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Gian Life BSE SME IPO review (May apply)

Review By Dilip Davda on Dec 27, 2019

•    GLCL has become a corporate entity from 1st March 2019 only.
•    Financial data for the last three fiscals shows static top and bottom lines.
•    Diagnostic/healthcare service segment has turned highly competitive.
•    Close peer Dr Lalchandani has failed to live up to confidence post listing.


 ABOUT COMPANY:
Gian Life Care Ltd. (GLCL) was incorporated on November 06, 2018, under the provisions of the Companies Act, 2013 by Registrar of Companies, Kanpur. On March 01, 2019, the company took over the entire running business of M/s Gian Pathology and X-rays, a proprietorship concern of promoter Mr Arun Kumar Gupta with a view to providing diagnostic and related healthcare tests and services. GLCL is primarily engaged in the business of providing diagnostic and related healthcare tests and services in Kanpur and nearby areas.
 
The company provides a broad range of diagnostic and related healthcare tests and services such as patient diagnosis services and prevention and wellness diagnosis services to patients and healthcare providers. Its customers include individual patients, hospitals, other healthcare providers and corporate customers. It currently operates from 12 districts of UP with 80 collection centers. As claimed by the company, currently it offers 1344 tests catering to all requirements.


 ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for setting up of processing centers in nearby cities (Rs. 0.86 cr.), purchase of advance machinery and equipments (Rs. 1.00 cr.), repayment/pre-payment of certain borrowings (Rs. 0.79 cr.), GLCL is coming out with a maiden IPO of 1416000 equity shares of Rs. 10 each at a fixed price of Rs. 22 per share to mobilize Rs. 3.12 cr. The issue opens for subscription on 31.12.19 and will close on 03.01.20. The minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30.12% of the post issue paid-up capital of the company. GLCL is spending Rs. 0.46 cr. for the entire issue proceeds of this IPO.

The issue is solely lead managed by Hem Securities Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is the market maker for this issue. Having issued initial equity at par, GLCL issued further equity (6506 shares) at a price of Rs. 5051 per share in the first week of April 2019. It has issued bonus shares in the ratio of 198 shares for every 1 share held in the second week of April 2019. The average cost of acquisition of shares by the promoters is Rs. 10.48 per share. Post issue, GLCL's paid-up capital will stand enhanced from Rs. 3.28 cr. to Rs. 4.70 cr. Thus the company mulls market capitalization of Rs. 10.34 cr.


FINANCIAL PERFORMANCE:
As a proprietorship concern, the group posted turnover/ pre-tax profits of Rs. 8.54 cr. / Rs. 0.53 cr. (FY16) and Rs. 8.15 cr. / Rs. 1.12 cr. (FY17). It has posted a turnover of Rs. 8.15 cr. with a net profit of Rs. 0.99 cr. for FY18 and for the 11 months ended on 28.02.19 it has earned a net profit of Rs. 0.89 cr. on a turnover of Rs. 7.42 cr.

For one month of FY 19 (i.e. March) it has posted a turnover of Rs. 0.56 cr. with a net profit of Rs. 0.07 cr. Thus it has posted static top and bottom lines for all these fragmented periods.

For Q1 of FY 20, GLCL has posted turnover/net profits of Rs. 1.82 cr. and a net profit of Rs. 0.34 cr. For FY19 it has posted an EPS of Rs. 0.21 and RoNW of 1724.63% and for Q1 of FY20 it has shown EPS of Rs. 1.03 and RoNW of 9.31% (not annualized).

The issue is priced at a P/BV of 1.99 based on its NAV of Rs. 11.07 as on 30.06.19 and at a P/BV of 1.65 based on post issue NAV of Rs. 13.37.
Its current debt/equity ratio of 0.79 will come down to 0.43 post this issue.

If we annualize latest super earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 7.61. Thus issue pricing appears attractive on this arithmetic. Based on FY19 earnings, the issue is priced at a P/E of around 21.36. But if we look at performances so far, the sustainability of such performance going forward remains a major concern.


COMPARISION WITH LISTED PEERS:
As per offer documents, GLCL has shown Dr Lal Path, Thyrocare and Dr Lalchandani as its listed peers. They are currently trading at a P/Es of around 54.93, 25.82 and 9.19 (as on 27.12.19). However, Dr Lal Path and Thyrocare are strictly not comparable, but close peer Dr Lalchandani is not faring well since listing.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 25th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 10 listings, two issues opened at a discount, two at par and the rest with a premium ranging from 0.04% to 20% on the day of listings. Thus it has an average track record.


Conclusion / Investment Strategy

While diagnostic / healthcare service sector is flourishing and many new entrants are emerging, it is becoming a highly competitive segment. However, established big players may hold the key to the success of small ventures. Although based on super earnings of FY20 Q1, the issue appears attractively priced, but the sustainability of such performance going forward is a major concern. Considering all these, cash surplus - risk savvy investors may consider investment at their own risk.

Review By Dilip Davda on Dec 27, 2019

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

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