Vijaya Diagnostic Centre Limited IPO Analysis

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Vijaya Diagnostic Centre Limited, a fast growing diagnostic service provider based on Southern India, is coming out with Rs. 1,895 Cr IPO, opening from tomorrow, 1st September, 2021. Here is a 7 point analysis of Vijaya Diagnostic Centre IPO covering IPO details, company overview, Financials, Peer comparison, Company’s strengths and Risks and the Valuation aspect.

Shareholding Pattern

Vijaya Diagnostic Centre shareholding pre-issue and post-issue

Through the offer for sale, the promoter is selling 5% of the total shares of the company and the private equity investor Kedaara Capital is selling 30% of the total shares of the company

2. Company Overview

Founded in 1981, the company today is one of the fastest growing diagnostic chains

81 diagnostic centres and 11 reference labs across 13 cities in the country. The company derives 96% of its revenue from Telengana and AP region and has a strong brand presence

Offers a comprehensive range of approximately 740 routine and 870 specialized pathology tests and approximately 220 basic and 320 advanced radiology tests that cover a range of specialties and disciplines

Integrated diagnosis provider that is focused on offering pathology and radiology services under the same roof at their diagnostic centres

As of June 30, 2021, the company has 2,325 full-time employees and regular consultants on retainer basis, including 74 lab doctors, 19 Physicians, 105 radiologists and 1,027 technical staff and phlebotomists.

3. Financial Performance

Over the last 2 years, the company has grown its revenue by 13% CAGR and PAT by 35% CAGR. The Covid-19 pandemic has enabled the company to do more Covid testing and helped boost its revenues in Q1FY22. The borrowings of the company are negligible and the company has a strong net worth

4. Peer Comparison

Among the other listed players, Vijaya Diagnostic Centre has the highest operating income and EBITDA per patient. When we take a look at the average tests per customer, here too, Vijaya has the highest tests at 2.8 per patient. Hence, the company is able to use its integrated testing facilities to offer its customers more number of tests upon a visit which is creating value to the company in the form of more revenue and operating profits

A key differentiator between Vijaya and other listed players is the B2C Revenue contribution. At 93%, the B2C revenue of Vijaya Diagnostic is the highest. Due to this, the cash flow issues are almost eliminated since the company receives upfront money for its services from the customers. This is also apparent in the cash conversion cycle of the company which is at -149 days

5. Key Strengths

•One of the fast growing diagnostic chains in the country

•Integrated services under one roof

•High brand recall and customer stickiness

•Robust Technical Capabilities and Infra

•Strong financial numbers and cash flow

•Experienced management team

6. Key Risks

•Geographical concentration to Andhra Pradesh and Telangana

•Margins will be impacted upon expansion

•The Private Equity investors are selling 75% of their stake

•Competition is Hig hwhen company expands

• Dependence High on flagship center and hubs

• Fixed costs per center are high due to integrated model

7. Valuation

The P/E multiple of Vijaya Diagnostic Centre as per earnings for FY21 is 64.28 times (Considering the EPS of Rs. 8.26). However, since Q1FY22 was an exceptional quarter of the diagnostic industry and other listed players are valued on a TTM basis including Q1FY22, it is necessary to find the TTM P/E for the company

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