Krsnaa Diagnostics IPO Financial Analysis (Subscribe)

Key Business Highlights

One of the largest differentiated diagnostic service providers in India. Krsnaa Diagnostics is engaged in providing a range of technology-enabled diagnostic services such as imaging (including radiology), pathology/clinical laboratory, and teleradiology services to public and private hospitals, medical colleges, and community health centres pan-India. It works on the PPP model with governments and partners with private hospitals.

Extensive geographical footprint across India. The Issuer has a network of diagnostic centres spanning in 13 states and as of June 30, 2021; it is present in over 1,800 locations. The company has established 1,370 radiology diagnostic centres and 487 pathology diagnostic centres including 443 collection centres since its inception in the year 2010.

Robust operating model and competitive pricing to attract customers. PPP agreements, to deploy diagnostic centres for radiology and pathology services are typically long-term contracts that ensure visibility of revenues from operations. Cost efficient operations help to bid at competitive prices thereby allowing conversion of bids into projects.

Krsnaa Diagnostics IPO Financial Review

Total Income for FY21 increased substantially by 51% to Rs 661.48 crore as against Rs 271.38 crore for FY20. This substantial increase was due to a significant increase in testing volumes for Covid-19. There was also one time gain on fair value movement of compulsorily convertible preference shares. As per the management, this item would not appear in the coming years. Hence, Krsnaa Diagnostics posted an adjusted EBITDA margin of 26% and a net margin of 8% for FY21.

Table 1 - Financials and Ratios (Amount in INR Crore)
Particulars	FY21	FY20	FY19
Total Revenue	408.7	271.38	214.32
PAT	82.05	-111.95	-58.06
EBITDA	106.05	75.77	63.00
Total Assets	604.53	629.98	528.99
Adjusted EBITDA Margin	25.95%	27.92%	29.40%

Return on net worth was 79.76% as of 31^st March 2021. Debt to equity was 0.85 as of 31^st March 2021.

Valuation

The Issue is priced at 78 times its earnings based on EPS of 12.25 as of 31^st March 2021 calculated at the upper price band of Rs 954 per share. The industry P/E average is 86; this indicates that the Issue is aggressively priced. P/BV of the Issue comes at 11.19 at NAV of Rs 85.27 per share. It should be noted that the Issuer has a negative average P/E if average EPS (-12.41) for the last three fiscals is considered.

The peers of the company are Metropolis health care and Dr.Lal Pathlabs Limited as per the RHP.

Conclusion

The PPP segment of healthcare services is a large target market, representing a huge market opportunity. Going forward, this market is expected to grow at a CAGR of 14% and 17% between FY21-FY23 on the back of higher government spending in the PPP segment. This year has bought one-time gains to the pharmaceutical companies in the form of increased revenues. Whether these companies would be able to sustain their revenues in the future years is a major concern.

Krsnaa Diagnostics is a geographically well-diversified and unique diagnostic service provider. It runs the unique model of the PPP segment as well as has tie-ups with several private sector hospitals. It has a robust business model with a cost-competitive advantage though it’s still to establish a strong financial track record. Hence, taking into account the above factors, investors may subscribe to the Issue.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 30th Jul 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.