Vijaya Diagnostics Centre Limited: IPO Review

Vijaya Diagnostic Centre Limited Incorporated on June 5, 2002, is the largest integrated diagnostic chain in southern India, by operating revenue, and also one of the fastest-growing diagnostic chain by revenue for fiscal year 2020. It offers a comprehensive range of approximately 740 routine and 870 specialized pathology tests and approximately 220 basic and 320 advanced radiology tests that cover a range of specialties and disciplines, as of June 30, 2021.

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VDCL offers an one-stop solution for pathology and radiology testing services to their customers through their extensive operational network, which consists of 80 diagnostic centres and 11 reference laboratories across 13 cities and towns in the states of Telangana; Andhra Pradesh; the National Capital Region and Kolkata.

Promoters & Shareholding:

Dr. S. Surendranath Reddy is the promoter of the company with a pre issue holding of 59.78%.

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Public Issue Details:

Offer for sale: OFS of approx. 35,688,064 equity shares of Rs. 1 aggregating up to Rs. 1,895.04 Cr.

Total IPO Size: Rs. 1,895.04 Cr.

Price band: Rs. 522 – Rs. 531.

Objective: To get the benefits of share listing on the Stock Exchanges and to make OFS.

Bid qty: minimum of 28 shares (1 lot) for Rs. 14,868 and maximum of 13 lots.

Offer period: 1st Sep 2021 – 3rd Sep 2021.

Date of listing: 14th Sep 2021.

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  • Largest and fastest growing diagnostic chain with dominant position in south India.
  • Strong technical capabilities, quality infrastructure and state of the art medical technology with strong IT infrastructure.
  • Professional and experienced management team.
  • Integrated diagnostics provider that offers one-stop solution at affordable price.
  • Company will not receive any proceeds from this IPO. The entire proceeds from IPO would go to selling shareholders who are selling the shares
  • Sura Suprita Reddy, the CEO of the company was named in a criminal proceeding.
  • Company major business is in Telangana and Andhra Pradesh. Any loss of business in such regions can have adverse effect on its business
  • Its group companies have incurred losses in the past and may incur losses in the future too.
  • Non-compliance with and changes in any of the applicable laws, rules or regulations may adversely affect its business.

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Should I Subscribe or avoid?

The diagnostic industry achieved a healthy CAGR of 13 to 14% from fiscal years 2017 to 2020. With diagnostic services becoming the cornerstone for recommending requisite treatments, as well as monitoring recovery post treatment, the industry has posted healthy growth over the past few years and it is expected to achieve a CAGR of 14%-16% between fiscal year 2021 and fiscal year after a dip in growth in fiscal year 2021 due to the COVID-19 pandemic impact on the industry this 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. 388.59 Cr, Rs. 354.18 Cr and Rs. 302.94 Cr in the FY21, FY20 and FY19 respectively and net profit of Rs. 84.91 Cr, Rs. 62.51 Cr and Rs. 46.27 Cr in the FY21, FY20 and FY19 respectively. Its revenue grew by a cagr of 13.26 % in the last 2 years.

For the last 3 years average EPS of Rs 6.92, P/E ratio is around 77x. On the upper price band of Rs 531 and EPS of Rs 8.26 for FY21, the P/E ratio works out to be 64x. Hence, the company asking P/E is in the range of 64x to 77x. There are listed peers like Dr Lal Path Labs trading at P/E of 107x and Metropolis Healthcare trading at P/E of 74x etc. and industry average is 90x. Hence, the IPO appears fairly priced. Considering all the above factors, only high risk Investors can “SUBSCRIBE” to this IPO and Investors with conservative / moderate risk appetite can skip this IPO as more are lined up this year.

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