By Research Desk
By Geetanjali Kedia
HealthCare Global Enterprises is entering the primary market on Wednesday 16th March 2016, via a fresh issue of 1.16 crore equity shares of Rs.10 each and an offer for sale (OFS) of 1.82 crore equity shares of Rs.10 each, both in the price band of Rs. 205-Rs.218 per share. The total fund raising aggregates to Rs. 650 crores, at the upper end of the price band, of which, OFS portion is for Rs.397 crore and Rs.203 crore is for fresh issue. Representing 35.03% of the post issue paid up capital, issue closes on Friday 18th March 2016.
HealthCare Global Enterprises provides cancer and fertility focussed healthcare services, having 14 comprehensive cancer centres, including its Centre of Excellence in Bengaluru. Company also has 3 freestanding diagnostic centres and one day-care Chemotherapy Centre, while 12 HCG comprehensive Cancer Centres are under various stages of development in India.
For FY15, on consolidated basis, total revenue rose by 15%, YoY, to Rs. 524 crores, while EBITDA rose by 93% to Rs. 81 crores, giving an EBITDA margin of 15.45%. Due to this, company’s bottomline was in the black, albeit meagre PAT of just Rs.55 lakhs.
If we analyse the FY15 results, few unusual items are not too comforting. Company earned profit before tax and exceptional items of Rs.7 crores, while PAT was Rs.55 lakhs, with exceptional loss of Rs.4.56 crores in FY15. Rs.4.25 crore with respect to a hospital closure and Rs.31 lakh net loss on vacation of leased hospital are not seen positive, when the company is on an expansion spree, currently having only 18 centres, pan India. Also, deferred tax credit of Rs.5.95 crores has given it net tax credit of Rs. 1.68 crores, for FY15. Moreover, PAT before minority interest of Rs.4.12 crores, got reduced to Rs.55 lakhs, due to share of profit of minority of Rs.3.58 crores. This is also not seen healthy, as subsidiary companies seem to be doing much better, in which the company is having less than 100% ownership.
For 8 months ending 30th November, 2015, income was Rs.381 crores, with EBITDA of Rs.58.14 crores, translating into margin of Rs.15.26%, showing a decline of 19 bps over FY15. Net loss for the period was Rs.3.71 crores, which is due to minority share of profit of Rs.2.65 crores. Not seen too comforting again!
From income of Rs. 270 crores clocked in FY12, income has risen to Rs.381 crores for 8 months ending 30.11.2015. However, PAT were seen in red for all these years, except for a meagre PAT of Rs.55 lakhs in FY15, as stated above.
Present equity of the company of Rs.73.48 crores, will rise to Rs.85.08 crores after this issue. Fresh issue of about Rs.250 crores, estimated at the upper band, will be used for debt repayment of Rs.147 crores and purchase of medical equipment, software etc. of Rs.72 crores. Debt repayment of Rs.150 crores will obviously raise EBITDA by about Rs.15 crores. But this is just financial engineering, and not a function of efficiency or any technological improvement.
Company will have an expected EV of Rs. 2,100 crores, taking net debt of Rs.250 crores after IPO and market cap of about Rs. 1,850 crores, if listing price is taken at Rs. 220 per share. This translates into an EV/EBITDA of about 24 times.
Apollo Hospitals having an EBITDA of Rs.750 crores for FY16, with EV seen at close to Rs. 20,000 crores, is having an EV/EBITDA of less than 27 times. Apollo will also be having an EPS of close to Rs.29 for FY16.
Narayan Hrudayalaya had an income of Rs. 1,182 crores for 9 months ending 31st December 15, with EBITDA of Rs. 136 crores, with PAT of Rs.16 crores only, yielding an EPS of Rs.79 paise.
Having EV of Rs. 6,300 crores, this stock rules at an EV/EBITDA of 35 times. As this stock has listed recently, market will wait to see its next 2-3 quarter numbers and will tweak the valuations accordingly. As such, stock fell to Rs.294 now, against its high of Rs. 360 touched on 7th January, 2016.
Hence, it is always advisable to go for existing profit making companies, for a healthy investment portfolio. In case of Narayan Hrudayalaya, a lot of hype was built up around the issue, while no one now considers it as an investment grade stock, considering the thin volumes on NSE and BSE.
Clear advice is to remain away from HealthCare Global issue, as it is seen too expensive, while much better listed peers at lower valuations are available in healthcare space.
Disclosure: No interest