Should You Subscribe to Medanta IPO? | Global Health Limited IPO Detailed Analysis

1) IPO Details:

• The IPO Window of Global Health Limited is open between 3rd November 2022 till 7th November 2022
• The Issue Size of the IPO is Rs.2205 Cr. which includes Rs.500 Cr of fresh issue and Offer for sale of equity shares amounting to Rs.1705 Cr.
• The IPO is getting listed at both the stock exchange- Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
• The price band of the IPO is Rs.319 to Rs.336 per equity share.
• The Face Value is Rs.2 per equity share.
• The Investor Quota of the IPO is as follows Qualified Institutional Buyers (QIB)- 50%, Non-Institutional Investors (NIIs)-15%, and Retail Investors- 35%.
• The IPO Lot consists of 44 shares in 1 lot and multiples thereof up to 13 Lots.
• The Allotment Date for Global Health Limited IPO is 11th November 2022 and it will get listed on the Stock Exchange on 16th November 2022.

The objective of the Issue :

o   Repayment/prepayment of borrowings of the subsidiaries, GHPPL and MHPL - Rs.375 Cr.

o   General Corporate Purposes.

2) Shareholding Pattern:

• The stake of Promoter’s & Promoter’s Group in the company Pre-IPO was 35% which will go down to 33% post listing of the IPO.
• Public - Selling Shareholders includes investor shareholders and individual shareholders who are selling part of their holdings in the offer for sale. Their stake will reduce from 39% Pre-IPO to 17%.
• Public Shareholding Post- IPO issue will be 49% in the company.

3) About Company:

• Global Health Ltd (“Medanta”) was incorporated on August 13, 2004. Medanta is one of the largest private multi-speciality tertiary care providers operating in the North and East regions of India, with key specialties of cardiology and cardiac science, neurosciences, oncology, digestive and hepatobiliary sciences, orthopaedics, liver transplant, and kidney and urology.
• Medanta was founded by Dr. Naresh Trehan, a world-renowned cardiovascular and cardiothoracic surgeon. Dr. Trehan is the driving force behind the hospitals. Their hospital at Gurugram was ranked as the best private hospital in India for 3 consecutive years in 2020, 2021 and 2022, and was the only Indian private hospital to be featured in the list of Top-200 global hospitals in 2021 and was featured in the list of Top-250 global hospitals in 2022 by Newsweek.
• As at March 31, 2020, Medanta had 2,141 installed beds, which grew to 2,467 installed beds as at June 30, 2022, representing a growth of 15.23%. Upon operation of their Noida hospital, Medanta expects the number of total installed beds to exceed 3,500 at the end of Fiscal 2025.
• The hospital chain operates healthcare services in over 30 medical specialties and engages over 1,300 doctors led by highly experienced department heads and, spanning an area of 4.7 million sq.ft).
• As at June 30, 2022, they had a team of more than 6,000 medical professionals, including over 1,300 doctors and over 3,700 nurses and 1,000 paramedical personnel.

4) Geographical Presence:

• Currently, Global Health Ltd has its geographical presence in 5 cities across India.
• Hospitals in Gurugram, Indore, Ranchi, are in operation for more than years and have reached economies of scale, a strong established brand, effectively managed operational risk and stable profit margins.
• Hospitals in Lucknow, and Patna are operational for less than 6 years, has more opportunity for medium-term growth and profit margin expansion.
• Hospital in Noida having expected capacity of 300 beds is under construction and is expected to be operational from FY25.

5) Classification of ailments in Hospital Industry:

• Primary care facilities are outpatient units that offer basic, point-of-contact medical and preventive healthcare services, where patients come for routine health screenings and vaccinations.
• Secondary care facilities diagnose and treat ailments that cannot be treated in primary care facilities. These act as the second point of contact in the healthcare system. There are two types of secondary care hospitals - general and specialty care.
• Tertiary care hospitals provide advanced healthcare services, usually on referral from primary or secondary medical care providers. Quaternary care hospitals are an extension of tertiary care in reference to advanced levels of medicine which are highly specialised and not widely accessed.
• Medanta’s focuses on quality tertiary and quaternary care, treatment of lifestyle diseases, provision of value-based treatments and work on a high number of critical, complex cases.

6) Operations and Facilities:

• HOME CARE SERVICE: Company’s Home Care Services provides sample collection, preventive health checks, pediatric vaccinations, and nursing services, all at the convenience of the patient’s home.
• PHARMACIES: It provides convenient access to branded prescription drugs and over-the-counter medication as well as a range of nutritional, lifestyle and beauty products. Company has recently incorporated a wholly-owned subsidiary, GHL Pharma, to run all of their pharmacies in their hospitals and clinics
• AIR AMBULANCE: Medanta has partnered with third party service providers, Flying Doctors India Pvt Ltd and Air Charter Services Pvt Ltd, to operate an air ambulance aircraft based in New Delhi. The air ambulance aircraft is equipped with neonatal ventilators and intra-aortic balloon pump and can fly in patients from different locations to any one of their hospitals for emergency care

• The company provides healthcare services in over 30 specialities and engages over 1300 doctors and has 2467 beds across its operational hospitals. The company’s flagship hospital in Grurgram is approximately 2.7mn sq. ft with 1391 installed beds as of 30th June 2022. The bed capacity increased from 2141 beds in FY 2020 to 2467 beds till 30th June 2022 with growth rate of 15.23%.
• Occupancy rate of Medanta was 51.57% in FY 2021 which was majorly impacted due to Covid-19. Occupancy rate increased to 60.50% in FY 22.
• Medanta’s primary source of revenue is from In patients admission, volume showed an extraordinary growth to 1,02,359 in FY 22 from 83,901 in FY 20.
• Hospitals typically focus on reducing their ALOS, as it increases their ARPOB and ensures more patients are treated at the same time. Average revenue per occupied bed increased to Rs.58960 per day and average length of stay reduced to 3.22 in First quarter of FY 23.

8) Financials:

(i) Revenue/EBITDA/EBITDA Margins/Net Profit:

• Revenue from operations increased from Rs.1500.58 Cr in FY 20 to Rs.2167.35 Cr in FY 22. The revenue of the company in first quarter of FY 23 stood at Rs.617.45 Cr.
• Company reported Earnings before Interest, Taxes, and Depreciation & Amortization (EBIDTA) margin of 22.60% in FY22 as patients footfalls increased. There was increase in volume of domestic and international travelers.
• Profit after tax showed an extraordinary growth of Rs.196.20 Cr in FY22 against Rs.36.33 Cr in FY 20.
• The company is aiming to tap into growth opportunities in existing facilities and diversify into new services, including digital health.

(9) Breakdown of Income from Key Speciality:

• Medanta’s key specialties are cardiology and cardiac science, neurosciences, oncology, digestive and hepatobiliary sciences, orthopaedics, liver transplant, and kidney and urology.
• The company’s revenue by healthcare services offered are well diversified viz. Heart Institute generates highest income of 21%. Cancer institute accounts 11%, Neuroscience accounts to 11%. Medanta’s Internal medicine division generates 11.26% of Income.

• Among the bigger listed peers of the company, Global Health Ltd has lower number of beds and number of hospital units are also relatively less.
• Average revenue per bed of Global Health ltd is Rs.54,547 per day. This ARPOB is in line with industry average.
• Similar to KIMS, Global Health Ltd has a high regional concentration in its hospital units.

(11) Valuation:
If we compare the PE ratio to TTM numbers, the EPS of the company is around Rs. 8.43. The comparative valuations as per this -
On the basis of valuation, the company has 43.19x PE for FY22 which appears to be attractive as compared to industry peers. Apollo hospitals have PE ratio of 71.40. Fortis has PE ratio of around 50. Max healthcare has PE ratio of 46.98. Current PE ratio of Global Health ltd is similar to its other peers.

The company has well diversified tertiary care facilities and one of the largest hospitals in North and East region along with healthy return ratios.

(12) Risk factors:

• The sector has high regulatory compliances which can hinder the growth, revenue and margins.
• Global Health Ltd faces competition in all of their main business areas. They compete with government-owned hospitals, other private hospitals and nursing homes.
• Hospitals under construction may experience delays in construction adversely affecting synergies and delays in reaching full operational capacity.
• Global Health Ltd depends on financing from the banks or financial institutions to carry on business operations. They depend on third-party entities as well as the receipt of certain governmental approvals and access to sufficient funding, for the construction and development of hospital buildings.
• Operations are largely concentrated in NCR and Lucknow and any loss of business in such regions could have an adverse effect on business, results of operations and financial condition.

(13) Competitive Strength:

• Large- scale hospital with Focus on under-served areas with dense population and presence in top or capital cities of large states (NCR, Lucknow and Patna). Well balanced mix of mature hospitals, developing hospitals and planned hospitals.
• Clinical Expertise and Focus on Clinical Research. The company focuses on super specialization and clinical expertise by working on a high number of complex cases.
• The company has a doctor-led management model enabling sub-specialisation to provide the highest level of clinical expertise to the patients. Their doctors are among the best in their fields and almost all their clinical department heads are recognized by their peers in the industry as among the leaders in their specializations.
• Company’s world-class infrastructure, the advanced technology and, most importantly, the doctor-driven culture of the organization have allowed them to attract and retain some of the best clinical leaders in India.
• Company has shown continued growth through ramp-up in occupancy rate in existing hospitals. Capacity expansion of 1.4 times beds by 2025 and diversification into new services including digital health.

What Should Investors Do?