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Krsnaa Diagnostics Limited (KDL), is one of the largest differentiated diagnostic service providers in India. Incorporated in 2010, at Pune, KDL provides specialized diagnostic imaging (including radiology), pathology/clinical laboratory and tele-radiology services to public and private hospitals pan-India. They focus on the public private partnership (PPP) diagnostics segment and have the largest presence in the diagnostic PPP segment. They operate an extensive network of 1,823 diagnostic centres in 13 states across India.

* The diagnostic industry in India is expected to grow at ~ 15% and achieve a value of Rs.920 billion to Rs.980 billion between FY21 and FY23.

* KDL operates one of India’s largest tele-radiology reporting hubs in Pune which can serve patients in remote locations where diagnostic facilities are limited.

* Under the hospital partnership model, KDL benefits from the captive patient base of the health care facilities and offers radiology tests at 45-60% and pathology tests at 40-80% lower than market rates. +

* KDL to focus on the private sector across both B2B and B2C segment by partnering with private healthcare providers, establishing standalone centres.

* Revenue from sale of service to public health agencies in PPP model was 67% of the total revenue from operations in FY21 while the rest came from non-government customers(33%) such as private medical colleges, private laboratories etc.

* The net revenue from operations increased at a CAGR of 37.6% from Rs.209.2cr in FY19 to Rs.396.5cr with 41% revenue from radiology services and 59% from pathology in FY21.

* KDL reported one-time gain from fair value movement of CCPS (Compulsory Convertible Preference Shares) amounting to Rs. 252.8cr in FY21 while it reported loss in the previous two years(Rs.177cr&Rs.95.5cr).

* Adjusted for fair value and deferred tax arising out of it, net profit for FY21 stood at Rs 31.4cr compared with Rs.13.5cr in the year earlier.

* As of June 30, 2021, the total outstanding borrowings amounted to Rs.209.3cr,resulting in post IPO debt will be negligible.

* At the upper price band of Rs.954, KDL is available at a P/E of 95x (diluted) which appears highly expensive compared to peers. Considering its unique business model with cost advantage and plans for standalone centres, the company’s revenue visibility for the future looks promising. We provide “Subscribe” on a short term view for listing gain.

Purpose of IPO

The Offer comprises of the Fresh Issue and the Offer for Sale. The proceeds from the offer for sale will go to the selling shareholders. The amount received from the sale of fresh issue will be utilised to finance the cost of establishing diagnostics centres(Rs.150.8cr) at Punjab, Karnataka, Himachal Pradesh and Maharashtra and for repayment/pre-payment, in full or part, of certain borrowings availed by the company(Rs.140cr) and General Corporate Purposes.

Key Risks

* A substantial portion of the revenue depends on payments under contracts with public health agencies(~67.5%)and a major portion of the revenue generated from the states of Maharashtra, Rajasthan and Karnataka(~70%).

* The Company has reported losses and negative net worth in the past.

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