Vijaya Diagnostic IPO: Why brokerages suggest subscribing to the issue



Vijaya Diagnostic is the largest integrated diagnostic chain in southern India, offering pathology and radiology testing services mostly in Telangana and Andhra Pradesh.


The company’s initial public offer (IPO) opened for subscription on Wednesday, September 01, and the issue is priced between Rs 522-531 per equity share (1 lot of 28 equity shares). The objective of the IPO, according to the company, is to enhance its visibility and brand image, provide liquidity to shareholders and a public market for the shares.





At the upper end of the price band, the company aims to raise Rs 1,895.03 crore. The offer, which closes on Friday, September 03, is entirely an OFS, where the promoter S Surendranath Reddy (50.90 lakh equity shares), investor Karakoram (2.95 crore shares) and Kedaara Capital (11 lakh shares) will offload their stake partially.


Fifty per cent of the portion is reserved for qualified institutional investors (QIB), 15 per cent for non-institutional investors (NII), and 35 per cent for retail investors.


About the company


Vijaya Diagnostic is the largest integrated diagnostic chain in southern India, offering pathology and radiology testing services through 81 centres and 11 reference laboratories in Telangana, Andhra Pradesh, National Capital Region and Kolkota. The company offers a comprehensive range of about 740 routine and 870 specialised pahthology tests and 220 basic and 320 advanced radiology tests covering a range of specialities and disciplines.


Financials


Vijaya is said to be one of fastest growing diagnostic chains by revenue in FY20. The individual consumber business alone contributed to 92 per cent of revenue from operations in FY21. According to a CRISIL report, the Indian diagnositcs market was value at Rs 71,000 – Rs 73,000 crore in FY21 and is projected to expand at a CAGR of 12 – 13 per cent to Rs 92,000 – 98,000 crore, driven by a rise in health awareness and disposable incomes, increase in demand for better healthcare facilities and quality of care.


The diagnostic market in Telangana and Andhra Pradesh, Vijaya’s strong base, is projected to grow to Rs 12,000 – 13,000 crore by FY13, reports suggest. Vijaya’s Q1FY22 net profit had soared to Rs 33.32 crore from Rs 1.8 crore in the corresponding period a year ago. Total income also jumped notably to Rs 122.68 crore from Rs 51.71 crore in the same period.


Over the last three preceeding fiscals, the company’s net profit has shown a steady growth – Rs 84.91 crore in FY21, Rs 62.50 crore in FY20 and Rs 46.30 crore in FY19. The revenue too has seen a uptick at Rs 376.75 crore in FY21, Rs 338.82 crore in FY20 and Rs 292.60 crore in FY19.


Here’s how brokerages interpret the company’s financials and why they recommend investors subscribe to the issue.


Reliance Securities | Subscribe


The is valued at 64 times (64x) FY21 earnings, which appears to be at a discount of 15-40 per cent compared to the valuation of its peers like Metropolis and Dr. Lal PathLabs. However, considering its annualised earnings for FY22E, it is priced at 41x, which looks reasonable. We further believe lukewarm performance to Krsnaa Diagnostic post listing (was valued at 16x of FY21 earnings), the investors should not expect strong any substantial listing gain.

However, steady cash generation, superior balance sheet, decent return ratio and healthy outlook for healthcare industry in the country augur well for the company. We recommend SUBSCRIBE to the from long-term perspective.


IIFL Securities | Subscribe


Being an integrated diagonostic provider that offers one-stop solution, with high brand recall, roboust technical capability and strong IT infrastructure positions Vijaya Diagnositcs well enough to leverage the high growth in Indian diagnostic industry. Going forward, the company plans to deepen footprint in its core markets, supplement organic growth with selective acquisitions and expand adjacent geographies and east India.


At the upper price band, Vijaya Diagnositc is demanding a PE multiple of around 64.3x of FY21 earnings, which is lower than the industry average of 90.8x. Considering the future growth potential of healthcare industry, revenue from operation, EBITDA and PAT growth of 13.5 per cent, 23.9 per cent and 35.5 per cent CAGR during FY19 and FY21, respectively, strong ROE and ROCE of 23.6 per cent and 42 per cent, respectively in FY21, and the future plans in place we recommend ‘Subscribe’ to the issue with a long-term prespective.


Marwadi Financial Services | Subscribe


Recommends subscribing to the issue basis the company’s competitive strengths such as it being the largest and fastest growing diagnostic chain, and well positioned to leverage high growth. A long track record of delivering consistent profitable growth, with strong cash generation and return metrics. The only risk being, its in a highly competitive business environment and region-based concentration.


Religare Broking | Positive View


Vijaya Diagnostic stands to benefit from growing industry trends on the back of its strong presence in Southern India. Further, it is an integrated diagnostics provider that offers a one-stop solution to its customers at an affordable price. The company has built a trusted, high-quality and reliable brand of choice over the last four decades and enjoys high brand recall.


Going forward, the company intends to strengthen its presence in its core (Telangana & Andhra Pradesh). Further, it intends to leverage its existing presence by focusing on setting up spoke centres and increasing home collection in existing catchment areas. It also plans to grow its business through an inorganic route and also looks to expand to adjacent geographies. The financial performance has been healthy with Sales and PAT CAGR of 13.5 per cent and 35.5 per cent over FY19-21. On the valuation front, the company is valued at around 65x FY21 EPS. From a long-term perspective, we have a ‘Positive View’ on the company.


Ventura Securities | Subscribe


At the offer for sale price of Rs 531, the stock is trading at FY24 P/E of 39.5x. We recommed to ‘Subscribe’ for long-term investing with a price objective of Rs 672, representing an upside of 27 per cent over the next 24 months.


We believe the company should fetch a premium valuation given its enviable metrics of such as – higher operating income per patient and EBITDA per patient than its peers, high B2C concentration and highest income generation from customers.


Arihant Capital | Subscribe for listing gains


At the upper band of Rs 531, the Vijaya Diagnostic issue is valued at P/E 64x its FY21 EPS of Rs. 8.26. We like the company as it is largest and fastest growing diagnostic chain with dominant position in South India, well positioned to leverage the high growth in Indian Diagnostics Industry and also provide one stop solution at affordable price, deepen footprint in the core market, supplement organic growth with selective acquisitions and expand in adjacent geographies and East India. Based on the above factors, we recommend subscribing for listing gains.





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