IPO Note - Vijaya Diagnostics Ltd By Nirmal Bang
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Company Overview
Vijaya Diagnostics Ltd (VDL) is the largest integrated diagnostic chain in southern India, by operating revenue. It offers a one-stop solution for pathology and radiology testing services to its customers through its extensive operational network, which consists of 81 diagnostic centres 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 on June 30, 2021.
Objects of the Issue
The whole issue of Rs 1895 cr is offer for sale
Investment Rationale
* Largest Diagnostic Chain with Dominant Position in South India – mainly in Telangana and AP
* Integrated Diagnostics Provider that Offers One-Stop Solution at Affordable Price
* Supplement Organic Growth with Selective Acquisitions
* Expand in Adjacent Geographies and East India
* Strong Financials
Valuation and Recommendation
The company’s revenues grew by 13% over FY19-21 while EBITDA grew by 24% during same period. Due to high capital intensity required at initial phase of the business, the opex are quite low which derives the economies of scale. Therefore, the company is able to improve its margins steady over the years. EBITDA margins improved to 44% in FY21 from 37% in FY19 due to operational efficiencies. Margins have further improved to 46.3% in Q1FY22. VDL is a debt free company and has negative working capital cycle which resulted in higher PAT growth at 35% during FY19-21. VDL has a long history in the lucrative diagnostic market however till now the company has been restricted to its core markets and have not explored outside. However, given sound financial base and strong brand recall, we believe it is well positioned to grow in adjacent regions. Considering the growing diagnostics industry and company’s well integrated model, we have a positive view on the company. At upper band of Rs 531, the EV/EBITDA comes to 32.1x FY21 EBITDA which is lower its listed peers despite having highest margins. We recommend “Subscribe for long term”.
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