IPO Analysis: Metropolis Healthcare Limited
IPO Rating - 47 (Invest with limited exposure)*
About the Issue
The Mumbai-based diagnostics company, Metropolis Healthcare Limited (MHL) is hitting the capital market with its maiden IPO to raise around Rs. 1,204 crore at upper band and at lower band it will raise around Rs. 1,200 crore. The price band is fixed at Rs. 877-880 for every equity share of face value of Rs. 2. The total number of shares being offered is 1.37 crore, which is entirely offered for sale, that is, there is no fresh issue of shares. The offer includes a reservation of up to 3 lakh equity shares for subscription by eligible employees.
Dr. Sushil Kanubhai Shah, the founder of the company, is offering up to 62,72,335 equity shares and upto 74,12,760 shares is being offered by CA Lotus Investments (investor selling shareholder). The offer shall constitute 27.27 per cent, of the post-offer, paid-up equity share capital of the company.
| Metropolis IPO Details |
| Issue Open | Apr 3, 2019 - Apr 5, 2019 |
| Issue Type | Book Built Issue IPO |
| Issue Size | 13,685,095 Eq Shares of Rs 2 (aggregating up to Rs 1204.28 Cr) |
| Face Value | Rs 2 Per Equity Share |
| Issue Price | Rs 877 - Rs 880 Per Equity Share |
| Market Lot | 17 Shares |
| Min Order Quantity | 17 Shares |
| Listing At | BSE, NSE |
About the company
MHL is one of the leading diagnostics company in terms of revenue in India holding the second position, according to Frost & Sullivan. During FY18, MHL has done 1.6 crore tests and total patient visited at the same time was 0.77 crore. The company offers a broad range of approximately 3,487 clinical laboratory tests and 530 profiles, as of December 31, 2018. The profile comprises of a variety of test combinations which are specific to a disease or disorder as well as wellness profiles that are used for health and fitness screening.
The company had a presence across 19 states in India, as of December 31, 2018, with a leadership position in the west and south India. The company derives 62.75 per cent of its revenues from 5 focus cities which are amongst the top 8 GDP cities in India. All these cities (Mumbai, Bengaluru, Chennai, Surat and Pune) are in the southern and western part of India. The company adopted three strategies for growth; organic growth including B2B and B2C expansion and growth through acquisitions & integration. Its B2C engagement is done with patients through own and third-party centres, which is a high growth segment and inorganic growth includes looking for space where they can acquire companies. New avenues of growth include laboratory on lease model and public-private partnership.
MHL operates a ‘hub and spoke’ model for quick and efficient delivery of services through their laboratory and service network, which covered 197 cities in India, as of December 31, 2018.
Operational and Financial Performance
The company derives its revenue from a number of clinical laboratory tests and profiles that they conduct as the number of patient visits handled by them. During the nine months period ended December 31, 2018, MHL conducted approximately 1.23 crore tests from approximately 0.66 crore patient visits. In the last three years ending FY18, the number of tests conducted by the company has increased at a CAGR of 5.6 per cent, while the number of test in the same period has increased by 9.3 per cent.
MHL has recorded revenue per patient growth of 10.1 per cent, during FY16-18, with revenues at Rs. 836 at the end of FY18. The revenue per test in the same period has grown at a rate of 6.5 per cent.
The consolidated revenue of the company has increased at a CAGR of 16.3 per cent during FY16-18 and was at Rs. 643.6 crore at the end of FY18. The company also has an international presence and its revenue has increased from Rs. 21.6 crore in FY16 to Rs. 52.1 crore in FY18. The EBITDA in the same period increased to Rs. 170 crore at the end of FY18 from Rs. 130 crore in FY16. The EBITDA margins have remained at higher 20s for the company. The net profit for MHL increased at a CAGR of 15.7 per cent in the same period.
Financial Performance of MHL
| Particulars | December 31, 2018 | March 31, 2018 | March 31, 2017 | March 31, 2016 (Proforma) | CAGR (%) (FY16-18) |
| Total Income | 566.82 | 651.555 | 567.659 | 490.634 | 15.2% |
| Total Expense | 431.155 | 491.254 | 410.391 | 366.422 | 15.8% |
| Profit for the period/year | 88.771 | 109.747 | 107.257 | 81.955 | 15.7% |
| Basic earnings per share (Rs.) | 17.18 | 20.61 | 20.48 | 15.25 | 16.3% |
| Diluted earnings per share (Rs.) | 17.15 | 20.49 | 20.35 | 15.14 | 16.3% |
Valuation and recommendation
At the upper end of the price band, the issue is asking for a market cap to sales (FY18) of 6.78 times, which looks expensive on an absolute basis, however, on a relative basis, it is lower compared to some of its listed peers. For example, Dr Lal Pathlabs, which is in a similar line of business with higher revenue, is trading at a market cap to sales (FY18) of 8.57 times. In terms of price to earnings (PE) ratio also company’s issue is being offered as a lower price. Dr Lal Pathlabs is trading at a current PE of 51.34 times compared to MHL offer at a PE of 43x. Looking at the other financial parameters such as OPM and NPM, both companies enjoy the same margin. Looking at the comparative lower valuation compared to its listed peers, better-operating metrics, we recommend our readers to invest with limited exposure.