Vijaya Diagnostic IPO Financial Analysis (Avoid)

Key Business Highlights

Vijaya Diagnostics offers pathology and radiology testing services through an extensive operational network.
The Issuer has 81 diagnostic centers and 11 reference laboratories across 13 cities and towns in the states of Telangana and Andhra Pradesh and in the National Capital Region and Kolkata as of June 30, 2021.
Two of the diagnostic centers, laboratories and business premises are owned by the Company and the remaining 79 diagnostic centers are on lease.
The IPO is entirely an offer for sale. Selling shareholders are promoters of the company, Karakoram Limited and Kedara Capital Alternative Investment Fund.

Vijaya Diagnostics IPO Financial Review

Vijaya Diagnostics posted total revenues of Rs 122.69 crore (Rs 51.70 crore for Q1FY21in Q1FY22). PAT was Rs 33.33 crore for the same quarter. Total revenues increased by 10% in FY21to Rs 388.59 from Rs 354.18 crore in FY18. This was due to the increase in revenue from COVID RT-PCR tests and the commencement of operation of seven new diagnostic centers. PAT rose to Rs 84.91 crore for FY21 from Rs 62.51 crore for FY20.

The profitability margins of the Issuer have been strong for the last three fiscals. Vijaya Diagnostics has negligible debt on its balance sheet. Return on net worth is 20% for FY21.

Table 1 - Financials and Ratios (Amount in INR Crore)
Particulars	Q1FY22	FY21	FY20	FY19
Total Revenue	125.97	388.59	354.18	302.94
PAT	33.33	84.91	62.51	46.27
EBITDA	56.86	165.97	132.63	108.12
Total Assets	604.58	540.94	482.26	406.43
Cash and Bank	224.95	194.25	118.19	52.63
Cash generated from operations	50.95	129.64	106.11	90.53
EBITDA Margin	9.40%	30.68%	27.50%	26.60%
Net Margin	5.51%	15.70%	12.96%	11.38%

Vijaya Diagnostics Peer Comparison and Valuation

The Issue is priced at 41.10 to its earnings; with EPS of 12.92 per share (annualized) calculated at an upper price band of Rs 531 per share. The industry peer group P/E ratio is 90.8x which indicates attractive pricing of the Issue. With a NAV of Rs 38.53 per share, P/BV is 13.78x.

Table 1 - Financials and Ratios (Amount in INR Crore)
Particulars	Dr LalPathLabs	Metropolis Healthcare	Vijaya Diagnostic	Krsnaa Diagnostic
Face Value per share	10	2	1	5
Net Profits for FY21 (INR Crores)	291.60	183.10	84.91	82.05
EPS	35.33	35.97	8.26	71.86
NAV per share	149.38	138.23	35.23	85.27
Return on net worth	23.42%	25.91%	23.64%	79.76%
P/E	107.3	74.4	-	77.88

Conclusion

Vijaya Diagnostics is an integrated diagnostic chain with a dominant position in Southern India and entering into eastern states.

The diagnostics industry in India is highly competitive and fragmented. Standalone centres dominate the Indian diagnostic market with approximately 45% to 50% market share, while hospital-based centers have approximately 35% to 40% market share for FY20. Diagnostic chains have approximately 12% to 17% market share for FY 20 and are further split into regional and multi-regional chains.

Currently, the Issuer has robust fundamentals with strong profitability margins, strong RoNW, and is a debt negligible company. Vijaya is a cash-rich company and plans to expand using its reserves. However, the positives are negated by the factors like concentration risk, the impact on the margins when it diversifies into other states. It’s worth noting that the Issue is entirely an offer for sale; private equity investors and Kedara capital would exit from the company retaining only 10%. Considering all the above factors, investors may avoid it in the current market.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 19th Aug 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]

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