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Narayana Hrudayalaya IPO - To Buy or Skip

Narayana Hrudayalaya Ltd (NHL) is coming out with an initial public offering (IPO) to raise Rs600-613 crore from the equity market at a price band of Rs245-250 per equity share.

Narayana Hrudayalaya (NHL) was founded by cardiac surgeon Dr Devi Prasad Shetty in 2000. NHL operates as a chain of multispecialty, tertiary and primary healthcare facilities. The company has a strong legacy in cardiac and renal sciences.

NHL has a pan-India focus with a strong presence in Karnataka and eastern India as well as an emerging presence in western and central India. In FY15, its facilities have provided care to over 19.7 lakh patients.
Since the offer is being made through offer for sale, the proceeds from the offer will be remitted to the respective selling shareholders . The company will not receive any proceeds from the offer.

Valuation: At the price band of Rs245-250 per share, the issue is priced at 37.4-38.1x its EV/ EBIDTA for FY2015.

Investment Rational

Effective model of capital deployment to achieve growth: The company runs its business on an asset right model, based on engaging with partners that invest in and own the fixed assets, primarily land and building while it invests and owns the medical equipment.

Favourable macroeconomic factors, medical tourism: Significant infrastructural gaps persist in the Indian hospital industry. The bed availability in India was at seven per 10,000 in 2014, significantly lower than the WHO guideline of 30 beds per population of 10,000.

Pan-India network: The company earned 45.6% of revenues from the Karnataka cluster in FY15, 30.2% from eastern cluster and 12.1% from western and central clusters.

Priced at approx 3.9x on EV/sales of FY15: At the IPO price band of 245-250, the stock is available at 3.9x on EV/Sales of FY15. Though the valuation is a tad expensive, it is in line with the recent deals in the healthcare industry. Alternatively one can keep an eye on the IPO and see its listing price and buy if required post listing.

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