IPO Size: Rs. 2,206 cr

• Rs. 500 cr is fresh issue for Rs. 375 cr debt repayment (to become net debt free post IPO)
• Rs. 1,706 cr is offer for sale (OFS) mainly by PE Carlyle, completely exiting its 20% holding. On 20^th Oct 22, Carlyle has sold 5.7% stake at upper end of price band (Rs. 336 per share) to 3 investors.

Price band: Rs. 319-336 per share

M cap: Rs. 9,011 cr, implying 24.5% dilution

IPO Date: Thu 3^rd Nov to Mon 7^th Nov 2022, Listing Wed 16^th Nov 2022

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

‘Medanta’ Hospital Chain

Founded by noted cardiologist Dr. Naresh Trehan 13 years ago, Global Health has operational capacity of 2,467 beds, across 5 ‘Medanta’ branded hospitals in North and East India, including a 1,390-bedded flagship hospital at Gurugram. Company has strong presence in multi-speciality tertiary care, with 28% of 1,866 operational beds being ICU beds, leading to average revenue per operating bed (ARPOB) of about Rs. 59,000 per day, higher than listed peers KIMS Rs. 25,300, Narayana Hrudayalay (India operations) ~Rs. 25,000, Healthcare Global Rs, 38,500, Apollo Rs. 52,000 and Rainbow Rs. 52,600.

40% Capacity Expansion in 2.5 years

Company is expanding capacity to 3,500 beds by FY25E – 700 brownfield at existing hospitals and 300 greenfield under construction in Noida. Most of this capex (Rs. 1.1-1.3 cr per bed) will be met through internal accruals, which is highly positive. With new capacity coming on board, share of Gurgaon hospital of 56%, will also reduce to ~40%, diversifying risk.

Strengthening Financials

FY22 occupancy improved to 60%, from 55% pre-covid in FY20, expanding EBITDA margin to 22% from 15% earlier. As operating leverage kicked-in, FY22 PAT stood at Rs. 196 cr on revenue of Rs. 2,167 cr, up from FY20’s PAT of Rs. 36 cr on revenue of Rs. 1,500 cr. This is despite lower international footfall (4% of revenue in FY22 over 11% in FY20) and negligible revenue from covid vaccine (seen for other hospitals). In Q1FY23, PAT rose to Rs. 59 cr on revenue of Rs.617 cr, with EBITDA of Rs. 141 cr.

Pricing

Based on post listing enterprise value (EV) of Rs. 8,900 cr, share is being offerred at EV/EBITDA of 18x vs 21-24x for peers Narayana, Rainbow, KIMS. On capacity-based valuation, EV/bed of Rs. 3.6 cr is lower than KIMS (Rs. 3.8 cr) and Rainbow (Rs. 4.8 cr), but higher than Narayana Rs. 2.6 cr. Thus, offer is valued at a discount to peers, on an earnings basis, which has seen improvement for the sector as a whole, post covid slump. Capacity expansion and improved occupancy may lead to steady growth in company earnings.

In the IPO, while Carlyle is fully exiting its 9 year old investment, Dr. Trehan (33% stake post IPO), Temasek (16%) and RJ Corp (4%) are not selling shares, which is assuring.