Krishna Institute (KIMS) IPO review (May apply)

•    KIMS is one of the largest corporate healthcare group in the southern region.
•    The issue consists of 90% OFS portion.
•    The company has posted growth in its top and bottom lines for the last three fiscals.
•    Based on P/E and P/BV parameters, the issue is fully priced.
•    Investment with a long term perspective may be considered.


PREFACE:
After mega IPO of Sona BLW with approx. 94% OFS (Offer for sale) portion, we have yet another IPO where the OFS portion is a little over 90%. Both these issues had only a 10% quota for retail investors. For both these IPOs, QIBs and HNIs will have a masterstroke, opines observers. As per market sources, NBFCs are competing to lure HNIs with lower interest rate funding options, and thus it would be interesting to see the final tally for these two IPOs in particular and the other IPOs in general.

ABOUT COMPANY:
Krishna Institute of Medical Sciences Ltd.  (KIMS) is one of the largest corporate healthcare groups in AP and Telangana in terms of the number of patients treated and treatments offered, according to the CRISIL Report commissioned by it. KIMS provides multi-disciplinary integrated healthcare services, with a focus on primary secondary & tertiary care in Tier 2-3 cities and primary, secondary, tertiary and quaternary healthcare in Tier 1 cities.

The company operates 9 multi-speciality hospitals under the 'KIMS Hospitals' brand, with an aggregate bed capacity of 3,064, including over 2,500 operational beds as of March 31, 2021, which is 2.2 times more beds than the second-largest provider in AP and Telangana, according to the CRISIL Report commissioned by it. The company offers a comprehensive range of healthcare services across over 25 specialities and super specialities, including cardiac sciences, oncology, neurosciences, gastric sciences, orthopaedics, organ transplantation, renal sciences and mother & child care.

It has grown from a single hospital to a chain of multi-speciality hospitals through organic growth and strategic acquisitions. Its first hospital in the network was established in Nellore (AP) in 2000 and has a capacity of approximately 200 beds. The company's flagship hospital at Secunderabad (Telangana) is one of the largest private hospitals in India at a single location (excluding medical colleges), according to the CRISIL Report commissioned by it, with a capacity of 1,000 beds as of March 31, 2021. It has significantly expanded its hospital network in recent years through acquisitions of hospitals in Ongole (AP) in Fiscal Year 2017, Vizag (AP) and Anantapur (AP) in the Fiscal Year 2019 and Kurnool (AP) in Fiscal Year 2020.

Approximately one-third of its 3,064 beds were launched in the last four years. It has added over 940 beds, in aggregate, in its hospitals in Visakhapatnam (Vizag) (AP), Anantapur (AP), Rajamundry (AP) and Kurnool (AP) in Fiscal Years 2019 and 2021, and improved the overall bed occupancy rate in these hospitals from 71.83% to 78.60% in the same period.

It strategically focuses on the southern Indian healthcare market where it has a strong understanding of regional nuances, customer culture and the mindset of medical professionals and where there is a significant and growing need for quality and affordable healthcare services. Each of its hospitals also has integrated diagnostic services and pharmacies that cater to patients.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment-pre-payment of certain borrowing in full or part (Rs. 150.00 cr.) and general corpus fund, KIMS is coming out with a maiden book built IPO having fresh equity issue worth Rs. 200 cr. (approx. 2424240 equity shares) and an offer for sale of 23560538 equity shares (Rs. 1943.74 cr.) of Rs. 10 each to mobilize Rs. 2143.74 cr. (at the upper price band).  It has fixed the price band of Rs. 815 - Rs. 825 /825 and minimum application is to be made for 18 shares and in multiples thereon, thereafter. The issue opens for subscription on June 16, 2021, and will close on June 18, 2021. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 32.47% of the post issue paid-up capital of the company.

The company has reserved a portion worth Rs. 20 cr. for its eligible employees and offering a discount of Rs. 40 per share to them. From the residual part, the company has allocated 75% for QIBs, 15% for HNIs and 10% for retail investors.

Book Running Lead Managers to this issue are Kotak Mahindra Capital Co. Ltd., Axis Capital Ltd., Credit Suisse Securities (India) Pvt. Ltd. and IIFL Securities Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.

Having issued initial equity at par, the company raised further equity in the price range of Rs. 95 to Rs. 1434.72 per share between March 2004 and February 2021. It has also issued bonus shares in the ratio of 1 for 4 in February 2009, 1 for 10 in October 2013, 1 for 2 in January 2015, 1 for 1 in August 2015 and 3 for 1 in January 2016.

The average cost of acquisition of shares by the promoters is Rs. 30.43, Rs. 89.85, Rs. 95.40, Rs. 114.94 and Rs. 121.97 per share and selling stakeholders is ranging from Rs. 5.15 to Rs. 310.26 per share (refer to page 26 and 27 of the offer document).

Post issue, KIMS's current paid-up equity capital of Rs. 77.59 cr. will stand enhanced to Rs. 80.02 cr. Based on the upper cap of the issue price, the company is looking for a market cap of Rs. 6601.45 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, KIMS has (on a consolidated basis), posted turnover/net profit (loss) of Rs. 923.87 cr. / Rs. - (48.81) cr. (FY19), Rs. 1128.73 cr. / Rs. 115.07 cr. (FY20) and Rs. 1340.10 cr. / Rs. 205.48 cr. (FY21). Thus it has posted a growing pattern in its top as well as bottom lines for all these years.

For the last three fiscals, the company has, on a consolidated basis, posted an average EPS of Rs. 17.35 and an average RoNW of 16.82%. The issue is priced at a P/BV of 7.15 based on its NAV of Rs. 115.36 as of March 31, 2021, and at a P/BV of 6.21 based on its post-issue NAV of Rs. 132.92 (at the upper price band).

If we attribute FY21 earnings on post-issue fully diluted equity, then the asking price is at a P/E of around 32.13. The issue is fully priced in terms of P/E in comparison with listed peers that are trading at a negative P/E.

DIVIDEND POLICY:
As per offer documents, KIMS has not paid any dividend in the last three fiscals but will follow a prudent dividend policy based on its financial performance, future prospects and the procedure framed for the same. (refer to page 232 of the offer document).

COMPARISON WITH LISTED PEERS:
As per the RHP data, KIMS has shown Apollo Hospital, Fortis Healthcare, Narayan Hrudayalaya and Max Healthcare as its listed peers. They are currently trading at a P/E of around 00, 00, 00 and 00 (as of June 11, 2021). However, they are not truly comparable on an apple to apple basis. As all these listed peers have posted negative earnings, they are indicating 00 P/E but still finds fancy from investors across the board.

BRLM's TRACK RECORD:
The four BRLMs associated with the offer have handled 29 public offers in the past three years out of which 10 offers closed below the offer price on the listing date.