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India Equity Research Reports, IPO and Stock News
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BACKGROUND
Goodwill Hospital & Research Centre Ltd was incorporated on June 26, 2000 and the construction of the hospital was commenced in 2002. The medical consultancy commends on small scale in 2004 and in-patient department started in 2005. In December 2007 the management of the company was taken over by the Ojjus Medicare Pvt Ltd. Subsequently, the new management revamped operations of the hospital by adding super specialty services in Neurology and Cardiology etc., adding bed capacity and installation of high-end medical equipments.
Presently, GHRCL is engaged in the business of running a multi-specialty hospital at Noida called Ojjus Medicare, with focus on areas such as Neurology and Neuro surgery, Cardiology and Cardiac Surgery and Orthopaedics. Other Healthcare Services offered include mother & child care, Oncology, Gynaecology, Nephrology, Dermatology, Dental and Eye Care etc. It has 220 beds, Surgical ICU and Medical ICU, four state-of-the-art Operation Theatres and state-of-the-art Imaging facility with automatic laboratory support. Also, it is on the panel of various Government and large organizations for treatment of their employees.
The GHRCL has installed “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. The Hospital is amongst a few private centres in South and South East Asia to install Perfexion Gamma rays.
OBJECTIVES OF THE ISSUE
Goodwill Hospital and Research Centre Ltd plans to raise INR 620 Mln through this issue. The utilization of the funds would be as follows:
Particulars INR Mln
Setting up of Diagnostic Centre at Faridabad
162.2
Establishment of Polyclinics
339.7
Repayment/Prepayment of Loan Facilities
100.0
Miscellaneous Expenses
18.1
Total
620.0
The company offers to issue warrants with every share offered which will be converted within 13 months into equity share at a 20% discount to the price prevailing at that time.
INVESTMENT ARGUMENTS
Robust Industry Growth:
The Health Industry is emerging to be the largest service sector industry in India with estimated revenues of USD 35 Bln and constituting approximately 5.2% of the GDP. It is expected to grow at 15% per annum to reach USD 78.6 Bln by 2012. Over 40 Mln new jobs and USD 200 Bln increased revenues are expected to be generated by the Indian Healthcare Sector by 2020. Seeing this growth we believe that GHCL is well poised to benefit in the future.
Experienced Team of Skilled Doctors:
The success of a hospital significantly depends upon ability to attract, develop and retain highly skilled doctors, nurses and other personnel at the hospital. GHRCL has a team of 32 full time doctors highly qualified and have received advanced training at leading hospitals in India and overseas complemented by 72 nurses and 46 other medical personnel. It has prominent specialists in various fields of medical sciences as consultants on its panel. The team is also dedicated to Clinical Research and has published studies on topics including neurology and neuro-surgery cardiology, cardiac surgery etc.
Quality Patient Care:
GHRCL has been designed to offer quality care to the patients. The layouts at the facilities provide for a patient friendly environment, and include attractive architecture and design features, the use of special lighting and color, and the reduction of “hospital odors” enhance the patient experience. The management has upgraded the hospital as per the standards prescribed by NABH and NABL and applied for NABL and NABH accreditation. The Hospital is also empanelled with CGHS with effect from May 04, 2011.
Specialty focus:
The focus of the GHRCL is on highly specialized areas such as neurology along with Cardiology and Cardiac Surgery, Orthopaedics, urology, nephrology and critical care. The Hospital has installed “Perfexion” Gamma Knife Machine for the treatment of brain tumor. It is amongst the few hospitals in South and South East Asia to have this facility. The Company performed 435 Gamma Knife procedures, Neurosurgeries & Neuro Interventions, 335 Cardiac Surgeries & Cardiac Interventions and 979 Orthopedics, General Surgeries and Gynae procedures in FY 2010-11.
Riding on the successful business model to fuel future growth:
The company plans to replicate the growth achieved in the recent past that was possible due to super specialty services in Neurology and Cardiology etc., along with installation of high-end medical equipments. Part of the proceeds would be used for the setting up of a Diagnostic Centre at Faridabad along with the establishment of one polyclinic each in Muzaffarnagar, Bulandshahar, Meerut, Saharanpur, Hapur and Moradabad by FY 2012-13.
IPO GRADING
This issue has been graded as ‘3/5’ by Credit Analysis and Research Limited (“CARE”) indicating average fundamentals.
FINANCIAL HIGHLIGHTS: The company has performed exceedingly well since FY08, Revenue, EBIDTA and PAT have grown at a CAGR of more than 100% during FY08~11. Particularly, the revenue jumped from INR 229 Mln in FY10 to INR 535 Mln in FY11 on account of the increase in bed capacity from 140 beds in FY10 to 210 beds in FY11 and substantial increase in medical treatments in Specialty areas of Neurology, Cardiology, Orthopedics and Gamma Knife Treatments that resulted in substantial increase in average income per bed per user per day from INR 7,000 to INR 13,000 in FY11. EBIDTA has also increased from INR 171 Mln in FY 10 to INR 383 Mln in FY11. Net Profit has increased substantially from INR 56 Mln to INR 229 Mln. RONW was 15% in 2010 and 48% in 2011 & ROCE was 2% and 11% respectively. Debt/ Equity ratio is very high at 2.82 indicating very high amount of debt taken by the company.
CONCERNS
Higher leverage: Major expansions and purchase of advanced medical equipments funded through a mix of debt, equity and internal accruals have resulted in high Debt-Equity Ratio. The ability of the company to service the debt depends on continued growth and profitability.
Rapid technological advances could adversely affect the business:
The rapid growth of the company was primarily driven by installation of highly sophisticated state-of–art and expensive medical equipments. However, equipments may need regular upgrades or replacements as innovation can rapidly make an existing Equipment obsolete. Apart from significant replacement costs and foreign currency risks, there may not be back-up equipments (due to high costs) in case of damage or breakdowns, and this may affect the ability to provide service to the patients and in turn affect the profitability.
VALUATION:
Goodwill Hospital & Research Centre is offering shares at a price band of INR 175~ 185. At this price range, it is valued at P/E of 13.8x~14.0x and P/BV of 2.8 ~3.0x based on estimated FY12 financials. Fortis Malar Hospital, a comparable peer, is quoting at P/E of around 3.24x on FY12 annualized financials. And hence, the issue seems to be steeply valued. Also, the payment to suppliers and consultant doctors has been delayed which raises doubt on the revenue numbers and margins reported by the company. Hence, we advise investors to observe the performance of the company for the coming two quarters and refrain from subscribing to this IPO.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BACKGROUND
Goodwill Hospital & Research Centre Ltd was incorporated on June 26, 2000 and the construction of the hospital was commenced in 2002. The medical consultancy commends on small scale in 2004 and in-patient department started in 2005. In December 2007 the management of the company was taken over by the Ojjus Medicare Pvt Ltd. Subsequently, the new management revamped operations of the hospital by adding super specialty services in Neurology and Cardiology etc., adding bed capacity and installation of high-end medical equipments.
Presently, GHRCL is engaged in the business of running a multi-specialty hospital at Noida called Ojjus Medicare, with focus on areas such as Neurology and Neuro surgery, Cardiology and Cardiac Surgery and Orthopaedics. Other Healthcare Services offered include mother & child care, Oncology, Gynaecology, Nephrology, Dermatology, Dental and Eye Care etc. It has 220 beds, Surgical ICU and Medical ICU, four state-of-the-art Operation Theatres and state-of-the-art Imaging facility with automatic laboratory support. Also, it is on the panel of various Government and large organizations for treatment of their employees.
The GHRCL has installed “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. The Hospital is amongst a few private centres in South and South East Asia to install Perfexion Gamma rays.
OBJECTIVES OF THE ISSUE
Goodwill Hospital and Research Centre Ltd plans to raise INR 620 Mln through this issue. The utilization of the funds would be as follows:
Particulars INR Mln
Setting up of Diagnostic Centre at Faridabad
162.2
Establishment of Polyclinics
339.7
Repayment/Prepayment of Loan Facilities
100.0
Miscellaneous Expenses
18.1
Total
620.0
The company offers to issue warrants with every share offered which will be converted within 13 months into equity share at a 20% discount to the price prevailing at that time.
INVESTMENT ARGUMENTS
Robust Industry Growth:
The Health Industry is emerging to be the largest service sector industry in India with estimated revenues of USD 35 Bln and constituting approximately 5.2% of the GDP. It is expected to grow at 15% per annum to reach USD 78.6 Bln by 2012. Over 40 Mln new jobs and USD 200 Bln increased revenues are expected to be generated by the Indian Healthcare Sector by 2020. Seeing this growth we believe that GHCL is well poised to benefit in the future.
Experienced Team of Skilled Doctors:
The success of a hospital significantly depends upon ability to attract, develop and retain highly skilled doctors, nurses and other personnel at the hospital. GHRCL has a team of 32 full time doctors highly qualified and have received advanced training at leading hospitals in India and overseas complemented by 72 nurses and 46 other medical personnel. It has prominent specialists in various fields of medical sciences as consultants on its panel. The team is also dedicated to Clinical Research and has published studies on topics including neurology and neuro-surgery cardiology, cardiac surgery etc.
Quality Patient Care:
GHRCL has been designed to offer quality care to the patients. The layouts at the facilities provide for a patient friendly environment, and include attractive architecture and design features, the use of special lighting and color, and the reduction of “hospital odors” enhance the patient experience. The management has upgraded the hospital as per the standards prescribed by NABH and NABL and applied for NABL and NABH accreditation. The Hospital is also empanelled with CGHS with effect from May 04, 2011.
Specialty focus:
The focus of the GHRCL is on highly specialized areas such as neurology along with Cardiology and Cardiac Surgery, Orthopaedics, urology, nephrology and critical care. The Hospital has installed “Perfexion” Gamma Knife Machine for the treatment of brain tumor. It is amongst the few hospitals in South and South East Asia to have this facility. The Company performed 435 Gamma Knife procedures, Neurosurgeries & Neuro Interventions, 335 Cardiac Surgeries & Cardiac Interventions and 979 Orthopedics, General Surgeries and Gynae procedures in FY 2010-11.
Riding on the successful business model to fuel future growth:
The company plans to replicate the growth achieved in the recent past that was possible due to super specialty services in Neurology and Cardiology etc., along with installation of high-end medical equipments. Part of the proceeds would be used for the setting up of a Diagnostic Centre at Faridabad along with the establishment of one polyclinic each in Muzaffarnagar, Bulandshahar, Meerut, Saharanpur, Hapur and Moradabad by FY 2012-13.
IPO GRADING
This issue has been graded as ‘3/5’ by Credit Analysis and Research Limited (“CARE”) indicating average fundamentals.
FINANCIAL HIGHLIGHTS: The company has performed exceedingly well since FY08, Revenue, EBIDTA and PAT have grown at a CAGR of more than 100% during FY08~11. Particularly, the revenue jumped from INR 229 Mln in FY10 to INR 535 Mln in FY11 on account of the increase in bed capacity from 140 beds in FY10 to 210 beds in FY11 and substantial increase in medical treatments in Specialty areas of Neurology, Cardiology, Orthopedics and Gamma Knife Treatments that resulted in substantial increase in average income per bed per user per day from INR 7,000 to INR 13,000 in FY11. EBIDTA has also increased from INR 171 Mln in FY 10 to INR 383 Mln in FY11. Net Profit has increased substantially from INR 56 Mln to INR 229 Mln. RONW was 15% in 2010 and 48% in 2011 & ROCE was 2% and 11% respectively. Debt/ Equity ratio is very high at 2.82 indicating very high amount of debt taken by the company.
CONCERNS
Higher leverage: Major expansions and purchase of advanced medical equipments funded through a mix of debt, equity and internal accruals have resulted in high Debt-Equity Ratio. The ability of the company to service the debt depends on continued growth and profitability.
Rapid technological advances could adversely affect the business:
The rapid growth of the company was primarily driven by installation of highly sophisticated state-of–art and expensive medical equipments. However, equipments may need regular upgrades or replacements as innovation can rapidly make an existing Equipment obsolete. Apart from significant replacement costs and foreign currency risks, there may not be back-up equipments (due to high costs) in case of damage or breakdowns, and this may affect the ability to provide service to the patients and in turn affect the profitability.
VALUATION:
Goodwill Hospital & Research Centre is offering shares at a price band of INR 175~ 185. At this price range, it is valued at P/E of 13.8x~14.0x and P/BV of 2.8 ~3.0x based on estimated FY12 financials. Fortis Malar Hospital, a comparable peer, is quoting at P/E of around 3.24x on FY12 annualized financials. And hence, the issue seems to be steeply valued. Also, the payment to suppliers and consultant doctors has been delayed which raises doubt on the revenue numbers and margins reported by the company. Hence, we advise investors to observe the performance of the company for the coming two quarters and refrain from subscribing to this IPO.
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