Thyrocare IPO opens on Wednesday; here's what you should need to know :: ET

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The initial public offering (IPO) of Thyrocare Technologies, a pan­India diagnostic chain, is set to hit the market on Wednesday, with the company looking to sell shares worth up to Rs 480 crore (Rs 451 crore at the lower end of the price band) through an offer for sale (OFS) of up to 10,744,708 equity shares. The company has set the IPO price band at Rs 420­Rs 446 and fixed the retail investor quota at 35 per cent, suggesting that small investors can buy up to Rs 168 crore worth of company's shares in the issue. A total of 50 per cent of the quota, or Rs 240 crore worth of shares (at the upper price band), will be reserved for qualified institutional buyers (QIBs), while the remaining 15 per cent will be reserved for non­institutional investors. At the upper of the price band at Rs 446, the EPS and PE for FY2016 are Rs 9.93 and 44.90 times, respectively. At the lower end of the price band at Rs 420, the PE multiple stands at 42.29 times. "At the upper end of the price band at Rs 446, book value and PB for FY2016 are Rs 72.41 and 6.16, respectively, and at the lower end of the price band at Rs 420, the PB multiple is at 5.80. There is no change in pre­ and post­issue EPS and book value as the company is not making fresh issue of capital," SMC Investments and Advisors said in note. Long­term investors can look to subscribe to the issue, the brokerage said, adding: "Fundamentals of the company look good. It is expected that the company will see good growth after opening new regional laboratories, launching a battery of preventive healthcare tests and achieving higher economies of scale. Its portfolio includes 16 profiles of tests administered under its "Aarogyam" brand, which offers patients a suite of wellness and preventive healthcare tests." Thyrocare Technologies has a pan­India presence, with centres in 466 cities and 24 states and one Union Territory — all this via 1,041 authorised service providers (ASPs). The company has conducted approximately 1,59,350 tests in the nine months till December 31, 2015. This is against 131,073 tests conducted in FY15, and 95,610 tests conducted in the whole of FY14.


Brokerage Sharekhan in a note said at the offer price, the valuation is similar to that offered in the public issue of recently listed comparable players such as Dr Lal Pathlabs. "After listing, the premium valuations of Dr Lal Pathlabs have expanded further due to its strong track record, healthy return ratios and high free cash flows despite the aggressive expansion and exponential growth in the business," it said. The brokerage does not rate IPOs. "Thyrocare IPO is richly­priced, has little room on the upside for the short­term investors. Hence, investors looking for quick listing gains can skip the same," said Jimeet Modi, CEO, SAMCO Securities. Between FY2011 and FY15, Thyrocare clocked a compounded annual growth rate (CAGR) of 23 per cent in sales. The company's operating profit grew at a CAGR of 18 per cent during the same period. Here are the key strengths and weaknesses one may consider before subscribing to the issue

Strengths 1) Portfolio of specialized tests with an emphasis on wellness and preventive healthcare 2) Multi­lab model driving volume growth and economies of scale 3) Pan­India collection network supported by logistics capabilities and information technology infrastructure 4) Capital efficiencies in its diagnostic testing business

Key risks 1) The company operates in a highly­competitive and fragmented industry 2) Changing technology and new product introductions poses risk to demand 3) Depend substantially on its hub­and­spoke business model complemented by the RPLs 4) Relies significantly on its ASPs to source samples and thereby sell its pathology testing services