Chandan Healthcare NSE SME IPO review (Apply)

•    The company is a diagnostic service provider in the northern region.
•    It covers pathological and radiological testing services under one roof.
•    The company marked steady growth in its top and bottom lines for the reported periods.
•    The boost in bottom lines from FY24 onwards is attributed to break-even by its new centers established in the last three years.
•    Based on its recent financial performances, the issue appears lucratively priced.
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Chandan Healthcare Ltd. (CHL) runs a diagnostic network in North India with pathology and radiology testing services. As of December 31, 2024, it had one flagship laboratory, nine central laboratories, twenty-seven satellite centres, more than three hundred collection centres and located in Jaipur and across Uttar Pradesh and Uttarakhand, with facilities in more than 23 cities and towns across Uttar Pradesh and more than 19 cities and towns in Uttarakhand. 

Out of its various laboratories, eight are National Accreditation Board for Testing and Calibration Laboratories (“NABL”) accredited while three of our diagnostic centres have National Accreditation Board for Hospitals & Healthcare Providers (“NABH”) accreditation. In Fiscal 2025, till December 2024 it carried out around 55.79 lakhs tests on about 17.11 lakh patients’ where it derived about 70.04% of the revenue from operations in regions of Uttar Pradesh.

As of December 31, 2024, it provides a wide range of 1,496 tests across different specialties. CHL’s test menu includes (a) 481 routine pathology tests, covering basic biochemistry and hematology, as well as 1,015 specialized pathology tests, such as immohisto pathology, and molecular pathology, and (b) 545 radiology tests, including basic x-rays, ultrasonography (“USG”), computed tomography (“CT”), magnetic resonance imaging (“MRI”), and specialized CT scans. Its radiology facilities have eleven CT scanners and four MRI machines. For the period ended December 2024, its sale of products accounted for 47.00% of total revenue, pathology services made up 34.22% of total revenue, while radiology services accounted for 18.77% of total revenue.

A significant portion of its revenue is derived from B2B segment i.e. sales to corporate clients. For the period ended December 31, 2024 and in the fiscal years 2024, 2023, and 2022, 62.31%, 65.87%, 68.30%, and 44.17% of total revenue, respectively, came from this segment. Additionally, B2G segments accounted for 26.18%, 23.86%, 20.66%, and 5.38% of total revenue for the same period. A portion of revenue comes from the B2C segment, which includes individual patients who visit its diagnostic labs, collection centres, or use home collection services. The success of business relies on the recognition and reputation of its brand. For the period ended December 31, 2024 and for the Fiscal 2024, 2023, 2022 the B2C segment accounted for 37.69%, 34.13%, 31.70% and 55.83%, respectively, of total revenue.

It has adopted a clusters and collection points model i.e. grouping of nearby patients or laboratories or clinics into clusters and collecting samples at those designated points, then transporting them in bulk to a central laboratory for processing, this enhances its economies of scale, ensures greater consistency in testing procedures, and boosts its brand presence by reaching more customers in remote areas. Samples are collected from various locations within a cluster and transported to laboratories for diagnostic testing.

As of December 31, 2024, it had a team of 15 radiologists, 23 pathologists, and more than 161 qualified professionals including clinicians, technicians and operators. CHL continues to make investments in equipment and in technology platform, to ensure they meet requisite industry standards and accreditations like NABL and NABH. As of December 31, 2024, it had overall 1142 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of 6752000 equity shares to mobilize Rs. 107.36 cr. (at the upper cap). The company has announced a price band of Rs. 151 – Rs. 159 per share of Rs. 10 each. The issue consists of 4452064 fresh equity shares (worth Rs. 70.79 cr. at the upper cap), and an Offer for Sale (OFS) of 2299936 shares (worth Rs. 36.57cr. at the upper cap). The issue opens for subscription on February 10, 2025, and will close on February 12, 2025. The minimum number of shares to be applied is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.61% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 32.82 cr. for setting up of a new flagship diagnostic centre in Jankipuram – Lucknow, Rs. 7.10 cr. for setting up of a new central reference lab at Ayodhya, Rs., Rs. 7.10 cr. for setting up of a new central reference lab at Ashiyana – Lucknow, and the rest for general corporate purposes. 

The company has reserved 245600 equity shares for its eligible employees and 339200 shares for the Market Maker.  From the rest, it has allocated not more than 50x% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The IPO is solely lead managed by Unistone Capital Pvt. Ltd., KFin Technologies Ltd., is the registrar to the issue. R K Stockholding Pvt. Ltd., is the Market Maker for the company. R K Stockholding Pvt. Ltd. is a syndicate member. 

The company has issued/converted entire initial equity shares at par value so far. The average cost of acquisition of shares by the promoters is Rs. 2.38, Rs. 3.43, Rs. 10.00, and Rs. 10.52 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 20.00 cr. will stand enhanced to Rs. 24.45 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 388.79 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit/ - (loss) of Rs. 119.92 cr. / Rs. – (1.09) cr. (FY22), Rs. 137.03 cr. / Rs. 3.59 cr. (FY23), and Rs. 177.96 cr. / Rs. 16.36 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 17.42 cr. on a total revenue of Rs. 167.99 cr. 

According to the management, their hub and spoke model for penetrating in to tire-II and tire-III cities of all major districts of Norther region has yielded the desired rewards and helped them to sustain the margin growth shown for the recent fiscals. It has plans to expand its operations in other states in coming two to three years. It provides all short of medical tests under one roof at an affordable and competitive rates.

For the last three fiscals, the company has reported an average EPS of Rs. 4.54 and an average RoNW of 23.10%. The issue is priced at a P/BV of 5.86 based on its NAV of Rs. 27.15 as of December 31, 2024, but the document and the IPO price band ad is missing its post-IPO NAV data.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.74. Based on FY24 earnings, the P/E stands at 23.08. Based on its recent earnings, prima facie, the issue relatively appears lucratively priced. 

For the reported periods, the company has posted PAT margins of – (0.91) % (FY22), 2.62% (FY23), 9.26% (FY24), 10.40% (9M-FY25), and RoCE margins of 1.34%, 15.61%, 35.20%, 27.17%, for the referred periods, respectively.

DIVIDEND POLICY:
The company has paid a dividend of 5% (FY22), 10% (FY23), and 15% (FY24). It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Vijaya Diagnostic, Dr Lal Pathlabs, and Metropolis Healthcare, as their listed peers. They are trading at a P/E of 88.7, 56.0, and 60.9 (as of February 05, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 23rd mandate from Unistone Capital in the last three fiscals.  Out of the last 10 listings, all listed at premiums ranging from 8.43% to 86.62% on the date of listing. The track record data of its past mandate on page no. 367 of the offer document has garbled data.