Thyrocare Technologies Ltd IPO – Should You Sample this?
The company’s name may make you think that it’s a technology company but don’t let it mislead you! Thyrocare is one of the leading pan-India diagnostics chains which conducts a plethora of pathology tests. An IPO of a pathology company yet again, would evoke memories of Dr. Lal Path Labs which had given a stellar 50% listing gains in Dec’ 2015. Just like its listed peer, Thyrocare, too, has good business prospects for the reasons enumerated below:
Investment Arguments
- Strong Growth Visibility driven by focus on Preventive & Wellness Segment –
Multiple trends are in favor of branded laboratories like Thyrocare: increasing propensity of doctors to diagnose before prescribing, rising awareness among middle class and demand for quality service is resulting in a shift from unorganized sector to organized sector. These trends will continue to play out over next ten years.
There is a gradual shift from infectious to lifestyle diseases which will bring the focus on prevention of diseases rather than diagnosis of existing diseases. Unlike its peers, Thyrocare is focused on labs tests in high margin preventive and wellness category, albeit a small portion of the overall pathology market currently, but is growing more rapidly than the diagnosis segment.
The existing pathology business alongwith foray in imaging diagnostics (CT Scans) is expected to further boost the company’s growth.
- Robust Scalable & Operational Model to ensure Quality Diagnostic Services –
Through their hub and spoke model of one Central Processing Laboratory (CPL), multiple Regional Processing Laboratories (RPL), Satellite Labs, Collection Centres& 1,041 Authorized Service Providers (ASP), the company is able to cater to 466 cities across 24 states & 1 Union Territory. The franchisee agreements signed with ASPs ensures standardization of tests and customer experience. The robust logistics network, automation & technology ensure collection, aggregation, transportation of samples by ASPs to CPL/ RPL and making the report available to patients within the required turnaround times and optimum costs.
- Asset Light Model to Boost Return Ratios –
The equipments required in pathology labs are leased from vendors as the company generates high volumes and provides commitment to purchase reagents and consumables from these vendors. This results in nil debt, high cash flow generation and return ratios.
GreenEdge Wealth Services’ View
At the upper end of price, the company is valued at ~45x FY16E earnings, which is cheap compared to its only listed peer, Dr. Lal Path Labs, which is trading at a PE of ~67x. Given the company’s strong growth visibility, focus on high margin preventive segment and its only listed peer’s premium valuation, we recommend to subscribe to the issue.
Issue Details
| Issue Open Date | 27th April, 2016, Wednesday |
| Issue Close Date | 29th April, 2016, Friday |
| Issue Price (Rs.) | 420 to 446 |
| Market Lot | 33 |
| Minimum Application Size for Retail (Rs.) | 14,718 |