Shanmuga Hospital BSE SME IPO review (May apply)

•    The company is a 151 bed local treatment multispecialty hospital operating in Salem.
•    It posted inconsistency in its top and bottom lines for the reported periods. 
•    Based on recent financial performance, the issue appears fully priced.
•    Well-informed/cash surplus investors may park moderate fund for medium to long term.

ABOUT COMPANY:
Shanmuga Hospital Ltd. (SHL) is a Multispecialty Hospital, was strategically established in Salem. Equipped with advanced healthcare technology and having 151 bed capacity, it addresses the community’s medical needs, serving patients from nearby regions. Accredited by the National Accreditation Board for Hospitals and Healthcare (NABH Accredited) and National Accreditation Board for Testing and Calibration Laboratories ("NABL Accredited"), hospital is committed to
high-quality healthcare services, including prevention, treatment, and rehabilitation.

Its medical facility encompasses an Oncology Unit, High Dependency Unit (HDU), Emergency Department (ED), Outpatient Consultation Services, Cardiac Care Unit (CCU), Intensive Care Unit (ICU), Neonatal Intensive Care Unit (NICU), Labour Room, Endoscopy Room, Neurosurgery Unit, and Cardiac Unit. The Diagnostic Centre features advanced laboratory and imaging technologies such as X-Ray, Ultrasound, Computed Tomography (CT) scan, Magnetic Resonance Imaging (MRI), and modular operational theatres. Providing extensive inpatient and outpatient care across various Medical and Surgical specialties, its facility is well-equipped to meet diverse healthcare needs. 

It is associated with Government Agencies, Companies and Organizations for providing health care facilities to their employees and their dependants.  Additionally, SHL is empanelled with the insurance and TPA providers. Patients can get easier access to affordable healthcare and quality treatment. These initiatives have been undertaken by it keeping the patient’s needs in mind. As of January 31, 2025, it had 249 employees on its payroll and 71 doctors on its panel.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3818000 equity shares of Rs. 10 each at a fixed price of Rs. 54 per share to mobilize Rs. 20.62 cr. The issue opens for subscription on February 13, 2025, and will close on February 17, 2025. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.05% of the post-IPO paid up equity capital of the company. The company is spending Rs. 2.26 cr. for this IPO process, and from the net proceeds of the issue, it will utilize Rs. 14.53 cr. for capex on purchase of additional medical equipment, and Rs. 3.83 cr. for general corporate purposes. 

The issue is solely lead managed Finshore Management Services Ltd., and Integrated Registry Management Services (P) Ltd. Is the registrar to the issue, Black Fox Financials Pvt. Ltd., is the market maker. 

The company has issued entire initial equity shares at par value. It has also issued bonus shares in the ratio of 80 for 1 in May 2023, and 1 for 2 in February 2024.  The average cost of acquisition of shares by the promoters is Rs. 0.08 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 9.80 cr. will stand enhanced to Rs. 13.61 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 73.51 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 41.47 cr. / Rs. 6.72 cr. (FY22), Rs. 39.50 cr. / Rs. 4.76 cr. (FY23), and Rs. 43.39 cr. / Rs. 5.26 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 2.39 cr. on a total income of Rs. 24.83 cr. It marked inconsistency in its top and bottom lines for the reported periods.

For the last three fiscals, the company has posted an average EPS of 5.47 and an average RoNW of 44.64%. The issue is priced at a P/BV of 2.71 based on its NAV of Rs. 19.94 as of September 30, 2024, and at a P/BV of 1.83 based on its posts-IPO NAV of Rs. 29.49 per share. 

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 15.34. Based on FY24 earnings, the issue is at a P/E of 10.89. The issue relatively appears fully priced based on its recent financial performance. 

For the reported periods, the company has posted PAT margins of 16.20% (FY22), 12.06% (FY23), 12.13% (FY24), 9.64% (H1-FY25), and RoCE margins of 125.69%, 42.72%, 35.89%, 15.09%, 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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Asarfi Hospital, Family Care Hospitals, Aashka Hospitals, as their listed peer. They are trading at a P/E of NA, 0.81, and 65.8 (as of February 07, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 30th mandate from Finshore Management in the last four fiscals. Out of the last 10 listings, 1 opened at par, and the rest listed with premiums ranging from 7.41% to 94.44% on the date of listings.