Should you invest in Krishna Institute of Medical Sciences IPO?

The company is one of the largest corporate healthcare groups in Andhra Pradesh and Telangana

Staff Writer   /   June 16, 2021

Started by renowned cardiothoracic surgeon Dr Bhaskara Rao Bollineni in 2000, Krishna Institute of Medical Sciences (KIMS) is one of the largest corporate healthcare groups in Andhra Pradesh and Telangana. It is hitting the stock market with its maiden public issue worth Rs 2144 crore on June 16. Want to know all the details? Here you go.

Offer details

The issue comprises Rs 200 crore in fresh issuance and Rs 1,944 crore from offer for sale. The IPO is set at a price band of Rs 815 – 825 per share and will be open for subscription between June 16 and June 18.

A total of 1,60,03,615 equity shares are being offered by General Atlantic Singapore KH Pte Ltd under the offer for sale, up to 3,87,966 equity shares by Dr Bhaskara Rao Bollineni, up to 7,75,933 equity shares by Rajyasri Bollineni, up to 3,87,966 equity shares by Bollineni Ramanaiah Memorial Hospitals and 60,05,058 equity shares by other existing selling shareholders.

Post IPO, the promoter group and a large shareholder – General Atlantic Singapore, will retain around 38 per cent (47 per cent pre IPO) and 20 per cent (40 per cent) of shareholding respectively. The promoters pledging is expected to decrease to less than 10 per cent from 35 per cent earlier after the IPO.

KIMS will have a starting market cap of Rs 6601.4 crore.

About the company

Krishna Institute of Medical Sciences (KIMS) offers a range of healthcare services across 25 specialties and super specialties. The company has a strategic focus on the southern India healthcare market.
Currently, KIMS operates nine specialty hospitals with a bed capacity of 3,064, including over 2,500 operational beds as of FY21. KIMS has grown from a single hospital to a chain of multi-specialty hospitals through organic growth and strategic acquisitions. The company’s flagship hospital at Secunderabad (Telangana) is one of the largest private hospitals in India at a single location (excluding medical colleges), with a capacity of 1000 beds.

In FY21, KIMS recorded average revenue per occupied bed of Rs 20,609, a bed occupancy rate of 78.60 per cent and an average length of stay of 5.53 days, on an aggregate basis.

IPO factbox

CompanyKrishna Institute of Medical Sciences
Open dateJun. 16
Close dateJun. 18
Allotment dateJun. 23
Listing dateJun. 28
IPO band₹815 to ₹825 per share
Bid lot18 shares

Financials

Krishna Institute of Medical Sciences owns one of the largest hospital chains in AP and Telangana. It reported Rs 1340.1 crore of revenues and Rs 381.0 crore of adjusted EBITDA in FY21, the highest in AP and Telangana.

It has achieved healthy profitability in both Tier I and Tier II, III markets by identifying markets with significant underserved healthcare demand and delivering quality healthcare services at affordable prices.

As of FY21, the company’s debt-to-adjusted EBITDA ratio was 0.71 times and gearing ratio was 0.31 times compared to industry range of 0.1-5.2 times. It has achieved strong free cash flow by effectively managing capex.

Anchor book

Krishna Institute of Medical Sciences on Tuesday raised over Rs 955 crore from anchor investors, ahead of its initial public offering, which opens on Wednesday. The company has allocated 1,15,84,060 shares to anchor investors at Rs 825 apiece, which is the upper end of the price band. 
Among the anchor investors are Nomura Funds Ireland Republic Limited Company, Goldman Sachs (Singapore) Pte-ODI, BNP Paribas Arbitrage-ODI, Elara India Opportunities Fund, Moon Capital Trading Pte Ltd and Integrated Core Strategies Asia Pte Ltd. In addition, HDFC Mutual Fund (MF), Axis MF, ICICI Prudential MF, L&T MF, UTI MF, HDFC Life Insurance Company, Tata AIA Life Insurance Co Ltd took part in the anchor bidding.

Valuation

At FY21 earnings per share of Rs 26.5, the IPO price of Rs 825 means a 31 times price to earnings (PE) multiple. This is not very expensive. Apollo Hospitals trades at a PE of 294 times its 12 months earnings. Aster DM trades at 45 times. In fact, many listed hospital companies such as Fortis and Narayana are still reporting annual losses aggregately. 

ICICIdirect says based on current performance, it assigns ‘SUBSCRIBE’ for listing gain. However, due to steep competition, expanding in others geographies may depress its financials, going ahead, it adds.

According to Anand Rathi, the company’s dominant position in the region of Andhra Pradesh and Telangana, diversified revenue across specialties, growth prospects, strong balance sheet along with high RoNW in FY21 reason a “subscribe” rating.

Key risks

* Risk of additional Covid-19 waves

* Highly dependent on hospitals in Hyderabad (Telangana)

* Concern on increase in competition

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