Considering its better-operating metrics, attractive valuations which are justifiable to listed peer Dr Lal Pathlabs, brokerages advise subscribing the issue for listing gains as well as for long term
Subscription for Metropolis Healthcare’s Rs 1,204-crore initial public offering begins on April 3 with a price band of Rs Rs 877-880 per share.
The 1.37 crore shares public issue consists of an offer for sale of 62.7 lakh shares by the promoter Dr Sushil Kanubhai Shah and of around 74.1 lakh shares by CA Lotus Investments.
The issue will close on April 5. After the issue, total promoter shareholding will be reduced to 55.3 percent from 67.8 percent.
Metropolis Healthcare (MHL), one of the leading diagnostics companies in India, by revenue, offers clinical laboratory tests which are used for early detection and diagnostic screening of a disease. MHL also offers analytical and support services to clinical research organizations for clinical research projects.
Considering its better operating metrics, attractive valuations which are justifiable to listed peer Dr Lal Pathlabs, brokerages advise subscribing the issue for listing gains as well as for long term.
“We believe Metropolis is well placed in the rising healthcare sector and enjoys the second largest market share diagnostic player in India. The company has shown healthy financial performance in past backed by inorganic expansions and better service offerings,” Mehta Equities said.
IIFL Securities said considering that Metropolis barely lags in or has similar operational parameters (like EBITDAM and asset turn) like Dr Lal Pathlabs, it seeking similar valuations is justifiable.
Profit after tax of the company remained unchanged at Rs 102 for FY17 as well as FY18, against Rs 77 crore in FY16. In nine-month period of FY19, profit stood at Rs 86 crore.
Here is what brokerages say about the issue:
The brokerage feels that the company has a long way for growth owing to its young network and consolidation opportunities in the Industry.
Moreover, the penetration of diagnostic services in non-metro regions have room to scale up with the help of facilitators like increasing insurance penetration as in vitro or pathology diagnosis generally influences clinical decision making. Metropolis business is more comparable to Dr Lal Pathlabs than Thyrocare.
At Rs 880/share (upper band), Metropolis is seeking around 39x / 26x its FY19 annualised/FY21E EPS against around 43x/ 27x FY19 annualised/FY21E EPS for Dr Lal Pathlabs. We recommend subscribe to the issue from a longer-term perspective.
At the upper end of the price band, the issue is asking for a market cap to sales of 6.7x times (FY18), which is relatively lower to its peers and in terms of PE ratio company’s issue is being offered at a PE of 43x versus higher peers.
Hence, looking at lower valuation compared to its listed peers, better-operating metrics, we recommend investors to invest in the IPO for a limited 10-12 percent listing gain.
Disclaimer:-The views and investment tips expressed by investment experts are their own. Ripples Advisory advises users to check with certified experts before taking any investment decisions.
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