Nephro Care NSE SME IPO review (Avoid)

•    The company is engaged in providing healthcare services including renal insufficiency treatments.
•    It marked inconsistency in its bottom lines from FY21 to FY23 and a sudden boost for 9M-FY24 that raise eyebrows and concern over its sustainability going forward.
•    The company is operating in a highly competitive and fragmented segment. 
•    Based on its FY24 super annualized earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Nephro Care India Ltd. (NCIL) is a one stop treatment centre based in Kolkata that offers a wide range of clinical and lifestyle solutions and services and renal insufficiency treatment to patients. The treatment framework covers the entire range of lifestyle, physiological and spiritual aspects of wellness. The operations of Nephro Care are supported by a pool of expert Doctors, experienced and well-trained paramedical professionals and a skilled management team. The entire team at Nephro Care is supported by sufficient clinical and investigative infrastructure. At Nephro Care treatment regimens are planned and practiced on the basis of core scientific understanding, transparency and ethics.

Initially Nephro Care's offerings were limited to dialysis and renal OPD services delivered through 3rd party facilities of hospitals like Sahid Khudiram Bose Hospital, Fleming Hospital and Dreamland Hospital. Hence, till November 2021, the company's earnings were limited to only the share of revenue agreed upon between the 3rd party facility owner and the company. In December 2021, NCIL set up its own daycare unit at JC-18, Salt Lake with facilities for offering a wide range of services.

Its vision is to reach out to the masses through a holistic approach combining modern medicine with time tested yogic wisdom to touch the lives of one million kidney disease patients across the country by leveraging its hub-and-spoke model.

At present the company provides healthcare services to around 900 Chronic Kidney Disease Patients (CKD Patient) every month and engage over 5 permanent doctors along with 10 visiting consultants led by 70 experienced paramedical professionals from its flagship Salt Lake clinic, and three satellite clinics at Salt Lake (HB 113), Chandannagar, West Bengal (near Kolkata).

Its outpatient volume in Fiscals 2021, 2022, 2023 and the nine months ended December 31, 2023 were 4,929, 1,381, 21,287 and 26,508 (9 months) respectively. As of the date of this offer document, it had 127 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4584000 equity shares of Rs. 10 each to mobilize Rs. 41.26 cr. at the upper cap. It has announced a price band of Rs. 85 - Rs. 90 per share. The issue opens for subscription on June 28, 2024, and will close on July 02, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.80% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 26.15 cr. for setting up of a multi speciality hospital in the name of Vivacity Multi Speciality Hospital, and the rest for general corporate purposes. 

The company has reserved 225600 shares for its eligible employees and 230400 shares for Market Maker, and from the rest, it has allocated not more than 2064000 shares for QIBs, not less than 619200 shares for HNIs and not less than 1444800 shares for Retail Investors. 

The issue is solely lead managed by Corporate Capital Ventures Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. SS Corporate Securities Ltd. is the market maker for the company. 

Having issued initial equity capital at par value, the company issued further equity shares at a fixed price of Rs. 850 per share in December 2023, and has also issued bonus shares in the ratio of 19 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. NIL and Rs .0.50 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.90 cr. will stand enhanced to Rs. 16.49 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 148.38 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ -(loss) of Rs. 1.83 cr. / Rs. 0.09 cr. (FY21), Rs. 3.43 cr. Rs. - (0.01) cr. (FY22), and Rs. 17.10 cr. / Rs. 1.94 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 3.40 cr. on a total income of Rs. 19.90 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 1.72, and an average RoNW of 137.74%. The issue is priced at a P/BV of 7.69 based on its NAV of Rs. 11.70 as of December 31, 2023, and at a P/BV of 2.69 based on its post-IPO NAV of Rs. 33.47 per share (at the upper cap).

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 32.73, and based on FY23 earnings, the P/E stands at 76.27. Thus the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 4.86% (FY21), - (0.29) % (FY22), 11.36% (FY23), 17.22% (9M-FY24), and RoCE margins of 21.42%, 4.13%, 71.09%, 36.56% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 17th mandate from Corporate Capital in the last four fiscals (including the ongoing one), out of the last 10 listings, all opened with a premiums ranging from 38.46% to 245.24% on the date of listing.