Star Imaging BSE SME IPO review

•    The company is engaged in operating diagnostic testing network primarily in and around Delhi region.
•    It added B2G and B2B model along with B2C to increase its business and earnings.
•    The company posted growth in its top and bottom lines.
•    Boosted bottom lines for FY24 onwards raise eyebrows and concern over its sustainability as it is operating in a highly competitive and fragmented segment.
•    Based on recent financial data, the issue appears fully priced.
•    Only well-informed/cash surplus investors may park moderate funds for medium term, post doing their own due diligence.

ABOUT COMPANY:
Star Imaging & Path Lab Ltd. (SIPLL) operates a diagnostic testing network, NABL accredited, delivering pathology, radiology, Cardiology, and Neurology services in Delhi (B2C, B2B & B2G model), Uttar Pradesh (B2G model), and Nasik (B2G Model) regions of India. The Company started its journey from 1978 as proprietorship under the name of Janta X-Ray Clinic and were providing X-ray and basic pathology tests using manual methods. Over the years, they have upgraded their services, equipment, and diagnostic technologies to incorporate the latest advancements in medical science, ensuring the care and improved patient outcomes. This vision led to the establishment of SIPLL in 2004, as Private Limited entity, with a vision to offer pathology, radiology, Cardiology, and Neurology services under one roof. As part of its expansion, it acquired the businesses of Janta X-Ray Clinic, M/s Star Imaging & Path Lab, and M/s Star Health Care in 2011.

The company offers a comprehensive range of diagnostic imaging services and clinical laboratory tests, including both routine and specialized studies and profiles. These services are essential for the prediction, early detection, diagnostic screening, confirmation, and monitoring of diseases. Its diagnostic imaging and radiology services encompass X-rays, computed tomography (CT) scans, magnetic resonance imaging (MRI) scans, ultrasounds, bone mineral densitometry, and mammography.

In the pathology segment, its services include biochemistry, hematology, clinical pathology, histopathology, cytopathology, microbiology, serology, and immunology. The company also operates a tele-radiology hub, which is equipped with a full suite of diagnostic imaging equipment and supported by a skilled team of radiologists. This centralized facility provides significant operational efficiencies and scalability, ensuring quality diagnostic services are delivered consistently across the network. As of March 31, 2025, it had 211 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book-building route combo IPO of 4892000 equity shares of Rs. 10 each to mobilize Rs. 69.47 cr. at the upper cap. The company has announced a price band of Rs. 135 – Rs. 142 per share. The issue consists of 3920000 fresh equity shares (worth Rs. 55.66 cr. at the upper cap), and an Offer for Sale (OFS) of 972000 equity shares (worth Rs. 13.80 cr. at the upper cap). The IPO opens for subscription on August 08, 2025, and will close on August 12, 2025. The minimum application to be made is for 2000 shares and in multiple of 1000 shares thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.08% of post-IPO paid-up equity capital of the company. From the net proceeds of the issue, the company will utilize Rs. 12.00 cr. for repayment/prepayment of certain borrowings, Rs. 5.14 cr. for capex on refurbishing medical equipments, Rs. 25.00 cr. for working capital, and the rest for general corporate purposes.

The company has reserved 480000 (9.81%) equity shares for the market maker, 52000 (0.30%) shares for its eligible employees, and from the rest, it has allocated not more than 50% for QIBs, not less than 35% for Retail investors and not less than 15% for HNIs. 

The IPO is solely lead managed by Share India Capital Services Pvt. Ltd., while KFin Technologies Ltd. is the registrar to the issue. Share India group’s Share India Securities Ltd. is the market maker. 

The company has issued entire initial equity shares at par, it also issued bonus shares in the ratio of 8 for 1 in December 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, and Rs. 0.75 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 13.50 cr. will stand enhanced to Rs. 17.42 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 247.36 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted total Revenue/Net Profit of Rs. 58.68 cr. / Rs. 0.58 cr. (FY23), Rs. 79.97 cr. / Rs. 12.45 cr. (FY24), and Rs. 83.79 cr. / Rs. 15.96 cr. (FY25). Its trade receivables of Rs. 50.69 cr. for FY25 raise alarm.

For the last three fiscals, the company has reported an average EPS of Rs. 9.04, and an average RoNW of 37.36%. The issue is priced at a P/BV of 4.07 based on its NAV of Rs. 34.93 as of March 31, 2025, but its post-IPO NAV data is missing from offer documents.

If we attribute its FY25 super earnings on post-IPO expanded equity base, then the asking price is at a P/E of 15.55, and based on its FY24 earnings, the P/E stands at 20.06. Thus, based on its recent financial data, the issue appears fully priced.

The company has posted RoCE margins of 5.77% (FY23), 29.69% (FY24), 29.92% (FY25), and PAT Margins of 0.98%, 15.72%, 19.11%, respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the last five fiscals. It will adopt a prudent dividend policy, based on its financial performances and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown Chandan Health, Vijaya Diagnostic, Metropolis Health., as their listed peer. They are trading at a P/E of around 27.6, 72.2, and 73.8 (as of August 07, 2025). However, they are not truly comparable on an apple-to-apple basis. This comparison appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORDS:
This is the 17th mandate from Share India Capital in the last three fiscals (including the ongoing one). From the last 16 listings, 2 opened at discount, 3 at par and the rest with premium ranging from 5.33% to 120% on the date of listing.