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|Wednesday, 2 November 2022|
Medanta hospital chain operator
To increase bed capacity and extend its clinical services
Global Health one of the largest private multi-speciality tertiary care providers operating in the North and East regions of India in terms of bed capacity and operating revenues, with key specialties of cardiology and cardiac science, neurosciences, oncology, digestive and hepatobiliary sciences, orthopaedics, liver transplant, and kidney and urology.
Under the Medanta brand, the company has a network of five hospitals currently in operation in Gurugram, Indore, Ranchi, Lucknow and Patna. It also has one hospital in Noida, which is under construction.
As of June 30, 2022, the company provided healthcare services in over 30 medical specialties and engage over 1,300 doctors led by highly experienced department heads and, spanning an area of 4.7 million sq. ft., its operational hospitals have 2,467 installed beds.
The company was founded by Dr. Naresh Trehan, a world-renowned cardiovascular and cardiothoracic surgeon. He has been awarded the prestigious Padma Bhushan and the Padma Shri, the third and fourth-highest civilian awards in India, and the BC Roy award, in recognition of his distinguished contribution to medicine.
The company’s hospital at Gurugram was ranked as the best private hospital in India for three 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 2022 by Newsweek.
The company’s primary source of revenue is from IPD admission, which amounted to Rs 1194.12 crore, Rs 1186.53 crore, Rs 1740.59 crore, Rs 403.20 crore and Rs 492.34 crore accounting for 80.65%, 83.69%, 82.87%, 85.21% and 82.60% of total income from healthcare services in Fiscals 2020, 2021 and 2022, and the three months ended June 30, 2021, and 2022, respectively.
India’s bed density (bed count per 10,000 population) is of 15 beds (as for 2021) not only falls far behind the global median of 29 beds but also lags other developing countries such as Brazil (21 beds) and Malaysia (19 beds) as of 2017. It states that with its population growing at almost 1% annually, India is expected to have more than 1.4 billion people by 2026, stressing the need for increased number of hospital bed capacity. To serve Indian and international patients, the company has gradually grown the number of beds to 2,467 installed beds as on June 30, 2022. Further, the outpatient department facility of Patna hospital was launched in 2020 and the inpatient department facility of Patna hospital was inaugurated in October 2021 and commenced operations during FY 2022.
As on June 30, 2022, the company’s Patna hospital had 228 installed beds and is designed to accommodate over 500 beds. Additionally, its hospital in Noida is under construction and intended to commence operation during FY2025, with an expected installed capacity of 300 beds.
The company intends to carefully increase its bed capacity in existing facilities as well as consider utilizing the land available for ancillary services. It expects the number of total installed beds to exceed 3,500 at the end of FY 2025, which will cater to domestic and international patients as part of its strategy to capitalize on medical tourism.
In FY2021, the company took the out-patient department pharmacies in-house at its Gurugram, Lucknow, Indore, and Ranchi hospitals, and launched outpatient department pharmacy at south Delhi clinic and home care services in Gurugram and New Delhi.
Its pharmacies provide convenient access to necessary pharmaceuticals for patients. For home-care services, the company has scaled up its telemedicine and remote delivery of healthcare services, and the monthly average consultation via video and telephone in Gurugram increased by 1,419.33% from 419 in FY 2020 to 6,366 in FY 2021 and by 33.60% to 8,505 in FY 2022 and was 5,070 in the three months ended June 30, 2022.
The company intend to extend its clinical services outside the hospital by growing home care business across sample collection, medicine delivery and all possible aspects of care at home. Company also intends to expand the delivery of care both before and after acute interventions by focusing on preventive health and wellness as well as post hospitalization continuing care and lifetime management of patients (particularly for those suffering from chronic diseases).
Offer and its objects
The IPO comprises fresh issue of equity shares worth up to Rs 500 crore and an offer for sale of Rs 1705.57 crore by existing shareholders Anant Investments and Sunil Sachdeva.
The price band for the IPO is Rs 319 to Rs 336 per equity share of face value Rs 2 each.
The objectives for the fresh issue include Investment of Rs 375 crore in two subsidiaries, GHPPL and MHPL, in the form of debt or equity for repayment/prepayment of borrowings and remaining amount will be used for general corporate purposes.
The promoter is Dr. Naresh Trehan. Promoters and promoter group hold an aggregate of 88,725,240 equity shares, aggregating to 35% of the pre-offer issued and paid-up equity share capital. The post IPO shareholding for the same is expected to be around 33.08%.
The issue, through the book-building process, will open on 3rd November 2022 and will close on 7th November 2022.
The company has a track record of strong financial performance. In FYs 2020, 2021 and 2022 and the three months ended June 30, 2021, and 2022, the company generated income from healthcare services of Rs 1480.57 crore, Rs 1417.84 crore, Rs 2100.39 crore, Rs 473.21 crore and Rs 596.08 crore, respectively. Revenue grew at a CAGR rate of 19.11% from FY2020 to FY2022.
Global health is leading tertiary and quaternary care provider in India and is recognized for clinical expertise in particular dealing with complicated cases.
The company is the only private hospital in India to feature in Newsweek’s list of the top 200 global hospitals in 2021. It has achieved this leadership position by the focusing of its experienced doctors on treating complicated cases and ensuring at the same time the best quality of care.
The company is focused on clinical research and academics. Doctors associated with its hospitals have published 451 peer reviewed indexed journal publications between January 2021 and June 2022.
The company is currently working with Qure.ai to develop artificial intelligence algorithms with the aim of increasing productivity, improving the accuracy and speed of medical diagnoses, particularly in radiology scans.
The company has adopted a ‘doctor-led’ model of management. As on June 30, 2022, the company has a team of more than 6,000 medical professionals, including over 1,300 doctors and over 3,700 nurses and over 1,000 paramedical personnel. This doctor-driven culture of the organization has allowed it to attract and retain some of the clinical leaders in India.
The company has chain of large-scale hospitals with sophisticated infrastructure, medical equipment, and technology. Its greenfield hospital at Gurugram has been designed with a focus on creating a safe and efficient environment for patient treatment. Its Infrastructure and latest technology have improved operational efficiency.
The company took swift measures to manage the costs and liquidity in response to the shocks of covid-19, such as (1) reduction in salaries for senior and middle management employees, (2) negotiation with property owners/vendors for waiver/reduction in costs during impacted period, and (3) tying up fresh working capital facility for meeting short-term liquidity gaps.
The company has well-balanced mix of mature hospitals, developing hospitals and under-construction hospitals.
The management is focused on under-served areas with dense population as it presents significant room for medium-term growth and profit margin expansion. Further, strategic locations in these key underserved areas provide more opportunities to attract a wide base of patients.
The company is exploring long-term arrangements with hospitals for managing specific specialities to promote an asset-light strategy for operations and management. Additionally, the company has inherent advantage of expanding services in existing facilities and diversification into new services, including digital health.
The company is led by a dedicated and experienced management team. Its management team members have industry and technical knowledge as well as management expertise gained from their long tenure and wide exposure in the healthcare industry.
The company’s business has been materially and adversely affected due to the ongoing Covid-19 pandemic. Stringent restrictions to slow down the spread of Covid-19, including limitations on international and local travel could have a negative impact on its business. In FYs 2020, 2021 and 2022, and the three months ended June 30, 2021, and 2022, income from health care services derived from international patients amounted to Rs 170.02 crore, Rs 56.24 crore, Rs 93.16 crore, Rs 17.11 crore and Rs 32.95 crore, respectively, accounting for 11.22%, 3.95%, 4.44%, 3.62% and 5.53%, respectively.
Subsidiary MHPL incurred losses in FYs 2020 and 2021, and subsidiary GHPPL incurred losses in FYs 2020, 2021 and 2022, and in the three months ended June 30, 2021, and 2022. To continue operations, it may need financial support in the form of debt or equity.
The company’s performance is highly dependent on doctors, nurses, and other healthcare professionals. Its business will be impacted significantly in case the company is unable to attract / retain such professionals.
The company operate in an industry with high expenses such as manpower, infrastructure and medical equipment maintenance and repair costs, ancillary items, and pharmaceuticals. Any failure to pass on such costs to the patients may have a material adverse impact on business.
Any failure to maintain or improve admissions/occupancy rates may result in an ineffective deployment of capital expenditure and reduce profit margins. Its occupancy rate was 54.85% in Fiscal 2020, which decreased to 51.57% in FY2021, primarily due to the Covid19 pandemic. However, despite this decline in occupancy rates, costs did not have a corresponding decrease.
Its under-construction facilities may experience delays in construction.
Healthcare providers are subject to a wide variety of governmental, state and local environmental laws and regulations. Non-compliance with regulations applicable to the healthcare industry and environmental regulations may subject the company to fines and adversely affect its business.
The company sources major medical supplies, pharmaceuticals and equipment from third-party suppliers and sub-contractors. Termination or non-renewal of such contracts could have a material adverse impact on its business.
There are certain outstanding legal proceedings involving the company, its directors, subsidiaries, and promoter, which are pending at different levels of adjudication before various courts, tribunals, and other authorities. Any adverse outcome may adversely affect business and reputation.
The company may face delays in receiving payment of outstanding dues from third parties. The primary collection risk of account receivables relates to the failure by individual patients, corporate customers, and their healthcare insurers to pay in a timely manner and in full for the services. In FYs 2020, 2021 and 2022, the trade receivables turnover ratio was 9.58, 10.23 and 13.81, respectively, while in the three months ended June 30, 2021, and 2022, the trade receivables turnover ratio was 3.35 and 3.21, respectively.
For the quarter ended June 2022, consolidated sales were up by 27.13% to Rs 617.21 crore compared to the quarter ended June 2021. The OPM increased by 91 bps to 21.44% which led to 32.74% increase in operating profit to Rs 132.31 crore. Other income increased 53.18% to Rs 9.33 crore, while interest cost rose 14.32% to Rs 18.53 crore and depreciation increased 15.03% to Rs 36.08 crore. PBT increased 49.56% to Rs 87.03 crore. Tax expenses for the June 2022 quarter was Rs 28.32 crore compared to tax expense of Rs 16.43 crore in June 2021. Net profit rose 40.60% to Rs 58.71 crore.
For FY2022, consolidated sales were up by 49.76% to Rs 2166.59 crore compared to FY2021. The OPM increased by 756 bps to 20.79%, which led to 135.35% increase in operating profit to Rs 450.53 crore. Other income increased 24.87% to Rs 39.23 crore, while interest cost rose 18.33% to Rs 79.49 crore and depreciation increased 5.27% to Rs 129.71 crore. PBT increased 764.33% to Rs 280.56 crore. Tax expenses for FY22 was of Rs 84.36 crore compared to tax expense of Rs 3.66 crore in FY21. Net profit rose 581.25% to Rs 196.20 crore.
The TTM EPS on post-issue equity works out to Rs 7.95. At the upper price band of Rs 336, P/E works out to 42.28.
As of 31 October 2022, its listed peers such as Apollo Hospitals Enterprise traded at TTM P/E of 73.22, Fortis Healthcare at TTM P/E of 50.14, Max Healthcare Institute at TTM P/E of 68.25 and Narayana Hrudayalaya at TTM P/E of 42.44.
For FY2022, Global Health’s OPM and ROE stood at 20.79% and 12.14% respectively, compared to 14.90% and 18.77% for Apollo Hospitals Enterprise, 18.70% and 8.98% for Fortis Healthcare, 23.97% and 9.63% for Max Healthcare Institute and 17.66% and 22.96% for Narayana Hrudayalaya, respectively.