Diagnostics company Thyrocare Technologies is set to enter the capital market on Wednesday to raise nearly Rs 480 crore. Experts see the company's valuation fairly attractive and recommends investors to subscribe to the issue for long-term.
The firm, which runs a diagnostics laboratory chain across the country, will come out with a public issue of up to 10,744,708 equity shares of Rs 10 each for cash. The offer for sale (OFS) is being made by the selling shareholders. The company's initial public offering (IPO) will open on April 27 and will close on April 29. The company has fixed the price band of its IPO between Rs 420 to Rs 446 per share.
"Looking at the financials the earnings per share (EPS) of Rs 9 for the year 2016 (annualised), the company is asking for the price to earnings ratio (P/E) of around 50, which is fairly attractive for the high growth company like Thyrocare Technology (CAGR 23%)," said Krishna Rana, Analyst, Sushil Finance in its research note.
"At a price band of Rs 420-446, the issue is priced at 47.7- 50.7x price-earnings (PE) ratio for FY2015 consolidated earnings per share (EPS) of Rs 8.8 and 30-32x EV/EBIDTA for FY2015," Sharekhan said in its research note on April 22.
Thyrocare competes with diagnostics chains such as Dr Lal PathLabs, SRL Diagnostics, Metropolis Healthcare and Apollo Clinic.
Echoing similar views on Thyrocare's IPO valuation, Centrum Wealth Research has said the company is expected to command premium valuation due to its strong brand image, proven track record and healthy financials and has recommended investors to subscribe to its issue. "At the higher price band of Rs 446, the stock is valued at 25.4x EV/EBITDA and 41.2x P/E on annualised 9MFY16 basis. While this may appear high, the company is expected to command premium valuation due to its strong brand image, proven track record, healthy financials and presence in niche high-growth business," said Centrum Wealth Research in a note on April 22.
Hence, investors comfortable with such premium valuation can subscribe to the issue, it added.
According to Crisil Research estimates, the size of the Indian healthcare industry was amounted to approximately Rs 4.7 to 5.0 trillion (nearly $77-82 billion) in the fiscal year 2014-15.
"Company is growing at steady state in a growing diagnostic market. Therefore, Thyrocare is well poised to capture this opportunity given it has the largest diagnostic chain in India, attractive operating metrics and strong cash flow generation to fund expansion. Therefore, we recommend to subscribe with the long-term horizon," said Ridhi Mehta, Analyst, Anand Rathi in a note on April 22.
Vipul Shah and Jason Soans from Monarch Networth Capital said in a note on April 25, "Thyrocare’s imaging diagnostic services business through its subsidiary Nueclear Healthcare Ltd (NHL) is an asset heavy and long gestation period and Thyrocare’s strong free cash flow in its core diagnostic services business will help to fund its imaging business whose long-term prospects are very bright. Considering these factors, we recommend a 'Subscribe' to the IPO of Thyrocare Technologies."
"Assuming Thyrocare Technologies' sales growing at 25% CAGR over next two years, the stock would be available at 10.3x FY16E EV/Sales , 8.2x FY17E EV/Sales and 6.6x FY18E EV/Sales at the upper band of issue price of Rs 420‐446," said Daljeet S Kohli and Tushar Manudhane from IndiaNivesh on April 23 in a note.
Considering the past deal of Metropolis in private space, which was ~4.2x trailing EV/sales and Dr. Lal Pathlab at a current valuation of 8.5x FY17E EV/Sales and 7.0x FY18E EV/Sales, we believe that valuation is attractive, cited the two analysts.
"Thus, on the back of better growth prospects, enough cash for inorganic growth and comfortable valuation, we recommend 'Subscribe' on the issue," said the two analysts from IndiaNivesh.