GPT Healthcare

Key healthcare player in Eastern India

Generates more than 90% of its revenue from private patients

GPT Healthcare operates a chain of mid-sized full-service hospitals under the same brand and provides integrated healthcare services, with a focus on secondary and tertiary care. As of September 30, 2023, the company operated four multispecialty hospitals in Dum Dum, Salt Lake, and Howrah in West Bengal and Agartala in Tripura, with a total capacity of 561 beds.

The company offers comprehensive range of healthcare services across over 35 specialties and superspecialties, including internal medicine and diabetology, nephrology (including renal transplants), laparoscopic and general surgery, gynaecology and obstetrics, critical care, gastroenterology, orthopedics and joint replacements, interventional cardiology, neurology, neurosurgery, pediatrics, and neonatology. In the Fiscal Years 2023, 2022, 2021 and the six months ended September 30, 2023, and September 30, 2022, its top 10 services contributed to 89.97%, 86.84%, 82.79%, 90.44% and 90.12% of revenue, respectively.

The hospitals are strategically located in densely populated cities of Kolkata (West Bengal) and Howrah (West Bengal), providing the company an understanding of regional nuances, patient culture and the mindset of medical professionals. In H1 FY2024, the company’s outpatient revenue contributed 16.78% and inpatient 83.22% to the total revenue.

Going forward, company plans to expand its hospital network to Eastern India. It signed an MoU in January 2023 for a hospital with 152 beds in Raipur (Chhattisgarh), with an estimated capital outlay of Rs 55 crore. The hospital at Raipur will be on an asset-light basis. The company will incur capital expenditure only on plants and machinery, resulting in a capital-efficient model. The company expects to commence operations of the hospital in Raipur in 2025.

In addition, the company signed an MoU and a long-term lease agreement for a hospital with 140 beds in Ranchi (Jharkhand), costing Rs 50 crore. This hospital will also be on an asset-light basis, the company expects to commence its operations in 2026.

In the Fiscal Years 2023, 2022, 2021, and for the six months ended September 30, 2023, and September 30, 2022, its four hospitals recorded ARPOB of Rs 29,671, Rs 29,253, Rs 24,681, Rs 32,979, and Rs 29,295, respectively.

For the Fiscal Years 2023, 2022, and 2021 and for the six months ended September 30, 2023, September 30, 2022, the company recorded a bed occupancy rate of 58.92%, 56.36%, 48.00%, 59.92%, and 56.72%, respectively, and an ALOS of 4.22 days, 4.80 days, 5.56 days, 3.98 days, and 4.17 days, respectively, on an aggregate basis.

The company does not depend on occupancy from government schemes or corporate tie-ups. To illustrate, revenue from private patients comprised 94.74%, 94.63%, 87.90%, 92.48% and 95.36% of company’s revenue in Fiscal Years 2023, 2022, 2021 and for the six months ended September 30, 2023, and September 30, 2022, respectively. While revenue from patients availing government schemes contributed 1.49%, 1.42%, 8.45%, 3.50% and 1.10%, respectively, and patients under corporate tie-ups contributed 3.77%, 3.95%, 3.65%, 4.01%, and 3.54%, respectively.

The company’s revenue is diversified across specialties, hospitals, and doctors. In the Fiscal Years 2023, 2022 and 2021 and the six months ended September 30, 2023, and September 30, 2022, respectively, the company derived 18.42%, 25.20%, 29.66%, 17.34% and 17.68% from internal medicine and diabetology, 19.29%, 14.70%, 12.08%, 22.60% and 19.08% from nephrology, including renal transplants, 13.41%, 11.35%, 7.64%, 14.36% and 14.71% from laparoscopic and general surgery, 7.79%, 5.93%,5.20%, 6.91% and 7.78% from gynaecology and obstetrics, 7.47%, 5.45%, 5.19%, 6.90% and 8.32% from gastroenterology, 5.90%, 5.24%, 3.46%, 6.60% and 5.86% from orthopaedics and joint replacement, 5.75%, 5.54%, 4.44%, 4.08% and 5.77% from interventional cardiology and 21.97%, 26.59%, 32.33%, 21.21% and 20.80% from other specialties, respectively.

Going forward, the company intends to strengthen its existing hospitals by further balancing specialty mix, deepening its expertise in selective specialties and adding new specialties and services.

The company is developing a healthcare mobile application, the ILS-MyHealth for optimizing patient heath management, which is expected to be launched in the Fiscal Year 2024. The application is being designed to enable seamless booking of appointments without any human intervention. It is also expected to enable patients to access their medical information, and all the information related to its hospitals on a real time basis.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 40 crore and an offer for sale of 2,60,82,786 equity shares aggregating up to Rs 485.14 crore by BanyanTree Capital Growth II, LLC.

The price band of the IPO is Rs 177 to Rs 186 per equity share of face value Rs 10 each.

The objectives for the fresh issue include Rs 30 crore for repayment/prepayment of certain borrowings and the remaining amount is to be used for general corporate purposes.

Promoters of the company are GPT Sons, Dwarika Prasad Tantia, Dr. Om Tantia and Shree Gopal Tantia. The promoters and promoter group hold an aggregate of 53,806,500 equity shares, aggregating to 67.34% of the pre-offer issued and paid-up equity share capital. The post IPO shareholding for the same is expected to be around 65.57%.

The issue, through the book-building process, will open on 22 February 2024 and will close on 26 February 2024.

Strengths

The company’s hospitals are in underpenetrated and densely populated markets. Eastern India has a concentration of five doctors per 10,000 individuals and 12.7 nurses per 10,000 individuals, which is the lowest concentration of doctors and nurses of all regions in India. The company is well positioned to meet strong demand potential for healthcare services in Eastern India.

There is a significant and growing need for quality and affordable healthcare services in India. The healthcare delivery market in India is expected to grow at a CAGR of 9%-11% between Fiscal Years 2024 and 2028 and reach Rs 9.2-9.3 trillion in Fiscal Year 2028. The company is well placed to capitalize on the expected growth in the healthcare sector due to its capital light model, brand presence and deep understanding of the regional markets.

The company’s operations are well-diversified across various specialties, with a significant portion of revenue being generated from private insurance and walk-in cash patients, indicating a strong preference for their services.

The company’s hospitals are mid-sized, which enables it to incur lower capital expenditure per bed in comparison to other secondary care hospitals in India. Right sizing has enabled the company to achieve monthly Ebitda break-even within nine to ten months. For instance, the Howrah Hospital commenced operations in September 2019 and reported positive EBITDA beginning May 2020, while the Dum Dum Hospital commenced operations in March 2013 and reported positive EBITDA beginning January 2014.

The company demonstrated strong operating performance and growth over the past three fiscals. Its revenue grew at a CAGR of 21.95% in the period between Fiscal Year 2021 and Fiscal Year 2023. Similarly, revenue (ex-COVID) grew at a CAGR of 53.87% over Fiscal Year 2021 to Fiscal Year 2023.

The company has the capacity to attract, train and retain quality medical professionals. In FY2023, the attrition rate for its doctors and nurses was only 11.83% and 22.45%, respectively.

The company’s focus is on quick break-even, profitability and high return on capital before it constructs or acquires hospitals. The company follows an asset light model, where it incurs capital expenditure only on plant and machinery resulting in high return ratios.

The company benefits from an experienced senior management team. Its senior management team has extensive healthcare industry experience led by Dwarika Prasad Tantia and Dr Om Tantia, who are also the founding members of the ILS Hospitals brand.

Eastern India is geographically well positioned for medical value travel from Bangladesh, Nepal and Bhutan, owing to the lower average cost of treatment for healthcare services. Further, Kolkata’s cultural similarities act as a key driver for attracting medical tourists from Bangladesh, who comprised 57% of all medical tourists visiting India in 2019. The company is well placed to capture volumes from adjoining jurisdictions.

Weaknesses

The company derives approximately 70% of its revenue from three hospitals situated in West Bengal. Any change in the economic or political conditions of West Bengal could materially affect the business.

Ishwari Prasad Tantia, one of the members of Promoter Group, was published in the list of Wilful Defaulters by certain financial institutions. Additionally, the company has been involved in an instance of regulatory non-compliance in the past. Any adverse order or penalty by any bank, RBI, or SEBI, against any entity or promoter could have an impact on business.

The company operates in a heavily regulated industry and is required to obtain many approvals and licenses from governmental and regulatory authorities. Any regulatory changes or violations of such rules may adversely affect business.

The company’s bed occupancy rate is lower than some of its listed peers. If the company is unable to maintain bed occupancy rates at sufficient levels, it may not be able to generate adequate returns.

The company’s profitability is susceptible to the cost of medical consumables, pharmacy items, drugs, and surgical instruments. The complex nature of the treatments and procedures performed at its hospitals requires it to invest in new technology and equipment from time to time, which is generally expensive.

The company may experience delays in construction/commencement of proposed hospitals or may not be successful in expanding its operations to other parts of India.

Valuation

During H1 FY2024, consolidated sales were up by 18.73% to Rs 204.18 crore compared to H1 FY2023. The OPM increased by 368 bps to 21.39%, which led to 43.42% increase in operating profit to Rs 43.67 crore. Other income increased 0.60% to Rs 2.52 crore, while interest cost fell 12.37% to Rs 3.82 crore and depreciation increased 25.47% to Rs 8.72 crore. PBT increased 55.45% to Rs 33.65 crore. Tax expenses for H1 FY24 were Rs 10.16 crore as compared to tax expense of Rs 4.66 crore in H1 FY23. Net profit increased 38.26% to Rs 23.49 crore.

In FY2023, consolidated sales were up by 7% to Rs 361.04 crore as compared to FY2022. The OPM decreased by 129 bps to 20.59%, which led to a 0.69% increase in operating profit to Rs 74.35 crore. Other income increased 14.15% to Rs 5.69 crore, while interest cost fell 17.84% to Rs 9.16 crore and depreciation increased 9.73% to Rs 14.91 crore. PBT increased 3.49% to Rs 55.97 crore. Tax expenses for FY2023 were Rs 16.96 crore as compared to tax expense of Rs 12.42 crore in FY2022. Net profit decreased 6.38% to Rs 39 crore.

The TTM EPS on post-issue equity works out to Rs 5.55. At the upper price band of Rs 186, P/E works out to 34.

As of 19 February 2024, its listed peers such as Global Health traded at TTM P/E of 83, Jupiter LifeLine Hospitals at TTM P/E of 62, Yatharth Hospital & Trauma Care Services at TTM P/E of 44 and Shalby at TTM P/E of 40. For FY2023, GPT Healthcare’s OPM and ROE stood at 20.59% and 23.77%, respectively, as compared to 22.72% and 10.57% for Global Health, 22.56% and 22.27% for Jupiter Life Line Hospitals, 25.71% and 35.94% for Yatharth Hospital & Trauma Care Services, and 16.99% and 7.29% for Shalby.