Krsnaa Diagnostics Limited: IPO review

Krsnaa Diagnostics Limited incorporated on 22nd December, 2010 is one of the largest differentiated diagnostic service provider in India. It provides a range of technology-enabled diagnostic services such as imaging (including radiology), pathology/clinical laboratory and teleradiology services to public and private hospitals, medical colleges and community health centres pan-India. The company focuses on the public-private partnership (“PPP”) diagnostics segment and have the largest presence in the diagnostic PPP segment.

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It has an extensive network of integrated diagnostic centres across India primarily in non-metro and lower tier cities and towns. As of June 30, 2021, it operates 1,823 diagnostic centres offering radiology and pathology services in 13 states across India. As of June 30, 2021, they had a team of 190 radiologists, 30 pathologists, 8 microbiologists and more than 2,800 qualified professionals including clinicians, technicians and operators.

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Promoters & Shareholding:

Rajendra Mutha is the company promoter with pre issue holding of 31.62%.

Public Issue Details:

Offer for sale: Fresh issue of approx. 4,192,875 equity shares of Rs. 5 aggregating up to Rs. 400 Cr and OFS of approx. 8,525,520 equity shares aggregating up to Rs. 813.33 Cr.

Total IPO Size: Rs. 1,213.33 Cr.

Price band: Rs. 933 – Rs. 954.

Objective: For financing the cost of establishing diagnostics centers at Punjab, Karnataka, Himachal Pradesh, and Maharashtra; repayment of loans availed by the company and general corporate purposes.

Bid qty: minimum of 15 shares (1 lot) for Rs. 14,310 and maximum of 13 lots.

Offer period: 4th Aug 2021 – 6th Aug 2021.

Date of listing: 17th Aug 2021.

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Pros:

  • One of the largest differentiated diagnostic service provider in India.
  • The fastest growing diagnostic chain in India.
  • Professional and experienced management team.
  • Extensive footprint across India with robust infrastructure.
  • Krsnaa brand is associated with providing quality and reliable healthcare services at affordable prices.

Cons:

  • Substantial portion of its revenue from operations depend on payments under contracts with public health agencies.
  • It has a capital intensive business.
  • Significant competition from standalone diagnostic centres.

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Subscribe or avoid?

The government has realised the importance of private participation in the healthcare industry and hence PPP models in diagnostic have gained traction over the past five years. The model is expected to see further growth as India focuses more on strengthening primary healthcare centres, increasing the number of health and wellness centres and making a policy shift towards preventive care from curative care which is expected have positive impact on the company and its business.

On the financial side, the company has had strong financial performance for the past 3 year; they have reported revenue of Rs. 661.48 Cr, Rs. 271.38 Cr and Rs. 214.32 Cr in the FY21, FY20 and FY19 respectively and net profit of Rs. 184.93 Cr, Rs. – (111.95) Cr and Rs. – (58.06) Cr in the FY21, FY20 and FY19 respectively. Company generated stable revenue growth. However, for FY21 revenue growth has one timer unusual item. Company has been incurring losses in FY19 and FY20. In FY21, there are one timer, hence it shows as profit.  

Looking from the valuation perspective, for the last 3 years average EPS is negative, we cannot compute P/E. On the upper price band of Rs 933 and EPS of Rs 71.86 for FY21, the P/E ratio works out to be 13x. However, if we exclude a one-timer, it is a little difficult to guess whether it is underpriced or overpriced. Their listed peer like Dr. Lal Path Labs is trading at P/E of 94x and Metropolis Healthcare is trading at P/E 77.6x. Considering all the above factors and the current Bull Run, Aggressive Investors may “SUBSCRIBE” to this IPO for the possibility of the Listing gains, whereas investors looking for a long term horizon may consider based on the future performance of the company.

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Disclaimer:

This article should not be construed as investment advice, please consult your Investment Adviser before making any investment decision.

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