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Salient features of the IPO:

* Kedaara Capital-backed Vijaya Diagnostic Centre Ltd. (VDCL), is coming up with an IPO to raise Rs. 1,895cr, which opens on 1st Sept. and closes on 3rd Sept. 2021. The price band is Rs. 522 - 531 per share.

* The issue is fully an OFS, so the company will not receive any proceeds from the IPO.

Key competitive strengths:

* Largest and fastest growing diagnostic chain with dominant position in South India, well positioned to leverage the high growth in Indian diagnostics sector

* Integrated diagnostics provider that offers one-stop solution at affordable price

* High brand recall and commitment to superior quality driving high individual consumer business share and customer stickiness

* Robust technical capability and state of the art technology with strong IT infrastructure

* Long track record of delivering consistent profitable growth, with strong cash generation and return metrics

* Dedicated management team with significant industry experience

Risk and concerns:

* Unexpected change in government policies and regulations

* Seasonal business

* Unfavorable sales-mix

* Difficulty in geographic expansion

* Competition

Below are a few key observations of the issue:

* Indian diagnostic sector is valued at Rs. 710-730bn in FY21, registering a growth of around 11% CAGR over FY17-21. With improving literacy rates & health awareness and greater demand of better & quality health care, this sector is anticipated to grow at around 15% CAGR over FY21-23E to reach a size of Rs. 920-980bn. The diagnostic market in Andhra Pradesh & Telangana (which was around 12-13% of the pan-India market) is likely to grow at around 13% CAGR over FY21-23E to reach a size of Rs. 120-130bn from Rs. 87bn in FY21.

* The diagnostic sector is highly fragmented with high proportion of standalone centers and hospital-based centers, which collectively forms around 83-88% of the total market. Diagnostic chains contributed 12-17% of the market and comprised of regional and multi-regional chains, of which regional chains account for the majority. With an increasing trend of patient’s reliance on diagnostic chains for quality service and unavailability of complex tests at standalone centers, on pan-India basis the sector is witnessing a shift from standalone centers to diagnostic chains.

* Based on the revenue, VDCL was the largest integrated diagnostic chain in southern India. It offers one-stop solution for pathology and radiology testing services to customers through its extensive operational network, which consists of 81 diagnostic centers and 11 reference laboratories across 13 cities & towns in the states of Telangana, Andhra Pradesh, the National Capital Region and Kolkata. Over FY19-21, around 95% of the business is generated from Andhra Pradesh & Telangana.

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