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Salient features of the IPO:

* Krsnaa Diagnostics Limited (KDL) provides specialized diagnostic services including radiology, pathology and tele-radiology services at affordable rates.

* Out of the fresh issue size of Rs400 cr, Rs146 cr will be utilized for repayment of debt, Rs151 cr for capital expenditure and balance for general corporate purpose.

Key competitive strengths:

* Unique and scaled diagnostics company

* Strong brand equity

* Extensive footprint across India with robust infrastructure

* Business model with robust revenue visibility

* Well positioned to capitalized on healthcare spending across public and private sectors

* Scalable and agile business model with efficient cost structure

* Ability to maintain cost competitiveness through operating leverage

Valuation:

At the higher price band of Rs954, the issue is valued at trailing P/S of 7.6x.

Below are a few key observations of the issue:

* India’s healthcare expenditure stood at 3.5% of GDP in 2018, which was well below to developed countries like US (16.9% of GDP) and UK (10% of GDP), as per the WHO report mentioned in RHP. Under penetration of healthcare services was due to less spending by govt as well as people due to lack of awareness for health. However, over the past few years, govt enhanced focus to develop the health infrastructure of the country with the implementation of flagship schemes like NHM.

* PPP models in diagnostics have gained traction recently due to govt’s enhanced focus on strengthening primary healthcare centres, increasing the number of health and wellness centres. PPP segment of healthcare services is a large target market and its market size is expected to grow at a CAGR of ~17% to Rs135 bn during FY21-FY23 on the back of higher government spending in the PPP segment.

* Krsnaa Diagnostics Limited (KDL), established in 2010, is one of the largest differentiated services provider in India majorly operating under PPP model. KDL provides specialized diagnostic services through 1,823 centres including radiology, pathology and teleradiology services at affordable rates to public and private hospitals, medical colleges and community health centres pan India across 13 states. KDL caters primarily to mass segment particularly in tier II and tier III cities.

* Under radiology segment, major services include X-rays, CT scans, MRI scans, ultrasounds, while under pathology segment, the company provides services ranging from routine tests such as CBC or blood glucose to highly specialized investigations for infectious diseases, cancer markers, hormonal assays. The company generates ~60% of business from pathology and 40% from the radiology.

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