Market too volatile for comfort – AVOID
Goodwill Hospital and Research Centre Limited (Goodwill Hospital) is tapping the capital markets with its IPO which has opened on Friday the 30th of December and closes on Monday the 9th of December 2012. The issue is priced in a band of Rs 175-185 and would raise Rs 62 crs.
It may be mentioned that after remaining open for six days so far the issue has garnered less than 1% subscription. History says that no issue has been subscribed to such an extent on the last day. It would make sense to see what happens during the day.
| Goodwill Hospital And Research Centre Limited | |
| Price Band | Rs 175 – Rs 185 |
| Issue Size in Rupees | Rs 6200 lacs |
| Detachable Warrant | Each share entitles a warrant issued free of cost to be converted at a discount of 20% Warrant conversion to happen at the end of 13th month. Warrants will be listed |
| Issue Size in Shares | 35,42,857 Equity Shares at Rs 175 to 33,51,351 Equity Shares at Rs 185 |
| QIB’s | 17,71,429 Equity Shares at Rs 175 to 16,75,676 Equity Shares at Rs 185 |
| Non Institutional Investors | 5,31,429 Equity Shares at Rs 175 to 5,02,703 Equity Shares at Rs 185 |
| Retail Investors | 12,40,000 Equity Shares at Rs 175 to 11,72,973 Equity Shares at Rs 185 |
| Book Running Lead Manager | SPA Merchant Bankers Limited |
| Syndicate Members | SMC Global Securities Limited |
| Hem Securities Limited | |
| Prabhudas Liladhar Private Limited | |
| Isssue Opening Date | Friday 30th December 2011 |
| Isssue closing date | Monday 9th January 2012 |
| IPO Grade | CARE grade 3/5 indicating average fundamentals |
| Paid -up Capital Pre IPO | 90,00,000 Equity Shares |
| Paid -up Capital Post IPO | 1,25,42,857 Equity Shares at Rs 175 to 1,23,51,351 Equity Shares at Rs 185 |
| Market Cap post listing | Rs 21950 lacs at lower band to Rs 22850 lacs at higher band |
| Bid Lot | 35 shares |
| Bidding Amount for Retail | 1120 shares at Rs 175 or Rs 1,96,000 per application |
Business
Goodwill Hospital is engaged in running a multi-speciality hospital at Noida called Ojjus Medicare with a super speciality focus on core areas such as Neurology and Neuro Surgery, Cardiology and cardiac Surgery and Orthopaedics with emphasis on joint replacements and sports injuries. The company also provides healthcare services in area of minimally invasive surgeries, mother and child care, paediatrics, diagnostic, critical care medicine, oncology, gynaecology and obstetrics, nephrology, dermatology, gastroenterology, dental and eye care etc.
The company has an USP in “Perfexion” Gamma Knife Machine for non-invasive treatment of brain tumors, vascular malformations and functional diseases like Parkinson’s disease, trigeminal neuralgia and psychiatric disorders using highly précised focused gamma rays. Goodwill Hospital is amongst few private centres in South and South East Asia to install Perfexion Gamma Knife. This is a 5th generation machine which uses robotic technology to deliver precise radiation to intracranial and cervical spine lesions and to treat functional disorders.
Objects of the Issue
| The objects of the issue are as follows: – | |
| Rs in lacs | |
| Setting up of Diagnostic Centre at Faridabad | 1621.67 |
| Establishment of Polyclinics | 3396.78 |
| Repayment/prepayment of loan facilities | 1000.00 |
| General Corporate Purposes | |
| Expenses for the issue | |
Financials
The hospital was started in the year 2002 and was taken over by the present management in the year 2007. The present hospital has 220 beds as on date and they were added in phases and reached the present capacity in the last quarter of 2011. The revenues on a consolidated basis were Rs 2291 lacs for the year ended March 2010. These improved significantly to Rs 5358.30 lacs in the year ended March 2011. For the first quarter ended June 2011, there is further improvement to Rs 1608.39 crs. The company has a high operating margin but after providing depreciation and financial charges this reduces significantly. The net margins have improved from 12% in FY10 to 29.33% in FY11, but have dropped in the first quarter ended June 2011 to 26.92%.
| year 2010 | year 2011 | 3 months | |
| Jun-11 | |||
| Income | Rupees in Lakhs | ||
| Operating Income | 2289.67 | 5353.39 | 1606.65 |
| Other Income | 1.33 | 4.91 | 1.74 |
| Total Income | 2291.00 | 5358.30 | 1608.39 |
| Expenditure | 578.79 | 1529.86 | 533.89 |
| PBT, interest, depriciation and Extraordinary item | 1712.21 | 3828.44 | 1074.50 |
| Financial Expenses | 374.63 | 451.75 | 152.01 |
| Depriciation & Amortization | 781.00 | 1082.89 | 349.02 |
| Profit before Tax | 556.58 | 2293.80 | 573.47 |
| Current Tax | 105.20 | 529.25 | 155.00 |
| Deferred Tax Liability | 281.60 | 147.28 | -74.15 |
| (Mat credit)/Set off | -105.20 | 45.51 | 59.69 |
| Total | 281.60 | 722.04 | 140.54 |
| Profit After Tax | 274.98 | 1571.76 | 432.93 |
| NET MARGINS | 12.00 | 29.33 | 26.92 |
The EPS on the pre-IPO capital of 90 lac shares was Rs 3.05 for FY10 which has improved significantly to Rs 17.46 for the year ended March 2011. In the first quarter ended June 2011, the EPS on an annualised basis has improved to Rs 19.24. On a fully diluted basis the EPS would reduce to Rs 13.80 at the lower end of the price band and Rs 14.02 at the upper end of the price band. The PE ratio for the company would be 13.97 times at the lower end and 14.54 times at the upper end based on full year diluted earnings for FY 11. Based on the first quarter June 2011 annualised results the PE ratio would drop marginally to 12.68 times at the lower end of the price band and 13.19 times at the upper end of the price band.
Comparisons
The company has chosen to compare itself with Fortis Malar Hospitals, Kovai Medical Centre and Regency Hospital. Fortis Malar is part of a large hospital chain namely the Fortis group and has revenues of Rs 83.27 crs for the year ended March 2011. The share trades at a PE ratio of 9.51 based on March 11 earnings. Kovai Medical is three times the size of Goodwill with revenues of Rs 174.64 crs for the year ended March 2011 and trades at a PE of 9.23. Regency Hospital is of a similar size of Goodwill with revenues of Rs 52.21 crs and trades at a PE of 16.86. Looking at the current valuations it becomes clear that any valuation which is not in single digit is expensive and Goodwill is asking for much more than that.
Concerns
The group is promoted by Mr Chawla who is by profession a Corporate Lawyer having diverse interests in Hospitality, Medical care and Hospitals, Aviation and NBFC. It appears that the group is into unrelated activities and is spreading itself too thin. There seems to be a concern about the bandwith at the top and this could affect the group going forward. Secondly investment in Aviation is an area of key concern looking at the current market dynamics.
The third area of concern is the fact that there could be execution risks with the company increasing its bed capacity from the present 220 bed to 920 beds in a phased manner. The fourth concern is that the expansion is on debt and the company is already highly leveraged with debt of over Rs 100 crs as of 30th June 2011. The new project would have a debt component of Rs 150 crs and there would be unsecured loans as well.
The fifth concern is the timing of the issue at a time when there is apathy to the markets in general and IPO in particular. There have been no issues in the last three months and one is quite sceptical about issues post the SEBI order on seven recent IPO’s last month.
The sixth and very significant concern is on account of the track recordof the merchant banker SPA Merchant Bankers Limited. The last issue by this entity was SRS Limited where he was one of three merchant bankers and the issue which listed in September 2011 is now trading at Rs 34-35 against an issue price of Rs 58. The greater concern is for the issue where SPA was the sole book running manager in Cantabil Retail which was sold at RS 135 and listed in October 2010. The share crashed on day one itself and is now trading at Rs 17.54, a loss of 87%. The merchant banker in a public meeting when asked about the track record of issues brought by him made a categorical statement that post listing was not there concern. This sure is a dangerous comment and should put prospective investors on high alert.
Convertible Warrant
The issue comes with a free detachable warrant with every share which would be separately listed and traded. The warrant would be converted at the option of the holder into an equity share after 13 months at the then average traded price for the month, less 20%, making the instrument attractive.
Conclusion
The company is in a business which has huge potential and is likely to grow. The concerns are amny and the market conditions not conducive to investment. In such a scenario it makes imminent sense to skip the issue at the current time and look at the issue post listing.
SEBI Disclaimer: – Looking at current market conditions I do not intend to subscribe to the above issue
