Krsnaa Diagnostic IPO sails through on Day 1; retail portion oversubscribed 10 times

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The initial public offer by Krsnaa Diagnostic got fully subscribed on the first day of the bidding process. The public offer has received bids for 1,19,93,490 shares so far till 3.25 pm (IST) against 71,12,099 shares offered by the company. The quota reserved for retail investors got oversubscribed more than 10 times so far, qualified institutional buyers 0.96 times and non-institutional investors 0.13 times.

The company on Tuesday said it has collected Rs 537 crore from anchor investors. Avendus, HSBC Global, Nomura, HDFC Life Insurance Company, Max Life Insurance Company, Reliance General Insurance Company, Elara India Opportunities Fund, Tata Mutual Fund (MF), ICICI Prudential MF, SBI MF and Kotak MF are among the anchor investors.

The IPO comprises a fresh issue of equity shares worth Rs 400 crore and an offer for sale (OFS) of up to 8,525,520 equity stocks by its existing shareholders. The issue, with a price band of Rs 933-954 a share, will conclude on August 6. At the upper end of the price band, the IPO is expected to mobilise Rs 1,213.3 crore.

Proceeds from the fresh issue will be used for financing the cost of establishing diagnostics centres in Punjab, Karnataka, Himachal Pradesh, and Maharashtra and repayment of loans availed by the company and general corporate purposes.

Retail investors can bid for a minimum of 15 equity shares and in multiples of 15 thereafter. The company provides a range of technology-enabled diagnostic services such as imaging (including radiology), pathology/clinical laboratory and teleradiology services to public and private hospitals, medical colleges and community health centres pan-India.

Should you subscribe to the IPO?

Choice Broking | Rating: Subscribe with Caution

Krsnaa Diagnostics is loss-making on an adjusted PAT basis making P/E (price to earnings) comparison with peers irrelevant. On P/S (price to sales) basis, at the higher price band of Rs 954, the issue is valued at P/S of 7.6x. Based on Choice Broking quick estimates, the issue is valued at P/E of 72x on FY23E compared to peers’ average P/E ~55x. Thus, the issue seems aggressively priced.

The brokerage firm believes that future profitability trend is likely to remain contained due to limited scope for EBIDTA (earnings before interest depreciation tax and amortisation) expansion and prevailing high competitions within the industry players.

Marwadi Shares & Finance | Rating: Subscribe

Considering the FY-21 diluted EPS (earnings per share) of Rs.12.25, the company is going to list at a P/E (price to earnings) of 77.88 with a market cap of Rs 2,994.1 crore, while its peers namely Dr Lal Path Labs and Metropolis Healthcare are trading at a P/E of 75.15 and 79.71 respectively.

Marwadi Shares & Finance has a ‘Subscribe’ rating to the IPO as the company has a unique business model with strong revenue visibility and is well-positioned to capitalize on healthcare spending across public and private sectors. Also, the issue is reasonably priced as compared to its peers.

Anand Rathi | Rating: Subscribe

Krsnaa Diagnostics has strong business operations, which are reflected in its financials. It has exhibited a strong 37.65% CAGR on the sales front over FY2019-21, predominantly led by volumes and partially on the back of pricing. The company is available at the upper end of the IPO price band at 77.7x its FY21 earnings, with a market cap of Rs 2,994.1 crore. Further on FY21 earnings basis, the company is trading below the industry average of 85.99x.

Anand Rathi believes that a strong balance sheet position and healthy operating cash flows will enable them to pursue growth opportunities and also fund their strategic initiatives.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)