KK Shah Hospitals BSE SME IPO review (Avoid)

•    KKSHL is a 26 beds hospital providing healthcare services. 
•    The company has posted minuscule financial data of just about 10 months' post conversion in a limited company.
•    Its performance is on a minuscule level and appears to be fully priced issue. 
•    There is no harm in skipping this "High Risk/Low return" issue 

ABOUT COMPANY:
KK Shah Hospitals Ltd. (KKSHL) formerly known as Jeevan Parv Healthcare Ltd. is currently operating with 26 beds hospital in Ratlam offering inpatient and outpatient healthcare services. The hospital is also equipped with diagnostic devices such as CT Scan, Dexa Scan, BMD, sonography, E-Ray machines.

As of June 30, 2023, it had a team of 12 associated doctors and 9 visiting consultants. As of the said date, it had 39 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1950000 equity shares of Rs. 10 each at a fixed price of Rs. 45 per share to mobilize Rs. 8.78 cr. The issue opens for subscription on October 27, 2023, and will close on October 31, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.64% of the post-IPO paid-up capital of the company. KKSHL is spending Rs. 0.49 cr. for this IPO process and from the net proceeds, it will utilize Rs. 7.29 cr. for purchase of medical equipment, and Rs. 1.00 cr. for general corporate purposes. 

The issue is jointly lead managed by Fedex Securities Pvt. Ltd. and Shreni Shares Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs.839 - Rs. 1510 per share in December 2022 and February 2023. It has also issued bonus shares in the ratio of 80 for 1 in February 2023. The average cost of acquisition of shares by the promoters is Rs. 9.16 and Rs. 14.33 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 4.86 cr. will stand enhanced to Rs. 6.81 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 30.64 cr. 

FINANCIAL PERFORMANCE:
As per the restated financial data post conversion in to the public limited company, it has posted a total revenue/net profit of Rs. 2.14 cr. / Rs. 0.22 cr. (FY23 - for a period from 25.08.22 to 31.03.23)) and Rs. 1.62 cr. / Rs. 0.10 cr. (Q1-FY23). 

Under the banner of Shah Hospital, it has posted a total income/net profit of Rs. 3.47 cr. / Rs. 0.63 cr. (FY20), Rs. 3.27 cr. / Rs. 0.38 cr. (FY22), and Rs. 5.05 cr. / Rs. 0.49 cr. (FY23). For fY23 - from 01.04.22 to 15.12.2022) it earned a net profit of Rs. 0.82 cr. on a total income of Rs. 4.12 cr. 

For the fiscal 2023, it posted an EPS of Rs. 0.45 and RoNW of 4.28%. The issue is priced at a P/BV of 4.21 based on its NAV of Rs. 10.68 as of June 30, 2023, and at a P/BV of 2.27 based on its post-IPO NAV of Rs. 19.79 per share. 

If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 8.04. Thus the issue appears reasonably priced, but it operates at a minuscule levels and raises concern over the sustainability of margins going forward. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown Family Care Hospitals, Shalby, KMC Speciality, Global Longlife as their listed peers. They are trading at a P/E of 7.68, 30.39, 46.69, and 21.78 (as of October 25, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This issue is jointly lead managed by Fedex Securities and Shreni Shares. This is the 22nd mandate from Fedex in the last four fiscals. Out of the last 10 listings, 3 opened at discount and the rest with premiums ranging from 6.49% to 76.19% on the day of listing, and from Shreni Shares this is the 23rd mandate in the last three fiscals, out of the last 10 listings 1 opened at discount and the rest with premiums ranging from 4.94% to 143.24% on the day of listing.