The current bearish run of the stock market has forced many companies to drop their IPO plans. Overall, the IPO market has been very silent for the past two months. In such a scenario, Goodwill Hospital and Research Centre (GHRC) is entering the market with its IPO to raise Rs 62 crore, with one detachable warrant per equity share. The price band has been set in the range of Rs 175-185 per share. The detachable warrant is exercisable 13 months after its allotment at a 20% discount to the then prevailing share price of GHRC. The issue opened on 30th December, 2011 and will close on 9th January, 2012.

The company wishes to expand its reach to Faridabad and the Tier II cities around Noida. It will spend Rs 16.21 crore raised from this issue towards setting up a Rs 227 crore super specialty hospital for oncology and neurology with 700 beds. The first phase of this hospital will be operational by H1 FY13. GHRC has already garnered Rs 150 crore through loans, and the balance amount after putting in money from the IPO will be funded by raising additional debt. It will also spend Rs 33.96 crore on building six polyclinics in the Tier II cities around Noida, which will commence operations by H2 FY13. Another Rs 10 crore will go into repayment of the company’s debt, while the remainder will be spent for general corporate purposes.

GHRC currently runs a 220 bed multi-specialty hospital called Ojjus Medicare at Noida. This hospital focuses on specialty areas like neurology, cardiology, oncology, etc. Ojjus Medicare is one of the few private centers in Asia which has installed Perfexion Gamma Knife Machine for non-invasive treatments of afflictions like Parkinson’s disease.

GHRC’s EBITDA margins have remained over 70% for FY10 and FY11, largely due to the commencement of operations of the Gamma Knife Machine. Its revenue per bed per day has increased from Rs 7000 in FY10 to Rs 13000 in FY11. The average occupancy rate in Q1 FY12 was 58%, while the average length of stay (ALOS) was about two-three days. Its bigger peers like Apollo Hospital or Fortis Healthcare have an occupancy rate of above 70% and ALOS above four days.

There could be some concerns over the high debt-to-equity ratio, which stands at 2.82. This will probably go up once it raises more debt for the projects going forward. The company’s promoters have extended an interest-free unsecured loan of Rs 45 crore to GHRC, which is another point to be considered. A large chunk of its profitability seems dependent on the Gamma Knife Machine, which currently contributes to 40% of its revenues. We also found that the company is using this equipment at only 10% of its capacity. This can be improved going forward, which could probably result in higher revenues for the company.

On the expanded equity at a price band of Rs 175-185, the company commands a PE of about 14x over its FY11 EPS, which looks a little stretched compared to that of its peers such as Kovai Medical, which has a market cap of Rs 122 crore and is available at a PE of 8.5x. It should also be noted that the warrant exercise will further dilute the company’s equity. Investors with a moderate risk appetite can look at investing in this IPO.