Narayana Hrudayalaya IPO – Affordable Healthcare at Expensive Valuations?
A visit to a hospital as a patient is the most undesirable event yet there’s no escaping it, when it becomes a necessity. In India, the high medical costs in private sector and the under-supply of public healthcare services, deprive a significant section of population from availing healthcare services. One such private company, Narayana Hrudayalaya, which is reputed to provide affordable healthcare services will be launching its IPO this week. The company’s promoter, Dr. Devi Prasad Shetty, has won the Padma Bhushan award for his contribution to the field of affordable healthcare. Established in 2000, Narayana Hrudayalaya, a Bangalore based company, is a leading multi-specialty hospital chain operating under Narayana Health brand. The company highlights have been enumerated below.
Investment Arguments
- Scope for Long Term Growth:
Currently, the company has a network of 23 hospitals providing multi-specialty and super-specialty tertiary healthcare services, 8 heart centers set up in third party hospital and 24 primary care facilities across 31 cities, towns and villages in India. The company has 5,442 operational beds with a potential to reach a capacity of 6,602 beds. In FY15, these facilities catered to 1.97 million patients.The company’s network is concentrated in South and Eastern India and has an emerging presence in Central and Western India. The company has charted out plans to set up hospitals in North East, Lucknow and Mumbai & partner with Govt and select charitable trusts. Expansion of hospital network to different geographies combined with hugely under-penetrated healthcare market in India provides immense scope for long term growth.
- Strong Brand in the Specialty Segments:
Narayana Hrudayalaya operates in 6 high-value specialty areas of cardiology, cancer care, neurology, orthopaedics, nephrology and gastroenterology. It has created a strong reputation of providing good healthcare services at affordable prices. This has helped its revenues grow at 30% CAGR over last 5 years.
- Asset Light Model but Weak Profitability:
The company has an asset light model – Out of the 23 hospitals, 4 are company-owned, 7 are operated on a revenue-sharing model, 8 on lease and remaining 4 are run on management-fee model.
Loss making subsidiaries, low return ratios, low and inconsistent profit margins (over the last 5 years, its profit margins have ranged from -0.8% to 3.9%) have weighed on the company’s financial performance in the past.
GreenEdge Wealth Services’ View
At the upper end of price band, the company is richly valued at ~140x FY16 earnings. There is immense scope for growth in the company but we recommend to avoid subscribing to the IPO given its expensive valuations.
Issue Details
| Issue Open Date | 17th Dec, 2015 |
| Issue Close Date | 21st Dec, 2015 |
| Issue Price (Rs.) | 245 to 250 |
| Market Lot | 60 shares |