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Below is quote on Vijaya Diagnostic Centre IPO by Mr. Yash Gupta, Equity Research Associate, Angel Broking Ltd   

Background - Vijaya Diagnostic Centre was incorporated in 2002, and is the largest integrated diagnostic chain in southern India. Vijaya Diagnostic provides integrated services of pathology and radiology and offers around 740 routine tests, 870 specialized pathology tests, 220 basic tests, and 320 advanced radiology tests. Vijaya diagnostic network consists of 80 diagnostic centers and 11 reference labs across 13 cities. Companies 81% of revenue comes from Hyderabad.

Positives - (a) Fastest growing diagnostic chain with a dominant position in south India. Between 2017 and 2020 volume of tests has grown by15% while volume of patients has grown by 14%. (b). The Company provides Integrated diagnostic services of pathology & Radiology under one roof. (c). Company has a very high brand recall in its core market of Hyderabad and derives 92% of its revenues from the high margin B2C business.

Investment concerns: (a) Company has a very high concentration toward one city with Hyderabad accounting for 81% of the revenues. Increase in competition in the main market can impact growth as well as EBITDA margins. (b) In FY2021 company had got some benefits due to increase in Covid related tests, which is not expected to continue in the future and can have an adverse impact on the volume growth of the company. (c) Low promoter holding will also be an issue for the company as post IPO promoter holding will be relatively low at 32.7%

Outlook & Valuation: Based on FY2021 numbers, IPO is priced at a Price to Earnings of 64.3 times and EV/EBITDA of 30 times at the upper price band of the IPO, which is in line with the listed peer group. Company already has a higher market share in key geographi like Hyderabad and we do not expect the covid related benefit to continue in coming years. We believe that at ₹531, all the near term positives are priced in and leaves limited upside for the investors. Hence, we are assigning a “NEUTRAL” recommendation to the Vijaya Diagnostic centre limited IPO.

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