Dr. Lal PathLabs Ltd.

Transcription

1 IPO NOTE SUBSCRIBE Dr. Lal PathLabs Ltd. Nifty 7,954.9 Sensex 26, ISSUE DETAILS Offer Price Band ` Face Value 1 Issue Size (in crs) `62 63 Shares offered (in crs) 1.16 Type Offer for Sale & Fresh Issue Lal Family, Dr. Arvind Promoters Lal, Dr. Vandana Lal, Mr. Anjaneya Lal, Eskay House (HUF) Listing (Stock Exchange) NSE, BSE Offer Open Date 8 December, 215 Offer Close Date 1 December, 215 Website: SCRIP ESTIMATES EPS - FY15 (`)- ` P/E(x) - 47x-48x SHAREHOLDING PATTERN (%) PRE OFFER POST OFFER Promoter & Promoter Group Foreign Investors (Wagner, SIH & WCF) n-promoters Public & Others COMPANY BACKGROUND Incorporated in 1949 and promoted by the Lal family, Dr. Lal PathLabs Ltd. is an integrated diagnostic and related healthcare test and service provider in India. The company provides a variety of diagnostic services such as core testing; patientt diagnosis; prevention, monitoring and treatment of disease; etc. Its customers include individual patients, hospitals and other healthcare providers. In FY15 & the H1FY16 they have collected and processed approximately 21.8mn samples and 13.4mn samples from approximately 9.9mn and 6.2mn patients respectively. INVESTMENT RATIONALE Well positioned in one of the fastest segments of healthcare segment: As per CRISIL Research the current market size of the diagnostic segment is `377crores in FY15 which is projected to grow to over `croress by FY18. The company has built a national network consisting of National Reference Laboratory in New Delhi, 172 other laboratories, 1,554 Patients Service Centres () and have coverage across all metropolitan cities. Combined with the current fragmentation in the industry this is a big opportunity for the company, as it commands 12% market share as on FY15. Also larger diagnostic healthcare service chains are choosing to join smaller stand-alone laboratories as they are attractive acquisition targets. Scalable centralized information technology platform that fully integrates the network: Building and IT Support System is a major cost in this industry, which also is a niche entry barrier in this segment. The centralized information technology platform of the company fully integrates their large network through a common logistics and payment system, thereby collecting samples and payments more efficiently from patients and healthcare service providers. This platform also gives healthcare providers convenient, online access to diagnostic results. Furthermore, the growth of the network is supported by the scalability of technology platform which readily can adapt to the increased data requirements of new, upcoming clinical laboratories and patient service centres. Business Model: The company has adopted a Hub and Spoke model that yields economies of scale, is scalable for future growth and an instrument leasing model that results in lowered capital expenditure for diagnostic equipments. Investors should read the risk factors and more detailed information in the Prospectus and the application form before investing in the issue. (` crs) FINANCIALS FY13 FY14 FY15 H1FY16 Sales Expenditure EBIDTA EBIDTA (%) Depreciation Interest PBT PAT PAT (%) EquityCapital EPS (`) Source: Dr. Lal pathlabs Ltd. RHP HUB AND SPOKE MODEL Satellite Labs Reference Lab Satellite Labs Vijay Gyanchandani Tel: vijaygyanchandani@way2wealth.com Way2Wealth Brokers Pvt. Ltd. ( (CIN U6712KA2PTC27628) SEBI Rgn.. : Applied for.. 14, Frontline Granduer, Walton Road, Bangalore-51; Website: : research@way2wealth.com

2 IPO te FINANCIALS Dr. Lal PathLabs Ltd. reported net profit of `95crores and total revenue of `662.52crores in FY15. Revenue growth for the company over FY13-FY15 was 2.7% CAGR and a PAT growth of 14% CAGR over the same period. te: Company s EBIDTA was Rs 88.2crores for the six month period ended 3 th September, 215. EBIDTA margin of FY15 was 21.6% which is relatively lower due to the high upward mark to market adjustment for the unexercised ESOPS granted in the prior periods under the employee stock option plan. OBJECTS OF THE ISSUE The primary objective of the issue of `63crores is to receive the benefits of listing the equity shares on the stock exchanges, which will enhance the company s visibility and build a brand image among existing and potential clients. It also provides liquidity to its existing shareholders and holders of options granted by the company. The company will not receive any proceeds and all the proceeds will go to the selling shareholders. KEY CONCERNS The company operates in a highly competitive business environment and an inability to compete effectively could have an adverse material impact on its business. Business interruptions at its National Reference Laboratory may adversely affect the ability to process clinical tests and other complex tests. The company is also exposed to concentration risk, since 85% of the revenues in FY15 and six month period ended September, 215 were generated from rthern and Eastern India. Technological advancement may lead to more cost-effective technologies or nonbe performed without the use of invasive diagnostic healthcare tests that can specialized diagnostic healthcare service centres or laboratories. This can adversely affect the company s business. VALUATION AND INVESTMENT ARGUMENT The industry is poised to grow in favour of the organized sector with rising requirement for high end testing and consolidation in industry. We believe the team expertise along with its long term experience in this field will enable the company to gain growth opportunities arising out of this phase. We believe that the long-term prospects for the company are good. However the IPO is demanding valuations whichh seem bit stretched. The company is trading at 48x times FY15 with EPS of `11.48/-. We advise investors with a long-term investment horizon to SUBSCRIBE to the issue. 2 P a g e CIN U6712KA2PTC27628) SEBI Rgn.. : Applied for.. 14, Frontline Granduer, Walton Road, Bangalore-51; Website: : research@way2wealth.com

3 IPO te COMPANY S BUSINESS AT A GLANCE Dr Lal PathLabs Ltd. Operates a Hub and Spoke business model with one National Reference Laboratory at New Delhi which offers a range of approximately 1,11 test panels, which are organized into approximately 1,934 pathological tests and 1,561 radiology and cardiology tests as well as the services that cover a range of specialties and disciplines. As on September 3, 215 company has a network of 172 Clinical Laboratories, 1,554 Patient Service Centers, and over 7, pickup points. SERVICE NETWORK OF THE COMPANY AS OF 3 TH SEPT AS AT 31 ST MARCH H1FY Clinical Labs Total Patient Service centres Service Centres owned centres Franchisee patient service centres Pickup Points 172 1, ,475 7, , ,271 5, , ,9 4, ,879 ZONE SIX-MONTH PERIOD ENDED 3 TH SEPT rth India East India 51.2 South India West India International 3.62 Total 4,5. (` crores) YEAR ENDED 31 ST MARCH , ,8.53 3, , ,57.9 4,51.62 rth India alone constitutes 73% of total revenue of the company KEY FINANCIAL CHARTS SALES GROWTH (` crores) EBIDTA GROWTH (` crores) Sales growth at ~3% CAGR during FY11 to FY15 EBITDA growth at ~27% CAGR during FY11 to FY15 PAT GROWTH (` crores) PAT growth at ~14% CAGR during FY11 to FY15 3 P a g e CIN U6712KA2PTC27628) SEBI Rgn.. : Applied for.. 14, Frontline Granduer, Walton Road, Bangalore-51; Website: : research@way2wealth.com

4 IPO te Team Analyst Designation Sector Nilesh Doshi President (Research) Mahesh Bendre AVP Capital Goods, Auto, Auto Ancillary Jaisheel Garg AVP Power, Power Equipment, Coal Mining Shivani V. Vishwanathan Sr. Research Analyst FMCG, Consumer Durables Nisha Harchekar Sr. Research Analyst Chemicals, Textiles Vijay Gyanchandani Research Associate Institutional Sales Ramanjaneyulu BV Vinod Vijay Birla Bhavika Ravasia Designation Institutional Head Sales Senior Manager Senior Manager Institutional Dealing Designation Ajay Prabhudesai Mitul Doshi Gautam Vyas Assistant Vice President Institutional Sales Trader Institutional Sales Trader P a g e CIN U6712KA2PTC27628) SEBI Rgn.. : Applied for.. 14, Frontline Granduer, Walton Road, Bangalore-51; Website: : research@way2wealth.com

5 IPO te Disclaimer Analyst Certification: I, Vijay Gyanchandani, the research analyst and author of this report, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s), principally responsible for the preparation of this research report, receives compensation based on overall revenues of the company (Way2Wealth Brokers Private Limited, hereinafter referred to as Way2Wealth) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. It is confirmed that Vijay Gyanchandani, the author of this report has not received any compensation from the companies mentioned in the report in the preceding 12 months. 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Disclosure of Interest Statement in Dr. Lal PathLabs Ltd. as on December 2, 215 Name of the Security Name of the analyst Analysts ownership of any stock related to the information contained Financial Interest Analyst : Analyst s Relative : Yes / NO Analyst s Associate/Firm : Yes/ Conflict of Interest Receipt of Compensation Way2Wealth ownership of any stock contained Broking relationship with company covered related to the information Investment Banking relationship with company covered Dr. Lal PathLabs Ltd. Vijay Gyanchandani This information is subject to change without any prior notice. Way2Wealth reserves at its absolute discretion the right to make or refrain from making modifications and alterations to this statement from time to time. Nevertheless, Way2Wealth is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. 5 P a g e CIN U6712KA2PTC27628) SEBI Rgn.. : Applied for.. 14, Frontline Granduer, Walton Road, Bangalore-51; Website: : research@way2wealth.com