Global Health Ltd IPO: Take a call on post-listing performance

Global Healthcare Ltd is tapping the capital markets with its fresh issue of Rs600 crore and an offer for sale of 507.61 lakh shares in a price band of Rs319-336. The issue opened on 3rd November, Thursday and closes on 7th November, Monday. The company which uses the brand 'Medanta', operates five hospitals in the cities of Gurugram, Lucknow, Patna, Ranchi and Indore. It also operates six clinics across eight cities. It is in the process of setting up a hospital in Noida which would take another 24-30 months to be commissioned.

Currently the company has 2,467 installed beds and would be expanding to 3,500 beds. This would happen over the next two and a half years in phases. The company as a whole has 69 operation theatres and 523 ICU beds which emphasize the quality care that the hospital is able to exercise and offer. In terms of manpower they have over 8,000 plus people. More importantly their entire doctor team is on the rolls of the company and they are full time employees. They don't have any practice or other engagements anywhere else as is the normal system with many doctors.

The company or hospital chain has been credited by international organisations and rated as one with best-in-class medical equipment and facilities. It has featured in the world's best specialised hospitals for cardiology and neurology by NEWSWEEK.

In what is very important for any healthcare institution, the mission is to deliver advanced healthcare by creating institutes of excellence that integrate medical care, teaching and research. The vision is to provide affordable medical services to patients.

The growth in the healthcare segment is incrementally coming from tier-II and tier-III towns where one finds that the number of beds is increasing significantly. If a hospital is able to provide specialised healthcare at affordable prices in the smaller towns, then that hospital or Institution becomes the leader in that place. It is to this end that the company chose to go to places like Lucknow, Patna, Ranchi and Indore. Noida is an extension to Gurugram and is part of the broader NCR region.

The focus and strength of the Medanta group is large scale hospitals with focus on under-served areas with dense populations. The name that is associated with quality care and clinical expertise in dealing with complicated cases.

In terms of mature and developing hospitals the group has a balanced mix. What is heartening is the performance of the Lucknow hospital which has turned EBITDA positive in the very first year of operation. The group has a clear focus on Clinical Research and academics. The students graduating help in getting access to a ready pool of future trained medics and doctors.

The future for the group is to ramp up the existing hospitals and new hospitals going forward. This would help in distributing the costs and achieving better economies of scale.

The company has compared itself with Apollo Hospitals, Max, Fortis and Narayana. In terms of revenues, it is smaller than all of these. The company has reported losses in the new hospitals that have been set up while the oldest and established one in Gurugram is the cash cow of the company.

On a net basis the company reported an EPS of Rs7.77 for the year ended March 2022. At this EPS, the PE band is 41.08 to 43.24 on a diluted basis. This compares favourably with Apollo and Max. This is similar to Narayana, but is more expensive than Fortis. While the business is good and Dr Trehan, the founder, has a tremendous background and could be termed an icon, it appears that there is hardly anything on the table in the near term for investors.

While in the long term, the turnaround in the four hospitals and utilisation of land available in Gurugram would impact the hospital positively, this needs to be put into action to bear fruit. The size of the issue is big and the issue would be raising close to Rs 2,200 crores in all. If one looks at the market capitalisation to revenue, the same is 3.73-3.93. Similarly, market cap to total income is 3.66-3.86 times the price band.

Finally, EV to EBITDA is 17.16-18.04 times. All this leads one to believe that the company or hospital chain is steeply priced and one may look at this share post listing. I strongly believe that better opportunities would be available once the share is listed in a couple of months' time.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)