IPO Buzz: Read this before investing in KIMS Hospital IPO

The The three day IPO window of Krishna Institute of Medical Sciences (KIMS) Hospital IPO commences from Wednesday onwards.

The price band for the subscription is fixed at Rs 815 -825 per share for subscription to 18 shares or in multiples thereof.

KIMS IPO is expected to raise Rs 200 crores in fresh issue and an Offer for Sale (OFS). The OFS is expected to see exchange of 2.35 crore equity shares from existing investors such as General Atlantic, Dr Bhaskara Rao Bollineni, Rajyasri Bollineni, Bolllineni Ramanaiah Memorial Hospital, and other shareholders.

Employees of KIMS subscribing to the IPO stand a chance to get a discount of Rs 40 in the final offer price of the IPO. This is reserved at Rs 20 crore worth of shares.

Only ten percent of the shares are reserved for retail investors. 75 percent is reserved for qualified institutional buyers and 15 percent for non-institutional investors.

The allottment is expected to be announced on June 23 and shares are likely to be credited to the investors’ demat account by June 25.

KIMS could be raising Rs 2,120.8 crores through the IPO. Proceeds will be utilized in repaying borrowings (Rs 150 cr) and general purposes. Paring borrowings is likely to help reduce debt servicing costs and improve the debt-to-equity ratio. It is also likely to benefit in future fund-raising activities to further business growth.

Here are five important things to note about KIMS:

1. Size: Krishna Institute of Medical Sciences Ltd is among largest corporate healthcare groups in Andhra Pradesh and Telangana. It operates 9 multi-specialty hospitals under the “KIMS Hospitals” brand with an aggregate bed capacity of 3,064, which is 2.2 times more beds than the second largest provider in AP and Telangana.
2. Growth: In the past twenty years, KIMS has increased bed capacity by 15 times. It started as a single 200-bed hospital at Nellore in 2000. The company plans to add 1,000 beds in the next 4-5 years.
3. Services: The Company offers a comprehensive range of services across 25+ specialties and super-specialties using modern medical technology, and holds regional leadership in tertiary & quaternary procedures. Its revenue mix is diversified across specialties, with no specialty contributing more than 21% in FY20.
4. The company has tried to avoid the trap of high rentals by acquiring land in advance to construct facilities or to acquire land on long term, low cost terms. KIMS believes doing so has helped in efficient capital utilization and resulted in a RoCE (return on capital employed) of 22.31 percent.
5. Low Attrition of Doctors: Presence of high quality doctors and medical professionals is a key strength of the Company. The company says that it has managed to retain over 80% of its doctors. This has been possible due to its multi-disciplinary approach, high-volume tertiary care model, and focus on teaching and research.

Operating in a highly regulated industry, dependence on critical healthcare staff, and dependence on revenues from its Hyderabad based facilties are some of the key risks that offset the benefits. However, brokerage firm, Anand Rathi has confided with a Subscribe rating.

“At the upper end of the IPO price band, Krishna Institute of Medical Sciences Ltd. is offered at 32.2x its FY21 earnings, with a market cap of
Rs 66,014 million. Given the company’s dominant position in the region of Andhra Pradesh and Telangana, diversified revenue across specialties, growth prospects, strong balance sheet along with high RoNW (Return on net worth) of 23.30% as in FY21; we give this IPO a “Subscribe” rating,” adds their analyst report.

The Return on net worth is the return on an equity based on the networth of existing shareholders. The RoNW on KIMS is analyzed at the highest of 23.30 percent as against listed peers such as Apollo Hospitals (12.91%), Narayana Hrudayalaya (10.48%), Max HealthCare (9.66%) and Fortis Healthcare (1.37%).

For those curious, reports from grey-market sites that facilitate buying or selling in IPOs had forecast a premium in range of Rs 150-160 for KIMS.