Lotus Eye Care Hospital is entering the capital market on 12th June 08 with a public issue of 1 crore equity shares of Rs.10 each in the band of Rs.38 to Rs.42 per share.
The company presently has four eye care hospitals in South India with 120 beds with 9 operation theatres and 3 lasik laser equipments. The company is into existence since 2002 but its financial performance has been mediocre. Till FY 05, it was making losses with virtually stagnant topline upto FY 06. For FY 07, PAT was at meager Rs.1.29 crores on total income of Rs.7.30 crores. Even for 9 months ending Dec. 07 total income was at Rs.9 crores with PAT of about Rs.1.60 crores.
Inspite of such a mediocre performance, the company has taken up an expansion programme of Rs.55 crores, to set up eye care centres at R. S. Puram, Tirupur, Karur and Salem. However, progress is gong on only at R. S. Puram,, as land has been acquired and construction work is in progress. Land at other three locations are yet to be obtained. These plans are being financed with term loan of Rs.10 crores, internal accruals of Rs.3 crores and IPO proceeds of Rs.42 crores. Strangely, IPO proceeds have been calculated at the upper band of Rs.42. If book gets discovered at the lower end (which is most likely) there would be a shortfall of Rs.4 crores. It would be difficult to even mobilize Rs.3 crores from internal accruals, as present cash flow may just be enough to support present level of activities.
Present equity of the company is at Rs.10.80 crores which would rise to Rs.20.80 crores. This is definitely very high considering its present and proposed level of activity.
Dr. Agrawal Eye a listed stock with similar business is finding it difficult to float. Inspite of a topline of Rs.40 crores, PAT is less than Rs.2 crores on an annualized basis which results in an EPS of about Rs.4 on low equity of Rs.4.50 crores. Share is ruling at Rs.50 which results in a PE multiple of about 12 times. Lotus Eye is quite expensive and shares are being issued at a PE of about 25. New facility would come up only after 1½ to 2 years and hence high equity would always be a problem for the company.
Healthcare sector has not really caught for specialized services and even corporates having presence in General Medical field with full fledged hospitals have not been well received by the investors. Small hospital companies are, ruling at a PE multiple in single digit inspite of they having low equity base.
Fate of this company also would be like those of other small healthcare companies and may not be able to give returns to the investors. Better to remain away from making investment in this IPO as share looks expensive.