|
Offer for Sale |
23,560,538 Shares (Rs 1944 Cr) |
|
Face Value |
Rs 10 |
|
Price Band |
Rs 815-825 |
|
Mkt/Bid Lot |
18 Nos. |
|
Implied M-Cap |
Rs 6,601 Cr |
|
Implied Eq-Cap |
Rs 80 Cr |
|
Implied Free Float |
57.55% |
|
Lead Manager |
|
|
Registrar |
Link Intime |
|
Listing At |
BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
|
Opening :16-Jun-2021 |
Closing :18-Jun-2021 |
|
Allotment :23-Jun-2021 |
Refunding :24-Jun-2021 |
|
Demat Credit :25-Jun-2021 |
Trading :28-Jun-2021 |
The Offer
Krishna Institute of Medical Sciences (KIMS) is making an initial public offer of Rs 2,144 cr which consists of a fresh issue of Rs 200 cr from the company and an Offer for Sale of Rs 1,944 cr from the promoters, private equity and private placement holders. The offer is being made through the book-building route with a price band of Rs. 815-825 for Rs. 10 paid up share. The quantum of offer will thus work out to about 937 lakh shares.
Applicants should bid for a minimum lot of 18 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on June 28, 2021. Investment bankers Kotak Mahindra Capital, Axis Capital, Credit Suisse Securities and IIFL Securities are acting as managers to the offer and Link Intime has been roped in as the registrar to the issue. The bidding opens on Wednesday, June 16 and closes on Friday, June 18, 2021.
Lineage
KIMS’ history dates back to nearly five decades. The company was incorporated in the year 1973 as Jagjit Singh and Sons P Ltd in Mumbai. Until early 2003, the company was owned and controlled by Jagjit Singh and his family members. In February 2003, the present promoters along with certain other individuals and entities acquired the entire equity share capital of the company which was only Rs 24.50 lakh at that time.
The company’s registered office was shifted from Mumbai to Secunderabad in 2003 and the name was changed to Krishna Institute of Medical Sciences in 2004. The company’s present promoters are Dr. Bhaskara Rao Bollineni, Rajyasri Bollineni, Dr. Abhinay Bollineni, Adwik Bollineni and Bollineni Ramanaiah Memorial Hospitals who hold a minority stake of 37.17% (28,841,886 shares).
In last 10 years three different set of private equities have entered the company at different point of time. Milestone Private Equity Fund, which invested in the company in 2010 made an exit in 2015 giving way for India Advantage Fund and Emerging India Fund. These funds exited in 2019 and General Atlantic came in. Interestingly, the private equity General Atlantic holds more than the promoters in KIMS today.
As regards the core promoters’ past, Bhaskara Rao, Abhinay and Adwik were promoters of another listed company, Aishu Projects Ltd (APL) which was long ago listed on HSEL and MSEL – erstwhile stock exchanges that were de-recognized by the Government pursuant to a notification in September 2007. Subsequently, APL was placed on the dissemination board of NSE. While APL was on the dissemination board, NSE forced the promoters of APL to provide an exit option for the public shareholders. Had they not followed NSE’s direction in 2018, the promoters would have been debarred from accessing the capital markets and they would have also been ineligible to become directors of any listed company until the exit option was granted to the public shareholders.
Key Management
The head of the promoter group, Dr. Bhaskara Rao (67), who holds a bachelor’s degree in medicine and surgery from Andhra University and a master’s degree in general surgery from Madras Medical College, is the managing director of the company. He claims to have
over 27 years of experience in cardiothoracic surgery and has in the past held various positions with Apollo Hospitals, Austin Hospital, University of Melbourne and Mahavir Hospital and Research Centre. Dr Bhaskara Rao’s son, Abhinay Bollineni (33), who holds a bachelor’s degree in medicine and a bachelor’s degree in surgery from Dr. NTR University of Health Sciences, is designated as Executive Director and CEO of the company.
Stakeholders
Of the company’s present equity of Rs 77.59 cr, the promoters and their associates collectively hold 46.81% and private equity fund General Atlantic is having 40.91%. More than 250 public shareholders have acquired the balance 12.28% under private placement. Post-public offer, promoter group will have 43.46%, General Atlantic will hold 19.67% the private placement holders will have 4.4%.
Business Track
KIMS is reportedly one of the largest corporate healthcare groups in AP and Telangana in terms of number of patients treated and treatments offered. KIMS provides multi-disciplinary integrated healthcare services, with a focus on primary secondary & tertiary care in Tier 2-3 cities and primary, secondary, tertiary and quaternary healthcare in Tier 1 cities.
The company claims to operate 9 multi-specialty hospitals under the “KIMS Hospitals” brand, with an aggregate bed capacity of 3,064, including over 2,500 operational beds as of March 31, 2021, which is 2.2 times more than the second largest provider in AP and Telangana. KIMS reportedly offers comprehensive range of healthcare services over 25 specialties and super specialties, including cardiac sciences, oncology, neurosciences, gastric sciences, orthopaedics, organ transplantation, renal sciences and mother & child care.
First hospital under KIMS network was established in Nellore (AP) in 2000 and has a capacity of approximately 200 beds. KIMS’ flagship hospital at Secunderabad (Telangana) is claimed to be one of the largest private hospitals in India at a single location (excluding medical colleges) with a capacity of 1,000. The company has significantly expanded its hospital network in recent years through acquisitions of hospitals in Ongole (AP) in fiscal 2017, Vizag (AP) and Anantapur (AP) in fiscal 2019 and Kurnool (AP) in fiscal 2020. Nearly one-third of its 3,064 beds were launched in the last four years. It has added over 940 beds, in aggregate, in Visakhapatnam, Anantapur, Rajamundry and Kurnool in fiscals 2019 and 2021, and has improved the overall bed occupancy rate in these hospitals from 71.83% to 78.60% during the same period.
KIMS’s revenue is diversified across specialties and its doctors. In fiscal 2021, total income mix was 17.82% from cardiac sciences, 12.55% from neuro sciences, 9.30% from renal sciences, 4.64% from orthopaedics, 5.25% from gastric sciences, 5.71% from oncology, 6.11% from mother & child care, 1.86% from organ transplant, 35.28% from other specialties and 1.48% from other income. During the year, top 10 doctors contributed 21.80% of total income and the top 25 doctors contributed 36.10% of total income.
Financial Track
KIMS has put up an impressive show in recent years. Revenue has almost doubled in last three years. Operating profit has nearly quadrupled. For fiscal 2021, while leading players like Max, Fortis and Narayana have reported losses due to the pandemic, KIMS has post a record net profit of Rs 204 cr on an equity base of Rs 74 cr. The company has reserves worth over Rs 1000 cr which predominantly consists of share premium. It has an accumulated deficit of Rs 64 cr at the end of fiscal 2021 which should be wiped off in the current fiscal if the company repeats last year’s performance.
|
KIMS Consolidated Financials (in Cr) |
||||
|
Year Ended |
Mar-21 |
Mar-20 |
Mar-19 |
Mar-18 |
|
Revenue |
1330 |
1123 |
918 |
696 |
|
Operating Profit |
371 |
245 |
81 |
99 |
|
OPM% |
27.9 |
21.8 |
8.8 |
14.2 |
|
Other Income |
10 |
6 |
6 |
4 |
|
EBIDTA |
381 |
251 |
87 |
103 |
|
EBIDTA % |
28.4 |
22.2 |
9.4 |
14.7 |
|
Interest |
33 |
40 |
46 |
83 |
|
Depreciation |
70 |
71 |
56 |
40 |
|
Net Profit |
204 |
113 |
-49 |
-46 |
|
Accumulated Loss |
64 |
235 |
292 |
244 |
|
Equity (Implied) |
80 |
74 |
74 |
50 |
|
Reserves (Implied) |
1048 |
759 |
759 |
29 |
|
Borrowings |
240 |
279 |
260 |
277 |
Valuation
At the cap price of Rs 825, KIMS is vying for a market capitalization of Rs 6600 cr which may look reasonable when compared to the industry heavyweight Apollo. Healthcare industry is currently bleeding on account of the pandemic though KIMS has proved the industry wrong. Post-public issue, should KIMS sail along with the industry on the performance front, it may find difficult to hold the offer price as the stock is likely to face selling pressure from the private equity fund as well as private placement holders who have a negative cost of holding.
|
HOW KIMS COMPARES WITH INDUSTRY PEERS |
|||||
|
Financials |
|||||
|
(Amount in Cr) |
KIMS |
Apollo |
Max |
Fortis |
Narayana |
|
Market Cap |
6601 |
47432 |
24269 |
17564 |
9856 |
|
Revenue |
1330 |
10614 |
2505 |
4030 |
2582 |
|
Other Income |
10 |
28 |
115 |
47 |
28 |
|
EBIDTA |
381 |
1352 |
262 |
500 |
203 |
|
Interest |
32 |
486 |
179 |
166 |
76 |
|
Net Profit |
204 |
177 |
-137 |
-56 |
-14 |
|
Equity Cap |
80 |
72 |
966 |
755 |
204 |
|
Reserves |
1048 |
3262 |
4673 |
5365 |
916 |
|
Borrowing |
240 |
3270 |
897 |
1147 |
525 |
|
Stock Features |
|||||
|
Current Price (Rs) |
825 |
3299 |
251 |
233 |
482 |
|
Face Value (Rs) |
10 |
5 |
10 |
10 |
10 |
|
Book Value |
133 |
232 |
58 |
81 |
55 |
|
Promoter Stake % |
43.46 |
30.82 |
70.46 |
31.17 |
44.67 |
|
Debt/Equity |
0.2 |
1.0 |
0.2 |
0.2 |
0.5 |
|
Profitability |
|||||
|
OPM % |
27.89 |
12.47 |
5.87 |
11.25 |
6.79 |
|
Net Margin % |
15.26 |
1.66 |
-5.22 |
-1.38 |
-0.55 |
|
Cash EPS |
33.71 |
55.52 |
0.39 |
2.39 |
8.28 |
|
Earnings Per Share |
25.02 |
13.89 |
-1.42 |
-1.46 |
-0.7 |
|
Discounting Ratio |
|||||
|
Price/Earnings |
33.0 |
237.5 |
-177.5 |
-159.6 |
-689.1 |
|
Price/Cash EPS |
24.5 |
59.4 |
649.8 |
97.3 |
58.2 |
|
Price/Book Value |
6.2 |
14.2 |
4.3 |
2.9 |
8.8 |
|
Price/EBIDTA |
17.3 |
35.1 |
92.7 |
35.1 |
48.5 |
Concern
- Two years ago, General Atlantic acquired more than 40% stake at a price of Rs 310. Post-offer for sale, it will hold around 20% at a negative cost of rupees 213. In other words, it can dump the shares at any price.
- In the past, operations have been at facilities leased by the company. This may happen in future too.
- The company has a poor corporate governance record. It has made an allotment of equity shares that was not in compliance with the Companies Act.
- Conflicts of interest may arise out of common business objects shared by the public company, certain group companies and promoters, which could affect KIMS operations and financial condition.
- Public company has acquired properties in which the promoters and director were interested.