GPT Healthcare IPO review (May apply)

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Review By Dilip Davda on February 20, 2024

•    GHL is eastern region centric healthcare service provider.
•    It operates with 561 beds and has the lowest capacity against its listed peers. 
•    The company marked growth in its top lines, but suffered a setback for FY23 in its bottom line.
•    Based on its FY24 super earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for the medium to long term rewards.

PREFACE:
GHL IPO is scheduled for opening of Anchor on February 21, 2024, and others from February 22 to 24, 2024, but it kept its road shows for the media and the analyst/brokers on Monday i.e. February 19, 2024, thus allowing minimum time for evaluation of the IPO. This is really surprising and perhaps lacking the compliance norms. Off late this kind of process appears to have become the new practice. 

ABOUT COMPANY:
GPT Healthcare Ltd. (GHL) is one of the key regional corporate healthcare companies in Eastern India in terms of number of beds and hospitals as of Fiscal Year 2023. (Source: CRISIL Report). It operates a chain of mid-sized full service hospitals under the brand and provide integrated healthcare services, with a focus on secondary and tertiary care. As of September 30, 2023, GHL operates four multispecialty hospitals in Dum Dum, Salt Lake and Howrah in West Bengal and Agartala in Tripura with a total capacity of 561 beds. 

It offers a comprehensive range of healthcare services across over 35 specialties and super specialties, including internal medicine and diabetology, nephrology (including renal transplants), laparoscopic and general surgery, gynecology and obstetrics, critical care, gastroenterology, orthopedics and joint replacements, interventional cardiology, neurology, neurosurgery, pediatrics, and neonatology. Each of its hospitals also provides integrated diagnostic services and pharmacies that cater to patients. 

It has strategically focused on the relatively under-penetrated healthcare market in Eastern India where the company has presence in three cities. This has enabled its revenue from operations (ex-COVID) to grow at a CAGR of 53.87% over Fiscal Year 2021 to Fiscal Year 2023 and ROCE being 26.09% for Fiscal Year 2023. Its hospitals in West Bengal are strategically located in densely populated cities of Kolkata (West Bengal) and Howrah (West Bengal). India also benefits from medical value travel stemming from neighboring countries such as Bangladesh, Nepal and Bhutan, from patients who prefer to obtain quality healthcare services in India. (Source: CRISIL Report). Eastern India is geographically well positioned for medical value travel from Bangladesh, Nepal and Bhutan, owing to lower average cost of treatment for healthcare services compared to the northern and western parts of India, and due to Eastern India being more accessible for these neighboring countries. (Source: CRISIL Report). 

Medical value travel, which is also referred to as 'medical tourism', has gained momentum over the years and India is fast emerging as a major tourist destination, owing to the relatively low cost of surgery and critical care, along with the presence of technologically advanced hospitals with specialized doctors and facilities, such as e-medical visa. (Source: CRISIL Report). Additionally, Kolkata (West Bengal) and North-East cities such as Agartala (Tripura) are well placed to capture volumes from adjoining jurisdictions such as Bangladesh, and Kolkata's cultural similarities act as a key driver for attracting medical tourists from Bangladesh, who comprised 57% of all medical tourists visiting India in 2019. (Source: CRISIL Report)

As of September 30, 2023, it had 1902 employees, 91 full-time consultants and 481 visiting consultants. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book building route IPO worth Rs. 525.14 cr. (approx. 28233346 shares at the upper band) consisting of fresh equity share issue worth Rs. 40 cr. (approx. 2150560 shares at the upper cap) and an Offer for Sale (OFS) of 26082786 shares (worth Rs. 485.14 cr. at the upper cap). The company has announced a price band of Rs. 177 - Rs. 186 for equity shares of Rs.10 each. The issue opens for subscription on February 22, 2024, and will close on February 26, 2024. The minimum application is to be made for 80 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 34.41% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue funds, it will utilize Rs. 30.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The company has allocated not more than 50% for QIBS, not less than 15% for HNIs and not less than 35% for Retail investors. 

The sole Book Running Lead Manager to this issue is JM Financial Ltd., while Link Intime India Pvt.  Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company converted/issued further equity shares in the price range of Rs. 15.34 - Rs. 40 per share between March 2006 and January 2022. It has also issued bonus shares in the ratio of 2 for 1 in September 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 8.67, Rs. 15.34, and Rs. 18.00 per share. 

Post-IPO, GHL's current paid-up equity capital of Rs. 79.90 cr. will stand enhanced to Rs. 82.05 cr. Based on the upper band of the IPO price, the company is looking for a market cap of Rs. 1526.22 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 248.86 cr. / Rs. 21.09 cr. (FY21), Rs. 342.40 cr. / Rs. 41.66 cr. (FY22), and Rs. 366.73 cr. / Rs. 39.01 cr. (FY23).  For H1 of FY24 ended on September 30, 2023, it posted a net profit of Rs. 23.49 cr. on a total income of Rs. 206.70 cr. It marked setback in its bottom line for FY23.

For the last three fiscals, the company reported an average EPS of Rs. 4.62, and an average RoNW of 23.38 %. The issue is priced at a P/BV of 8.67 based on its NAV of Rs. 21.45 as of September 30, 2023, and at a P/BV of 7.22 based on its post-IPO NAV of Rs. 25.77 per share (at the upper cap).

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 32.52. Thus the issue appears fully priced. 

For the reported periods, the company posted PAT margins of 8.48% (FY21), 12.17% (FY22),10.64% (FY23), 11.36% (H1-FY24), and RoCE margins of 14.48%, 25.04%, 26.09%, 14.85% respectively for the referred periods. 

DIVIDEND POLICY:
The company has declared dividends of 55% (FY21), 70% (FY22), 40% (FY23) and 20% for FY24 so far.  It has already adopted a dividend policy in the month of September 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Global Health, Krishna Institute, Jupiter Life Line, Yatharth Hospital, Kovai Medical and Shalby as their listed peers. They are trading at a P/E of 83.3, 53.2, 67.6, 44.1, 27.6, and 39.8 (as of February 20, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 49th mandate from JM Financial in the last three fiscals, out of the last 10 listings, 2 opened at discount and the rest with premiums ranging from 0.92% to 140% on the date of listing.

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