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Below are Quote On IPO Note - Krishna Institute of Medical Sciences by Mr. Yash Gupta, Equity Research Associate, Angel Broking Ltd   

Company background:

Company first hospital was established in Nellore (AP) in 2000 by Dr. Bhaskara Rao Bollineni, a renowned cardiothoracic surgeon in India and started with a capacity of approximately 200 beds. Then it significantly expanded the hospital network in recent years through acquisitions of hospitals in Ongole (AP) in Fiscal Year 2017, Vizag (AP) and Anantapur (AP) in Fiscal Year 2019 and Kurnool (AP) in Fiscal Year 2020. Approximately one-third of 3,064 beds were launched in the last four years and also improved the overall bed occupancy rate.

Company strategically focuses on the southern India healthcare market where it has a strong understanding of regional nuances, customer culture and the mindset of medical professionals and where there is significant and growing need for quality and affordable healthcare services. Dr. Abhinay assumed as CEO position in 2019 and played a leadership role in expanding the KIMS’ network over the last 5 years, including in the launch of KIMS Kondapur and the acquisitions of our hospitals in Ongole (AP), Vizag (AP), Anantapur (AP) and Kurnool (AP).

In Fiscal Year 2021, its nine hospitals recorded ARPOB (Average Revenue Per Operating Bed) of ₹ 20,609, a bed occupancy rate of 78.60%, and an ALOS (Average of length of stay) of 5.53 days, on an aggregate basis. In Fiscal Year 2021, ARPOB for the hospitals situated in Tier 1 cities was ₹ 39,571 and ARPOB for the hospitals situated in Tier 2-3 cities was ₹ 11,187.

Positive: (a) Company having a good track record of retaining high quality doctors, consultants and medical support staff. (b) Company having negative Debt/Equity ratio, which is one of the lowest ratios among the peers. (c) Company having very high ROCE of 24% in FY2021 along with one of the highest EBITDA growth in the last 3 years. (d) Well positioned to consolidate in India’s large, unorganized yet rapidly growing and underserved affordable healthcare market.

Negative: (a) Business highly dependent on our healthcare professionals, including doctors that we engage on a consultancy basis, and business and financial results could be impacted if it is unable to attract and retain such healthcare professionals. (b) Company dependence on their flagship hospital at Secunderabad in Telangana is at 33% any geopolitical changes can impact the company business.  (c) Upcoming expansion plans in Bangalore & Chennai will require a lot of fresh capitals and both are very competitive markets.

Outlook & valuations –FY-2021PE of 31.2x and EV/EBITDA of 17.8x, at upper end of the IPO price band is slightly better than the peer companies. Similarly, the company has one of the best ROE & ROCE of 23.8% and 24.8% respectively. Company has a very healthy balance sheet with negative Net Debt/ Equity. We believe that the upcoming expansion plan in Bangalore & Chennai can be funded through internal accruals and minimum amount of debt.  We are assigning a “Subscribe” recommendation to the issue.

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