Narayana Hrudayalaya IPO: Low Profitability Raises Concern

Narayana Hrudayalaya, which operates multispecialty hospital chain in the name of "Narayana Health", is offering 2.45 crore shares between Rs 245-Rs 250 through an initial public offer (IPO). Investors can buy minimum of 60 shares between December 17 to December 21. Narayana Hrudayalaya was set up by renowned cardiologist Dr Devi Prasad Shetty in 2000. Here are the 10 things to know about Narayana Hrudayalaya IPO: 1) Narayana Hrudayalaya issue was subscribed 7 per cent on the first day of the IPO. 2) Bengaluru-based Narayana Hrudayalaya specialises in cardiac and renal sciences. In FY15 cardiology and cardiac surgery accounted for 54.3 per cent of its billed revenue. Recently it has expanded its core speciality areas to cancer care, neurology and neurosurgery, orthopaedics and gastroenterology. 3) In a capital-intensive industry, Narayana Hrudayalaya runs an asset light model by engaging with partners, who invest and own fixed assets like land and building without a minimum revenue guarantee. Narayana Hrudayalaya owns the medical equipment and focuses more on management of hospitals. 4) Out of the 23 hospitals it operates in India, it owns and operates only four while seven hospitals are on a revenue share model and eight hospitals are on a lease basis. Narayana Hrudayalaya also runs eight heart centers and 24 primary care facilities across 31 cities in India. It had a total of 5,442 beds as of November 2015. 5) In FY15, Narayana Hrudayalaya got around 46 per cent of its revenue from Karnataka cluster and 30 per cent came from eastern India. The company is now expanding its presence to central and northern India, said Ashutosh Raghuvanshi, MD & CEO of Narayana Hrudayalaya. (Watch) 6) Narayana Hrudayalaya's revenue has risen at a 30 per cent compound annual growth rate (CAGR) during FY 11-15. Except last financial year, its net profit has also registered an increasing trend. In FY15, it reported a net loss of Rs 11 crore on sales of Rs 1,364 crore on account of losses in newly opened hospitals, ICIC Securities said. 7) Narayana Hrudayalaya's valuation cannot be measured through the popular price earnings ratio as the company reported a loss in FY15. In terms of enterprise value, Narayana Hrudayalaya is valued at 3.9 times its FY15 sales as compared to 5.7 times for Apollo Hospital. 8) Narayana Hrudayalaya's top three facilities contributed 58 per cent to its FY15 revenue. Its high revenue concentration is a key risk for the company, analysts say. Any material impact on the revenue of these three facilities could adversely impact the overall sales and profitability of the company. 9) Despite lower profitability, ICICI Securities has made a case for investing in the IPO with a "subscribe" rating. The valuation is a "tad" expensive, but it is in-line with the recent deals in the healthcare industry, the brokerage said. IIFL also says that pricing of the IPO looks expensive. At the upper price band of Rs 250, the stock is priced at 25 times its FY17 estimated EV/EBITDA as compared to Apollo's valuation of around 20 times its EV/EBIDTA, IIFL said. 10) This is an offer for sale, under which, promoters and private equity investors like JP Morgan, Ashoka Holding are selling their stake to raise Rs 613 crore at the upper end of the price band. Promoter's holding will come down to 64.9 per cent from 66.9 per cent post the issue.

Narayana Hrudayalaya IPO: Low Profitability Raises Concern

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