Narayana Hrudayalaya IPO Review : Should you Invest?

  “Narayana Hrudayalaya IPO Review

Dr. Devi Shetty is big brand in Karnataka. If you happened to be in Bengaluru, people over there greatly admire Dr. Shetty. Moreover Indian government has awarded Dr.Shetty with third highest civilian award of the country “Padma Bhushan” for his outstanding contribution towards affordable medicine. Dr. Devi Shetty promoted Narayana Hrudayalaya Initial Public Offer (IPO) is hitting the primary market this week. But the company promoted by such a prolific personality worth investing your money?, let us find out in this IPO review.

Read : Narayana Hrudayalaya IPO Allotment Status

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  Narayana Hrudayalaya Limited Background

narayana-hrudayalaya-ipo-review

Image Source : Narayana Hrudayalaya

After working for BM Birla hostiptals and Manipal hospitals, Dr.Shetty founded Narayana Hrudayalaya in 2001. Today it is one of the leading healthcare service providers in India, operating a chain of multispecialty, tertiary and primary healthcare facilities. As on date Narayana Hrudayala has a network of 23 hospitals (multispeciality and superspeciality healthcare facilities which provide tertiary care), 8 heart centres (superspeciality units which are set up in a third party hospital) and 25 primary care facilities (including clinics and information centres), across a total of 32 cities, towns and villages in India, with 5,600 operational beds and the potential to reach a capacity of up to 6,600 beds.

  Narayana Hrudayalaya Valuation Analysis

Lets have a look at how the company has performed over the last 5 years. Below table shows the Stand alone financial performance of Narayana Hrudayalaya

Narayana Hrudayalaya Limited Financials (Standalone)
Financials Year20112012201320142015
Revenues (in Rs millions)4755.426494.348273.4810913.1613176.18
Revenue Growth (YoY)NA37%27%32%21%
Profit after Tax (in Rs millions)174.04289.83184.45360.29289.20
Profit %3.7%4.5%2.2%3.3%2.2%

Its revenues has grown outstandingly at around 30% CAGR in the last five years and it is profitable year on year. Does this make point for investing in Narayana Hrudayalaya? Not really. the above figures are only standalone results which does not include its subsidiaries. Lets have a look at consolidated results now.

Narayana Hrudayalaya Limited Financials (Consolidated)
Financials Year20112012201320142015
Revenues (in Rs millions)4802.146606.878544.4611175.0813715.88
Revenue Growth (YoY)NA38%29%31%23%
Profit after Tax (in Rs millions)136.41257.54247.96317.08-108.61
Profit %2.8%3.9%2.9%2.8%-0.8%

So for the current year, its subsidiaries are making loss while it as a separate entity making profit. But as an investors we need to shoulder risk of both of them and not individually. The loss is due to their new facility at Cayman Islands located northwest of Jamaica.

On valuation front, the PE value for the price band of Rs 245 to 250 what company is asking is steep high at 165x when we consider last years EPS of Rs 1.51. Even if we consider average EPS for the last three years which Rs 1.56, it is around 157x while it’s peer Apollo Hospital is trading at PE of 62x.

  To Invest or not to Invest in Narayana Hrudayalaya IPO?

The current issue is only Offer For Sale (OFS), that means existing share holders are selling it to the interested buyers, hence there is no fresh addition of shares. So in these kind of OFS, it is very important for you to know the motive behind the issue before making any investment decision. Normally the promoters come up with OFS in mainly two cases. In first case, existing share holders want to jump out of a sinking ship by offloading their holding to general public who eventually left with piece of papers with zero value. In second case, the promoters interested in cashing out in a favorable condition of the primary market.

The Narayana Hrudayala seems to be falling in the second category given the image Dr. Shetty has. Dr. Devi Shetty and Shakuntala Shetty (Wife of Dr.Shetty) hold 130,870,882 equity shares which is 65.44% of the company. Out of this both husband and wife are selling 2,043,608 shares each which is around 3% of pre-offer value. So as the promoters are still holding around 62% of interest in the company, we can believe in the intention of the issue. The gold rates are falling, oil is slumping and not much return in real estate also, so the investors are left with limited options. Probably the promoters want to use this situation to their advantage.

But what about the loss it had in the last year?. Have a look at the stock price of Fortis Healthcare which also reported loss in the last year and decide yourself.

narayana-hrudayalaya-ipo

  Narayana Hrudayalaya Positives

  • Strong brand name of the promoters and one of the leading companies in the healthcare space
  • Remarkable revenue growth in the last couple of years
  • Outstanding health care service at affordable price compared to peers like Fortis and Aplolo Hospitals
  • Company is still relatively small compared to it’s peer, hence there is scope of multi-fold growth

  Narayana Hrudayalaya Negative

  • If you see the tables above, the profit margin the company is very low. It is debatable how long a company can be profitable with this wafer thin margin
  • It s revenues are mainly coming from three hospitals that is Mazumdar Shaw Medical Centre, Narayana Institute of Cardiac Sciences and Rabindranath Tagore International Institute of Cardiac Sciences. Heavy dependency on these hospitals for revenue growth is a big risk
  • Its source of revenue is also concentrated on two fields that is cardiac care and cardiology, any material impact on revenue from these will impact its financial conditions.
  • They acquired two companies AHDL and MMRHL, and a third party hospital Jubilant Kalpataru Hospital in Barasat, West Bengal, in the year 2014. As of March 31, 2015, these businesses were loss-making.  These investments may take a significant period of time to turn profitable

  Narayana Hrudayalaya Share Price 

The Narayana Hrudayalaya IPO Share Price Band is fixed between Rs.245 to Rs.250 per equity share

  Dr.Lal PathLabs IPO Issue Dates:

The Narayana Hrudayalaya IPO is set be launched on 17th December 2015 and closes on 21st December 2015.

  Dr.Lal PathLabs IPO Other Details:

  • Issue Type: 100% Book Building
  • Issue Size:24,523,297 Equity shares of Rs 10
  • Face Value Per Share: Rs.10
  • Issue Price Band: Rs.245– Rs.250
  • Market Lot : 60 shares
  • Minimum Order Quantity : 60  Shares
  • Listing on Exchanges : BSE and NSE

  Objects of Narayana Hrudayalaya IPO Issue:

  • Achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the sale of 20,436,081 Equity Shares by the Selling Shareholders (As per the red herring prospectus with SEBI)
  • Enhance visibility and brand image among existing and potential clients
  • Provide liquidity to the existing shareholders

  Narayana Hrudayalaya IPO Other Information:

Narayana Hrudayalaya Contact Information :
Narayana Hrudayalaya Limited
No 258/A Bommasandra Industrial Area,
Anekal Taluk,
Bengaluru 562158, karanataka, India
Email: [email protected]
Phone: + 91-80-71222222

  Conclusion:

That is the review and analysis of the Narayana Hrudayalaya Limited IPO. It is not easy to get comfortable with the valuation for the said price band for a company which is making loss. But the growth potential it can offer due to its relatively smaller size can not be ignored. It is a long term story and does not make sense to rush. Investors can wait and watch how the company performs in the coming years, improved margin should be a good indicator. So one can take the secondary market route when the valuations get attractive. But if you ask us to name one turn on point in favor of this IPO, it will be none other than “Dr. Devi Shetty” ! 

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If you are interested in applying for the Narayana Hrudayalaya IPO, you can have look at 10 Best Stock Brokers of India. You may also be interested in reading our other articles at Archives Page.


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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 information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial adviser prior to making any actual investment decisions, based on information published here in this IPO. The author cannot be held liable for any loss arising by following this article.

Filed Under : IPO

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