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Krsnaa Diagnostics IPO: A Detailed Review

Krsnaa Diagnostics IPO: A Detailed Review

Last updated: 03 Aug, 2021 | 01:20 pm

Krsnaa Diagnostics IPO: Krsnaa Diagnostics IPO Date, Price Band & Review

Krsnaa Diagnostics IPO opens for subscription on 4th August. The company is looking to raise Rs 1,213.33 crore through the public issue. Here are the details:

About the issue

Krsnaa Diagnostics IPO Date: 4th - 6th August 2021

Krsnaa Diagnostics IPO Price band: Rs 933 - 954 per share

Issue Size: Rs 1,213.3 crore (Fresh equity shares worth Rs 400 cr & offer for sale worth Rs 813.3 crore.)

Post Issue Implied Market Cap: Rs 2,937 – 2,994 Cr

Reservation: QIB 75%, Retail - 10%, NII 15%.

Employee reservation: Equity shares aggregating up to Rs 20 cr 

Bid lot: 15 shares, and in multiples of 15 shares

Issue Objective

The money raised from the IPO will be used:

  • To finance the cost of establishing diagnostics centers at Karnataka, Himachal Pradesh, Punjab, and Maharashtra: Rs 150 cr
  • Pre-payment/repayment of the firm's borrowing partially or fully: Rs 140 cr
  • General corporate purposes.

About Krsnaa Diagnostics

  • Krsnaa Diagnostics was incorporated in 2010 and at present is one of the fastest-growing diagnostic chains in India.
  • The company offers a wide range of diagnostic services such as imaging/radiology services (MRI, X-rays, etc), pathology, routine clinical laboratory tests, teleradiology services to public and private hospitals, community health centers, medical colleges.
  • The company has expanded from operating 12 diagnostic centers, as of March 31, 2018, to 17 diagnostic centers, as of March 31, 2020. As of December 31, 2020, the company operated 20 such diagnostic centers.
  • Krsnaa focuses on the public private partnership (“PPP”) diagnostics segment and has the largest presence there. 

Krsnaa Diagnostics Services

Radiology

Pathology - Under this service, the company offers a comprehensive test menu covering the key disciplines of conventional and specialized lab services. They also have fully automated analyzers and a team of highly skilled and trained technical staff to undertake different investigations.

Tele-radiology - They offer tele-radiology services in Pune that consist of sections for 80 CT/MRI/XRay technologists teams, a 100-member conference room, and radiologists reporting area.

Home Collection Services - Under this, they collect specimens from patients’ locations, such as their homes or offices. It is a key part of their customer-centric approach.

Financials

  • Krsnaa’s revenue from operations increased at a CAGR of 37.65% from Fiscal 2019 to Fiscal 2021.
  • The company has reported a huge profit in FY21 compared to losses in the previous financial years. This was however due to a surge in demand for diagnostics caused by covid. Their covid revenues for FY21 stood at Rs 147 cr. 
  • Krsnaa’s income statement had a one time gain of Rs 252 cr under the head “Gain on fair value movement of Compulsory Convertible Preference Shares” which inflated the total revenue figure.
  • The company is on an expansion spree with more centres opening.
  • Prior to the IPO, Krsnaa’s promoters had raised their holding in the company by 3.8% via rights issue priced at par face value of Rs 10. Subsequently, the company has split its shares into two of Rs 5 each. Post-issue promoter holding will become just 27%

Listed Peers

The listed peers of Krsnaa Diagnostics include Metropolis Healthcare Limited and Dr. Lal PathLabs Limited.

  • Krsnaa has the lowest revenue of the bunch but the EBITDA margins are in line with peers.
  • Krsnaa has the highest Earning Per Share (EPS) in FY21 (basic) and stood at 71.86, but the diluted EPS was the lowest.
  • The RoNW for FY21 is highest among listed peers with 80%, the competitors have RoNW in the 20s.

USP

Brand power - The company provides quality and reliable healthcare services at affordable prices. They follow accreditations and protocols in line with best industry practices.

Large number of centres

PPP model - Their PPP agreements are typically long-term in nature and ensure predictability of their revenues from operations.  Their continued focus on this segment has led them to become a preferred partner for public health agencies, resulting in, since commencement of operations, 77.59% of all tenders (by number) they have bid for being granted to them.

Growth Potential

Expansion - The company plans to grow its network across all states in India. They also intend to focus on the private sectors across both B2B and B2C segments by partnering with more private sector healthcare providers.

Focus on specialized diagnostics - Krsnaa Diagnostic intends to enhance its capabilities in specialized diagnostic services such as molecular diagnostic and genomics.

Widen digital footprint - The company intends to increase its engagement and touchpoints with customers through various technology and digital initiatives.

Focus on profitability and efficiency - The company will rationalize its costs to improve the margins. They intend to continue to upgrade their diagnostic equipment and technology to increase the efficiency of operations.

Risks

Dependency on public health agencies - A substantial portion of their revenue from operations (67.5%) comes from contracts with public health agencies. If the company fails to negotiate similar fee arrangements or if existing contracts are canceled, the financials of the company will be impacted.

COVID Impact- The COVID-19 pandemic has led to a surge in demand for their services. In FY21, 37% of the revenue from operations came from covid related services. Krsnaa might have trouble making up for these revenues post pandemic.

Capital intensive industry - The business is capital intensive and if the company experiences insufficient cash flows from operations or is unable to borrow to meet capital requirements, it may materially and adversely affect business and results of operations.

Krsnaa Diagnostics IPO: INDmoney Recommendation

Krsnaa Diagnostics has reported a steady growth in topline (CAGR of 38%) over the last three years. The company was able to turn in a profit of Rs 185 crore in FY21,  mainly due to fair value gain in the previous year. Adjusted for fair value and deferred tax, net profit for FY21 rose to Rs 31.4 crore compared with Rs 13.53 crore in the year earlier.

At the higher end of the price band, Krsnaa Diagnostics IPO is aggressively priced at a P/E ratio of ~80 times FY21 EPS (on a fully diluted on post-issue basis). Krsnaa Diagnostics has a negative average P/E on the basis of the last three years. The P/E ratio is in line with Metropolis Healthcare (81 times) but cheaper than Dr Lal Path Labs (111 times). 

Given the company’s steady growth in topline, stable margins, good return ratios, strong runway for growth we remain “positive” on the long-term prospects of this issue. 

We are a SEBI registered investement advisor