The three-day initial public offer (IPO) of Hyderabad-based Krishna Institute of Medical Sciences (KIMS) will open for subscription on Wednesday. Most of the brokerages recommend investors subscribe to the issue for a long-term considering healthy industry growth prospects and the company’s strong track record.
According to a Crisil report, the Indian healthcare industry is expected to log a CAGR of 17-18 per cent and Rs 7.1 trillion by FY24. Besides, in FY20, 68 per cent of hospital treatments, in terms of the treatment value, were carried out in private hospitals, and the number is expected to reach 72 per cent in FY24, the report said.
“Renewed impetus on Pradhan Mantri Jan Arogya Yojana, changing demographics, increasing health awareness, medical tourism, health insurance coverage and rising income levels would be the key drivers of growth for the healthcare industry,” Religare Broking said.
About the issue
The IPO comprises a fresh issue of Rs 200 crore and an offer for sale (OFS) of up to 23.56 million shares, amounting to Rs 1,943.70 crore, by its existing promoters and shareholders. The price band for the issue is in the range of Rs.815 – 825 and the bid lot is 18 shares and multiples thereof. The proceeds from the fresh issue will be used to repay debt of the company and its subsidiaries.
Business overview
KIMS is one of the largest corporate healthcare groups in Andhra Pradesh and Telangana in terms of the number of patients treated and treatments offered. It operates nine multi-specialty hospitals under the ‘KIMS Hospitals’ brand, with an aggregate bed capacity of 3,064, including over 2,500 operational beds as of March 31, 2021.
The company has a flagship hospital at Secunderabad, which, according to Crisil, is one of the largest private hospitals in India at a single location with a capacity of 1,000 beds. At the end of FY21, its nine hospitals had recorded average revenue per operating bed of Rs 20,609, and bed occupancy rate of 78 per cent.
Over the period FY18-21, the company’s revenues grew at a 3-year CAGR of 20.4 per cent to Rs 1,329.2 crore while profit after tax (PAT) grew at 105.2 per cent to Rs 205.5 crore and earnings before interest, tax, depreciation, and ammortisation (Ebitda) at 114 per cent to Rs 370.9 crore.
KIMS experienced a CAGR of -3.96 per cent for their outpatient volume from 2019 to 2021 mainly due to Covid-19 related restrictions, although it was offset by 2.31 per cent growth of inpatient volume, which resulted in growth of total income, the company said.
Strengths & risks
Religare Broking believes that the high-quality healthcare and the company’s encouraging financial performance make KIMS well-positioned to consolidate India’s large, unorganized and yet rapidly growing and underserved affordable healthcare market. Besides, KIMS has diversified revenue streams with no single specialty accounting for more than 25 per cent of its total income in the last three years.
Meanwhile, analysts at GEPL Capital highlights KIMS’ clinical excellence and affordable healthcare (around 20-30 per cent lower prices than peers) as the key factors behind their leadership in Andhra Pradesh and Telangana. Moreover, their disciplined, low-leverage approach to acquisitions has enabled them to maintain their affordable pricing model as they have grown in both Tier 1 and Tier 2-3 markets, the brokerage said.
Going forward, KIMS intends to strengthen its existing hospitals and specialties and also strategically grow its presence in adjacent markets (Karnataka, Odisha, Tamil Nadu and even central India).
Meanwhile, according to analysts, recruitment and retaining of medical talent will remain a key challenge for KIMS. Besides, the fact that its revenue is highly reliant on hospitals in Telangana, adverse price regulations by government, delay in business normalcy, and risks associated with greenfield expansion are the other key areas of concerns, they noted.
Brokerage recommendations
Ventura expects KIMS to expand its network bed capacity to 3,800 by FY24 through a mix of brownfield and greenfield expansions while incurring a capex of around Rs 815.8 crore. As a result, the brokerage expects overall revenues to grow at a CAGR of 15.8 per cent to Rs 2,067.1 crore, PAT at 15.2 per cent to Rs 314.4 crore and Ebitda at 12.9 per cent to Rs 534.3 crore over the forecast period. It also sees KIMS becoming net debt free in FY22, owing to the company’s strong internal accruals.
“We value the stock at Rs 1,275 (17x FY24 EV/EBITDA). This represents a potential upside of 55 per cent from the IPO price of Rs. 825 per share (upper band) over the next 24 months. We recommend a SUBSCRIBE for long term investing,” it said.
“The chain’s well – calibrated capex and ability to provide specialty healthcare services at an affordable price along with a strong brand recall in the southern market augurs well. The chain’s ability to drive judicious capex into the adjacent states and Central India will drive growth in the medium term. We recommend a SUBSCRIBE rating to the issue,” GEPL Capital said.
ICICI Securities, too, recommends ‘SUBSCRIBE’ for listing gains, owing to the company’s current performance. “However, due to steep competition,expanding in others geographies may depress its financials, going ahead,” it said.
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