GOODWILL HOSPITAL

Goodwill Hospital And Research Centre is entering the capital market on 30th December with an issue size of Rs. 62 crores, in the band of Rs. 175 to Rs. 185 per share. This may see an issue size of 33.51 lakh to 35.43 lakh equity shares of Rs. 10 each.

The company is running a 220 bed multi speciality hospital at Noida, which was acquired by the present management in Dec. 2007. For FY10, total income of the company was placed at Rs. 22.90 crores with PBT at Rs. 5.57 crores, resulting in a margin of 24.32%. During FY10 it had capacity of 140 beds and had operated at 55% capacity, with average length of stay of 4 days. In FY11, bed capacity increased to 220 beds and occupancy was at 54%, but fall in average length of stay to 2-3 days. Inspite of this, total income in FY11 rose to Rs. 53.58 crores with PBT of Rs. 23.15 crores, resulting in a margin of 43.20%. In 3 month ending 30-06-11, total income was placed at 16.08 crores, with PBT of Rs. 6.04 crores, resulting in a margin of 37.56%. This kind of margin is unheard of and have not been earned either by Apollo Hospital or by Fortis Malar Hospitals Ltd.

Relying on FY11 results, EPS of the company stood at Rs. 17.70. So issuer may argue that shares are issued at a PE multiple of about 10 times at the lower band of Rs. 175. But can we rely on these financial, which are not in sync with its past performance or with sector and industry? These kind of tactics (gimmicks) have been used by many companies, with their IPO, making IPO at a hefty price and listing at poor rates, thereafter. Recent SEBI orders on 7 IPOs and their Merchant Bankers scares one more. Also, BRLM of this IPO is SPA Merchant Bankers Ltd., which went public on 22-9-2010 with issue price at Rs.135, while now it is ruling at 15. This is wealth destruction of 89% in about 15 months. This company also seems to have resorted to same gimmick of presenting rosy picture for FY 10 and FY 11. Hence, financials of the company cannot be taken on face of it and needs scrutiny and investigations by SEBI.

Present debt equity ratio of the company, as at 30-06-11, stood at 2.80:1 with debt of Rs. 104 crores on net worth of Rs. 37 crores. Apart from this, its subsidiary is setting up a 700 bed Hospital at Faridabad, with total outlay of Rs. 227 crores. This will not be seen positive by the market. Strangely, financial expenses of just Rs. 4.52 crores were booked in FY11, inspite of a debt of Rs. 60 crores, as at 01-04-10 and at Rs. 87 crores on 31-03-11.

Now the company proposes to set up Diagnostic Centre and Six Polyclinics with total outlay of Rs. 60 crores, which is being financed by the proposed IPO.

Fortis Malar Hospital, a listed company, having posted total income of Rs. 46 crores for six months ending 30-09-11, with PAT at Rs. 3.62 crores, resulting in an EPS of Rs. 1.95 is ruling at a PE of 7 times, inspite, this company being debt free.

Considering these, BRLM is unreliable as also financials of the company, while share is seen to be having a faire value of not more than Rs.60. In all probability issue is not likely to garner  positive response and hence may see one more operator controlled IPO.

Better to buy Apollo Hospital or Fortis Malar and just avoid this issue.