Krishna Institute of Medical Sciences Limited (KIMS) is set to raise up to ₹2,143 crores via IPO which opens on 16th June, Wednesday. Here are the details:
About KIMS Hospitals
- Krishna Institute of Medical Sciences Limited (KIMS) is one of the largest hospital chains in Andhra Pradesh and Telangana.
- The company offers a range of healthcare services including oncology, cardiac sciences, neurosciences, gastric sciences, orthopedics, renal sciences, organ transplantation, and mother & child care.
- As of March 31, 2021, it operates through 9 multi-specialty hospitals under the brand name of 'KIMS Hospitals' with an aggregate bed capacity of 3,064 including over 2,500 operational beds which are 2.2 times more beds than the 2nd largest provider in AP and Telangana.
About the issue
Issue open: 16th June - 18th June 2021
Price band: Rs 815 - 825 per share
Issue Size: Rs 2143 crore
Fresh Issue: 24.2 lakh Equity shares of Rs. 10 each (aggregating up to Rs. 200 cr)
Offer for sale: 2.3 crore Equity shares of Rs. 10 each (aggregating up to Rs. 1943 cr)
Reservation: QIB 75%, Retail - 10%, NII 15%.
Employee Reservation: Equity Shares aggregating up to ₹20 Cr
Bid lot: 18 shares and in multiples thereafter
The company is backed by growth equity firm General Atlantic’s Singapore division, General Atlantic Singapore KH Pte Ltd. General Atlantic will sell 50% of its stake and retain 20% of the post-issue equity. KIMS will use Rs 150 crore from the new stock issue to pay off a part of its debt.
- KIMS’s occupancy rate declined to 78% in FY21 from 80% in FY20 caused by lockdowns due to covid.
- Even though the occupancy rate declined, profits increased by 78%. This was because they added 2 new specialties, heart & lung transplants and liver transplants. These are very high-end surgeries with fewer patients but high margins. Hence increase in net profit margin too is witnessed.
- As of March 31, 2021, the debt-to-EBITDA ratio was 0.95x and the gearing ratio was 0.37x compared to the industry range from 0.1 to 5.2 respectively.
- They are one of only 3 hospitals in India that are rated AA by CRISIL
- The attrition rate increased to 51% in FY21 compared to an average of 30% in the previous two financial years. This was due to a large number of temporary doctors and nursing staff employed for covid treatment.
- Add more bed capacity in current hospitals to meet the growing demand.
- KIMS plans to expand its hospital network into markets that are adjacent to its core markets of AP and Telangana, initially focusing on Bangalore, Karnataka, Bhubaneswar, Odisha, Chennai, Tamil Nadu.
- KIMS competes with big brand names like Fortis, Manipal, Apollo Speciality Hospitals and Shalby, etc.
- KIMS Ltd. is still at the growth stage. This is evident from the fact that Apollo Hospitals had 10 times the operating income of KIMS but KIMS operating income grew at a 26% CAGR in FY18-20 compared to Apollo’s 16%.
- KIMS expands at a lower Capex than the average Capex for expansion. Its CAPEX per bed for tier 1 cities is Rs. 63 lakhs, which is at the lower end of the spectrum of Rs 50 to 80 lakhs.
- KIMS’ high growth rate combined with high margins make it a tough competitor to beat for other companies.
- Affordability: KIMS has recently overhauled its pricing model and made it more affordable not just in Tier 2 & 3 cities but also in Tier 1 cities. Their prices across medical procedures are on average 20% to 30% lower than other private hospitals in India. In FY 2020, their average revenue per patient (ARPP) was ₹ 79,526, 41% lower than the industry average of ₹ 112,000.
- Regional Dominance: While players like Yashoda and Apollo have a presence in different parts of India but KIMS is only present in the south. This makes them a well-known and preferred brand in the region and helps them to understand patient’s mentality and form long-term relationships.
- Diversified product portfolio: Their multispecialty healthcare platform has resulted in diversified revenue streams, with no single specialty accounting for more than 25% of their total income in any of the last 3 years.
- Doctor partnership model: KIMS has an interesting model of doctors having equity ownership of about 20% to 45% in 5 out of 9 of their hospitals. This helps them attract and retain top talent in the country. Although they attract the best talent in the country, they are dependent on a few doctors for their revenues. Top 10 doctors accounted for 21% of their revenues.
- Quality of service
- Regional leader in organ transplantation specialty.
- #1 in Nephrology treatments in AP.
- #1 in Cardiac surgeries in AP.
- #1 in Urology surgeries performed in AP.
KIMS Hospitals has been able to deliver industry-beating operational and financial performance on the back of robust patient volumes, cost efficiency, and revenue streams across specialties. The company also has a stronger balance sheet due to lower debt as compared to industry peers.
At the higher end of the price band, KIMS IPO is priced at a P/E of around 31.2 times FY21 earnings (post-issue). This seems to be reasonable, considering the company’s performance and the outlook going forward.
Given factors such as good margins, healthy return ratios, lower debt (than peers), potential growth runway, and attractive valuations, we remain positive on this issue. The outlook for KIMS seems to be favorable due to its USP of providing specialty healthcare services at an affordable price. Further, the foray into specialties such as heart & lung transplants and liver transplants should support margins going forward.