Asarfi Hospital BSE SME IPO review (Apply)

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Review By Dilip Davda on July 13, 2023

•    AHL is a multi-speciality hospital with all health care services.
•    It is in the process of establishing a cancer hospital, educational as well as health management institute.
•    The company has posted steady growth in its top and bottom lines for reported periods. 
•    Based on its FY23 earnings, the issue appears reasonably priced. 
•    Investors may consider investment for medium to long-term rewards. 

ABOUT COMPANY:
Asarfi Hospital Ltd. (AHL) is a 250 bedded multi-speciality hospital, which is serving people for over one and half decades by providing healthcare services in Dhanbad, Jharkhand. Accredited by National Accreditation Board for Testing and Calibration Laboratories ("NABL Accredited"), it is an integrated healthcare service provider, committed to delivering valued healthcare services to patients that include prevention, treatment and proper rehabilitation. 

AHL is empanelled with several Government Agencies, Corporate Organizations for providing regular healthcare facilities to their employees and their dependents. It is also empanelled with several Insurance and TPA providers.

Its hospital located at Dhanbad, Jharkhand is having departments/services like Cardiology, Neurosciences, General Medicine, Pediatrics & Neonatology, Obstetrics & Gynecology, General Surgery, Gastroenterology, Orthopedics Plastic Surgery & Cosmetics, Oncology, Nephrology, Urology, Ophthalmology, ENT, Day Care Services, Dental, Physiotherapy, Emergency, Nutrition & Dietetics, Anesthesiology & Critical Care, Radiology, Pulmonology, Pain Management etc. among other healthcare services.

The hospital has a full-fledged high-dependency unit, Emergency Department, Outpatient consultation, CCU, ICU, NICU, SICU, Labor room, Endoscopy room, Neurosurgery and Cardiac unit. The Diagnostic Centre features laboratory and imaging equipment like Open X-Ray, Ultrasound, and CT scans. The Hospital offers both inpatient and outpatient care which covers a wide range of Medical and Surgical specialities.

As part of its growth strategy, AHL is in the process of building a cancer Hospital at Ranguni, Dhanbad, Jharkhand and an educational institute focused on legal education and management, adjacent to the cancer hospital at Ranguni. It also plans to build a Health Management and Research Institute at Ranchi, Jharkhand for which it has provisionally been allotted leased land from Ranchi Smart City Corporation Limited. As of May 31, 2023, it had an overall 723 employees on its payroll, as well as a team of 70 doctors (42 full-timers and 28 visiting).  

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5180000 equity shares of Rs. 10 each via a book-building route. It has announced a price band of Rs. 51 - Rs. 52 per share and mulls mobilizing Rs. 26.94 cr. at the upper price band. The issue opens for subscription on July 17, 2023, and will close on July 19, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.33% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO fund, AHL will utilize Rs. 12.22 cr. for part funding of capital expenditure for the cancer hospital at Ranguni - Jharkhand, Rs. 7.65 cr. for acquiring leasehold land for health management and research institute at Ranch - Jharkhand, and the rest for general corporate purposes. 

After reserving 260000 equity shares for the market maker, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

Hem Securities Ltd. is the sole Book Running Lead Manager (BRLM) and Cameo Corporate Services Ltd. is the registrar of the issue. HEM Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, it issued further equity shares in the price range of Rs. 30 to Rs. 60 per share (based on a face value of Rs. 10 per share) between December 2006 and February 2023. It has also issued bonus shares in the ratio of 5 for 1 in September 2022. The average cost of acquisition of shares by promoters is Rs. 8.71, Rs. 11.82, Rs.12.46, Rs. 12.91, and Rs. 14.39 per share. 

Post-IPO, AHL's current paid-up equity capital of Rs. 14.50 cr. will stand enhanced to Rs. 19.68 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 102.32 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AHL posted a total revenue/net profit of Rs. 54.40 cr. / Rs. 3.53 cr. (FY21), Rs. 66.20 cr. / Rs. 5.73 cr. (FY22), and Rs. 73.03 cr. / Rs. 8.02 cr. (FY23). Thus it has posted steady growth in its top and bottom lines for the reported periods. Its other income rose from Rs. 0.28 cr. for FY21 to Rs. 2.33 cr. for FY23. 

For the last three fiscals, AHL has reported an average EPS of Rs. 7.12 and an average RoNW of 21.50%. The issue is priced at a P/BV of 1.80 based on its NAV of Rs. 28.86 as of March 31, 2023, and at a P/BV of 1.49 based on its post-IPO NAV of Rs. 34.95 per share (at the upper cap).  

For the last two fiscals, its EBITDA and PAT margins improved but its RoCE margin declined, indicating reduced RoCE going forward on post-IPO capital base. 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 12.78. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Shalby Ltd., Global Health, and KMC Speciality Hospitals as their listed peers. They are currently trading at a P/E of 23.93, 70.54, and 45.42 (as of July 13, 2023). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORD:
This is the 26th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, all opened at premiums ranging from 0.18% to 166.67% on the listing date. 

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