Krsnaa Diagnostics IPO opens tomorrow; here’s everything you must know

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The Rs 1,213.76 crore initial public offer of diagnostic chain Krsnaa Diagnostics is set to hit the street on Wednesday. The three-day issue will open for subscription on August 4 and the bidding will close on August 6. The price band for a healthcare service provider has been fixed at Rs 933-954 per share having a face value of Rs 5 per share.

The issue comprises fresh issuance of equity shares of Rs 400 crore, and an offer for sale (OFS) of 8.53 million shares totalling to Rs 813.76 crore. The OFS comprises the sale of 1.6 million shares by PHI Capital Trust-PHI Capital Growth Fund-I, up to 3.34 million shares by Kitara PIIN 1104, up to 3.56 million shares by Somerset Indus Healthcare Fund I Ltd and up to 21,380 shares by Lotus Management Solutions.

The Rs 150.81 crore of the fresh issue will be used for financing the cost of establishing diagnostics centres in Punjab, Karnataka, Himachal Pradesh, and Maharashtra. While the firm will use Rs 125.70 crore for repayment of certain borrowings availed by it. As of June 2021, the total debt under the various financing arrangements of the company aggregated to Rs141.73 crore. And the rest will be utilised for general corporate purposes.

An investor can bid for a minimum of 15 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,310 at the higher end of the price band. A retail investor can at max apply for 13 lots or 195 shares for Rs 1,86,030.

Grey market chatter

In the grey market shares of Krsnaa Diagnostics are quoting at a premium of Rs 440 or 46% over its issue price of Rs 954.

Krsnaa Diagnostics is one of the largest differentiated diagnostic service providers in India which mainly focuses on PPP (Public-Private Partnership) segment where it has the largest presence with a Bid-win rate of almost 78%. On the operational front, the company is posting decent topline growth- CAGR of 37.65% from FY19-FY21 in revenues from operations. The company has generated positive cash flows which will help them fund to pursue growth opportunities and fund strategic initiatives, said grey market tracker and founder of Unlisted Arena, Abhay Doshi.

“At the issue price of Rs 954, the issue looks fully priced. However, due to bullish sentiments, we may see IPO garnering good subscription which may lead to good listing but for long term one may scout for good opportunities post listing,” Doshi added.

Here is what brokerages are saying about the issue.

Choice Broking | Rating: Subscribe with Caution

Krsnaa Diagnostics is loss-making on an adjusted PAT basis making P/E (price to earnings) comparison with peers irrelevant. On P/S (price to sales) basis, at the higher price band of Rs 954, the issue is valued at P/S of 7.6x. Based on Choice Broking quick estimates, the issue is valued at P/E of 72x on FY23E compared to peers’ average P/E ~55x. Thus, the issue seems aggressively priced.

The brokerage firm believes that future profitability trend is likely to remain contained due to limited scope for EBIDTA (earnings before interest depreciation tax and amortisation) expansion and prevailing high competitions within the industry players.

Marwadi Shares & Finance | Rating: Subscribe

Considering the FY-21 diluted EPS (earnings per share) of Rs.12.25, the company is going to list at a P/E (price to equity) of 77.88 with a market cap of Rs 2,994.1 crore, while its peers namely Dr Lal Path Labs and Metropolis Healthcare are trading at a P/E of 75.15 and 79.71 respectively.

Marwadi Shares & Finance has a ‘Subscribe’ rating to the IPO as the company has a unique business model with strong revenue visibility and is well-positioned to capitalize on healthcare spending across public and private sectors. Also, the issue is reasonably priced as compared to its peers.

Anand Rathi | Rating: Subscribe

Krsnaa Diagnostics has strong business operations, which are reflected in its financials. It has exhibited a strong 37.65% CAGR on the sales front over FY2019-21, predominantly led by volumes and partially on the back of pricing. The company is available at the upper end of the IPO price band at 77.7x its FY21 earnings, with a market cap of Rs 2,994.1 crore. Further on FY21 earnings basis, the company is trading below the industry average of 85.99x.

Anand Rathi believes that a strong balance sheet position and healthy operating cash flows will enable them to pursue growth opportunities and also fund their strategic initiatives.

Dilip Davda | Rating: May Subscribe

Healthcare sector counters marked hefty gains amidst pandemic scare and currently witnessing some corrections from the higher levels. Krsnaa Diagnostics has posted net profits for FY21 on account of one-time gains and even with these earnings, its issue is aggressively priced at a P/E of 80+ and is thus a costly bet against listed peers. In fact, it has a negative P/E. The segment is highly fragmented with many unorganized players and also having tough competitions from organized players. Considering all these, cash surplus/risk seekers may consider investing in this highly-priced offer, others can avoid it.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)