Avoid the issue currently
Birla Pacific Medspa Limited (BPML) is tapping the capital markets with its issue in a price range of Rs 10-11 to raise Rs 6517.50 lacs. The issue opens on Monday the 20th June and closes on Thursday the 23rd June 2011.
| Price Band | Rs 10 – Rs 11 |
| Offer size in shares | 6,51,75,000 Equity Shares at Rs 10 to 5,92,50,000 Equity Shares at Rs 11 |
| Issue Size | Rs 6517.50 lakhs |
| QIB’s | 3,25,87,500 Equity Shares at Rs 10 to 2,96,25,000 Equity Shares at Rs 11 |
| Non Institutional Investors | 97,76,250 Equity Shares at Rs 10 to 88,87,500 Equity Shares at Rs 11 |
| Retail Investors | 2,28,11,250 Equity Shares at Rs 10 to 2,07,37,500 Equity Shares at Rs 11 |
| Book Running Lead Manager | Arihant Capital Markets Limited |
| Isssue Opening Date | Monday 20th June |
| Isssue closing date | Thursday 23rd June |
| IPO Grade | Brickworth grade 2/5 indicatingbelow average fundamentals |
| Paid -up Capital Pre IPO | 4,69,66,218 Equity Shares |
| Paid -up Capital Post IPO | 11,21,41,218 Equity Shares at Rs 10 to 10,62,16,218 Equity Shares at Rs 11 |
| Market Cap post listing | Rs 112.14 crs at lower band to Rs 116.84 crs at higher band |
| Bid Lot | 500 shares |
| Bidding Amount for Retail | 18,000 shares at Rs 11 or Rs 1,98,000 per application |
Business
BPML is in the business of operating med spa’s under the brand name “EVOLVE”. The company offers comprehensive treatments in the area of Cosmetic Dermatology, Cosmetic Surgery and advanced dentistry. It also offers a range of spa services- wet and dry under its wellness initiative. Under each of these heads there is a wide array of services. Botox and filler, laser hair reduction, skin tightening, skin rejuvenation, microdermabrasion, liposuction, face lift, breast augmentation and reduction, rhinoplasty, hair transplant, I-lipo, dental implants and paediatric dentistry.
The company currently operates five of its own facilities in Mumbai and has two franchisee outlets operated in Thane near Mumbai and one in Chennai. The company through its Evolve centres is positioned in the med spa platform which is a differentiator from other spa’s which offer mere external facilities like massage and facials. The one stop shop where makeover solutions and medical facilities are also provided makes the difference in the offerings. The type of facilities offered also makes the difference in the average ticket size. In a spa the same could be in the region of Rs 1500-2000 while in the case of BPML it could range from Rs 3,000 to Rs 1 lakh making the average around Rs 25,000.
Objects of the issue
The objects of the issue are as follows: –
| 1. To meet the capital expenditure towards establishing 55 outlets of Evolve Medspa across various cities and places | Rs. 4950.00 lacs |
| 2. Brand Promotion | Rs. 600.00 lacs |
| 3. Working capital requirements | Rs. 70.00 lacs |
| 4. Issue Expenses | Rs. 650.00 lacs |
| 5. Contingencies | Rs. 123.75 lacs |
| 6. Preliminary and pre-operative expenses | Rs. 123.75 lacs |
| TOTAL | Rs. 6517.50 lacs |
Financials
The company began its operations by acquiring in a slump sale the business undertaking of Pachealth Medical Services Private Limited at their cosmetic, medical and dental centre at Prabhadevi. This was done in October 2008. Since then this centre was relocated and currently the company operates 5 centres in Mumbai and one franchisee operated centre in Thane. There is only one centre outside Mumbai being operated by a franchisee in Chennai.
| Rupees in Lakhs | 14 months | 6 months | 9 months |
| Sep-09 | Mar-10 | Dec-10 | |
| Sales | 170.47 | 152.87 | 164.50 |
| Other Income | 0.00 | 0.00 | 2.53 |
| increase/decrease in stock | 6.28 | 3.59 | 3.13 |
| Total Income | 176.75 | 156.46 | 170.16 |
| Total Expenses | 634.35 | 484.66 | 537.71 |
| Loss before tax | -457.60 | -328.20 | -367.55 |
| Taxes | 0.16 | 0.00 | 0.00 |
| Net Loss After Tax | -457.76 | -328.20 | -367.55 |
Comparison
There are no comparable companies in this business in the listed space. In the unlisted space also one has companies which offer specialised services limited to some activities like weight reduction or beauty spa’s. VLCC is an unlisted entity which has established a chain offering limited services. There is of course a gymnasium company which is listed namely Talwalkar’s which has close to 60 outlets currently. There being no comparison and the company yet to make profits there are no comparable.
The company is into a nascent business which is yet to take off in a big way in the country simply because no one offers the facilities. There is demand and the people who can afford the same travel overseas and get the treatment done.
Valuations
The turnover in the nine months ended December 2010 is just about Rs165 lacs and there is a loss suffered by the company. The business needs to expand and set up large number of outlets to reacvh a critical mass and achieve break even. This would at the least take a couple of years before the company can open thirty or more outlets and achieve break even in the business.
Conclusion
The company is raising Rs 6517.50 lacs in a price band of Rs 10-11 to finance the setting up of 55 outlets in the next three years. The present setup is inadequate to service a company which would have a market cap of Rs 112 crs at the lower end and Rs 117 crs at the upper end of the price band. It makes sense to just stay away from the company and avoid the issue. It would be better to wait for a couple of years when the company achieves a critical mass before one thinks of investing in this business.
SEBI Disclaimer: – I do not intend to subscribe to the above issue.
