Diagnostics services provider Metropolis Healthcare public offer to raise up to Rs 1,200 crore opens for subscription today. As a part of its public offer, Metropolis Healthcare will be selling 1.36 crore shares at Rs 877-880 apiece in a pure offer-for-sale, according to the firm’s prospectus. Accordingly, the firm will not receive any proceeds from the issue. The firm has set a bid lot of 17 equity shares and in multiples of 17 equity shares thereafter. The issue opens for subscription on April 3rd, and will close on April 5th. Even as investors maybe mulling whether to subscribe to the issue, we take a closer look at what brokerages have to say.
About Metropolis Healthcare
Metropolis Healthcare is one of the leading diagnostics companies in India by revenue, according to IDBI. Further, it has widespread presence across 19 states in India with leadership position in west and south India. The firm is connected to 119 cities in India through ‘hub and spoke’ model which comprises central reference lab in Mumbai and 115 clinical labs across key cities. It offers a comprehensive range of clinical laboratory tests and profiles. In FY18, Metropolis conducted 16 million tests. “Its strong brand equity and ability to offer comprehensive and critical diagnostic tests results with better realization per tests,” IDBI said in its report.
Strengths of the firm
Taking stock of various strengths of Metropolis Healthcare, research firm HDFC Securities notes that the firm is one of the leading diagnostics companies in India which is well positioned to leverage the expected growth in the Indian diagnostics industry. Further, the firm has widespread operational network, young patient touch point network and asset light growth of service network. Metropolis Healthcare is a strong and established brand with a focus on quality and customer service notes the brokerage firm.
Key concerns
Stating key concerns with regard to Metropolis Healthcare, HDFC Securities said that business, results of operations and financial condition could be affected by adverse results of legal proceedings. Further, the inability to effectively manage growth or to successfully implement the business plan and growth strategy could have an adverse effect on the business, results of operations and financial condition.
Valuations
IDBI notes that Metropolis has shown solid financial performance in past backed by geographical expansions, better quality and service offerings. “The increased health awareness, rise in per capita income and better penetration of diagnostic services in to tier-2 and tier -3 cities are driving the industry. Metropolis has a history of growing through organic and inorganic expansions and that should continue in the future as well,” IDBI said in the report.
The focus on seeding cities and specialized testing will help them command better realization per tests. Although, the industry has seen rise in competition, Metropolis’s strong brand equity and specialised services retain its ability to command pricing premium. “Valuation is rich but justified: The offer price implies a P/E ratio of ~37x annualized earnings for FY19 , which is ~16% discount to Dr lal Pathlabs but 22% premium to Thyrocare (Thyrocare’s 30x /Dr Lal Pathlab’s 44x FY19 EPS). We keep a positive stance on the IPO,” IDBI noted.
(Please consult your financial advisor before taking any investment related decision)
