One of India’s fastest-growing diagnostic chains, Krsnaa Diagnostics Ltd, is all set to launch its ₹1,213 crore IPO on 4th August as its private equity investors look to pare holdings and the company plans to expand and also lower its borrowings. Should you invest?
In this article
- Key IPO Details
- Utilization of raised funds
- About Krsnaa Diagnostics
- Valuation and Recommendation
The pandemic has bloomed the business of healthcare companies and hospitals and the latest in the segment to come with its IPO is Pune-based Krsnaa Diagnostics. Glenmark Life Sciences, Windlas Biotech, and KIMS Hospitals in the healthcare space successfully closed their IPOs recently.
Krsnaa Diagnostics is planning to raise an aggregate of ₹1,213.33 crores in pursuit of establishing diagnostics centers in Punjab, Karnataka, Himachal Pradesh, and Maharashtra along with an aim to repay debt and fund general corporate activities. The public issue also comprises an offer for sale (OFS) of up to 85.25 lakh equity shares by existing shareholders.
With a range of technology-enabled diagnostic services such as imaging (including radiology), pathology/clinical laboratory, and teleradiology services to public and private hospitals, medical colleges, and community health centers pan-India, the company has served more than 2.3 crores patients since its inception. It also stands to be the fastest-growing diagnostic chain in India on multiple parameters including operating income, operating profit before depreciation, interest, and tax (“OPBDIT”), and profit after tax between Fiscal 2017 and Fiscal 2020.
Another distinctive attribute of the company is that they operate one of India’s largest teleradiology reporting hubs in Pune that is able to process large volumes of X-rays, CT scans, and MRI scans round the clock, 365 days a year, allowing them to serve patients in remote locations where diagnostic facilities are limited.
Key IPO Details
- IPO open from: Aug 4th – Aug 6th 2021
- Face value: ₹5
- Price Band: ₹ 933 – 954
- Minimum Investment (Lot Size): ₹13,995 (15 shares)
- Listing on: BSE and NSE
- Fresh Equity Issue: up to ₹400 crores
- Offer for sale: up to ₹ 813.33 crores
- Total issue: up to ₹ 1,213.33 crores
- Promoters: Rajendra Mutha
- Book running lead managers: JM Financial Limited, DAM Capital Advisors Limited, Equirus Capital Pvt Ltd, IIFL Securities Limited.
- View DRHP here
Utilization of raised funds
The offer comprises of fresh issue of ₹400 crores, which will be utilised in the following way:
- Deployment of new diagnostic centers – the company is planning to use the newly raised funds to finance the establishment of 29 new diagnostic centres across Punjab, Karnataka, Himachal Pradesh and Maharashtra.
- Debt repayment/prepayment – will help reduce outstanding indebtedness, debt servicing costs and improve their debt-to-equity ratio and enable utilization of internal accruals for further investment in business growth and expansion.
- General Corporate Purposes – the company plans to use up to 25% of gross proceeds for strategic initiatives, funding growth opportunities, improving marketing capabilities, among other purposes.
All proceeds from the OFS, to the tune of ₹813.33 crores, will be directed to the corresponding shareholders and will not be received by the company.
About Krsnaa Diagnostics
Incorporated in Pune, Krsnaa Diagnostics Krsnaa provides specialized diagnostic imaging (including radiology), pathology/clinical laboratory, and teleradiology services through their network of diagnostic centers. They offer a range of tests that include 1,394 radiology tests and 2,544 pathological tests, as of June 30, 2021, covering a range of specialties and disciplines.
Krsnaa enters into agreements with public health agencies to establish and operate onsite diagnostic centers at existing healthcare facilities. Under these arrangements, they establish and manage “in-hospital” diagnostic centers to conduct onsite testing. The company’s continued focus and significant presence in the PPP (public-private partnership) segment has granted them 77.59% of all tenders (by number) that they have bid for. Alongside their PPP segment, the company has been increasingly collaborating with private healthcare providers to operate diagnostic centers within their facilities and has expanded from operating 14 diagnostic centers in 2019 to 17 in 2020 and 26 in 2021.
The company has an extensive network of integrated diagnostic centers across India primarily in non-metro and lower-tier cities and towns, which are located within existing facilities of public and private hospitals or community health centers. The company also boasts its affordable, quality services as compared to its peers.
In addition, the company’s experienced and qualified management team has contributed to its significant growth over the years. The promoter, Mr. Rajendra Mutha, has considerable experience in the healthcare industry and has been associated with the company since its inception. Other members of the management have also helped to significantly expand company operations.
Strengths and Weaknesses
+ Unique and scaled diagnostics company.
+ Strong Brand Equity – quality diagnostics services at affordable rates.
+ Extensive footprint across India with robust infrastructure – spread across 13 states in India and present in over 1,800 locations.
+ Well positioned to capitalize on healthcare spending across public and private sectors.
+ Consistent financial performance.
+ Experienced promoters and management team supported by a strong employee base.
— Significant revenue dependence on contracts with public health agencies.
— No guarantee that the company will be awarded PPP contracts by government agencies in the future.
— Heavy reliance on IT and telecommunications networks to manage operations.
— Prices charged are dependent on recommended/mandatory fees fixed under agreements with public and private healthcare providers.
— Substantial revenue derived from states of Maharashtra, Rajasthan, and Karnataka.
— Delays in the establishment of diagnostic centers could lead to the termination of the agreements.
— Experienced losses and negative net worth in the past.
— Capital intensive business model could suffer in the case of lack of cash flows.
— Failure to comply with regulatory requirements could lead to heavy fines/penalties.
The company has reported a profit of ₹184.93 crores in FY21 (on revenue of ₹661.47 crores), against a loss of ₹111.95 crores in FY20 and a loss of ₹58.06 crores in FY19.
The company has demonstrated consistent growth in terms of revenues and adjusted EBITDA over the years. Its net revenue from operations increased at a CAGR of 37.65% during FY19-FY21.
Key Financials (₹ in crores)
- Continue to expand presence across India
- Expand their offering of diagnostic services with a focus on specialized diagnostics
- Continue to improve profitability and efficiency
- Expand business and geographical footprint through opportunistic acquisitions
- Grow digital and social impact
Valuation and Recommendation
We like the company backed by its unique and scaled diagnostics business. The company’s business model has good revenue visibility as its operation across radiology and pathology provides them with a diversified source of revenue. The recent increase in the company’s revenues and profits is due to increased demand because of the outbreak of the pandemic, and this demand is not sustainable. We believe, with the reduction in covid cases, the company’s growth and margins could taper down from H2FY22 respectively.
At the upper band of INR 954, the issue is valued at P/E 78.1(x) its FY21 diluted EPS of INR 12.3. We think the IPO is very expensively priced and will not recommend this for long term investment. We recommend investors to be cautious about investing in this issue at the given valuation. Our rating for this IPO is “Neutral”. However, if you are a high-risk investor looking to make listing gains, it can be a good opportunity to make some quick bucks given the IPO frenzy in the market.