Birla Pacific Medspa Ltd IPO Review (Avoid)

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Review By MLR Securities Private Ltd on June 20, 2011

Issue Date: 20th June - 23rd June
Price Range: INR 10-11
Issue Size: INR 65.2 Cr
Mcap: INR 110-121 Cr
IPO Grading: Brickwork IPO Grade 2
Listing: BSE
BRLM: Arihant Capital Markets
Promoter: Yash Birla

Birla Pacific Medspa Ltd belongs to the Yash Birla Group (YBG) of companies. The company was incorporated on July 15, 2008 pursuant to JV agreement between Birla Wellness & Healthcare Pvt Ltd, Pacific Healthcare Holdings Ltd (PHH) Singapore and Dr Abhijeet Desai. In June 2010 the Joint Venture between PHH and Yash Birla group was automatically terminated as shareholding of PHH went below 25% (which was trigger point for automatic termination of JV agreement) to 17.82%

Birla Pacific Medspa presently operate healthcare centers under the brand name EVOLVE. Presently, the company is operating 5 centers at Walkeshwar, Bandra, Andheri, Atria Mall at Worli and Borivali at Mumbai and one center on franchise basis at Thane. Evolve Med Spa, offers comprehensive treatments in the areas of Cosmetic Dermatology, Cosmetic Surgery and Advanced Dentistry. It also offers a range of spa services - wet & dry under its wellness initiative.

Objects of the Issue

• Capital expenditure for setting up 55 centers across the country - Rs 49.5 Cr
• To meet working capital requirements - Rs 0.7 Cr
• For brand promotion - Rs 6 Cr

• The Company was incorporated in July 2008, therefore the first report on the financial information of the company for the period from July 15, 2008 to September 30, 2009, second report for six months ended March 31, 2010 and the third report for 9mFY11 has been prepared. The company posted total income of Rs 1.7 Cr as on 9mFY11 while in the 2HFY10 the company posted total income of Rs 1.5 Cr. The company is EBITDA negative in all the three reporting periods on account of huge administration expenses which were Rs 3.8 Cr in 9mFY11 almost double of its total income.
• The return on net worth is negative as the company has incurred losses. BPML is almost debt free with unsecured loans of just about Rs 10 lakhs. The book value per share pre issue is coming to 8.3 while post issue it will increase to 9.3 which gives a P/BV of 1.1 and 1.2 on a price band of Rs 10‐11 post issue. Which is at a premium considering delays in project implementation and poor financial performance of the Yash Birla Group of companies raising IPO funds in the past, Birla Pacific Medspa's negative cash flows and losses, short history of less than three years of operations, full funding from IPO proceeds and project implementation spread over three years makes the issue a risky bet.