A worker uses a pipette in a lab. (Photographer: Scott Eisen/Bloomberg)

Metropolis Healthcare IPO: Here’s All You Need To Know

Metropolis Healthcare Ltd. will be launching its three-day initial public offering on Wednesday as its promoter and largest investor are looking to pare their holdings in the diagnostic company.

The company aims to raise Rs 1,200-1,205 crore by selling 1.36 crore shares at Rs 877-880 apiece in a pure offer-for-sale, according to its red herring prospectus.

From the promoter family, Sushil Kanubhai Shah will sell 62.7 lakh shares, and investor CA Lotus Investments—a subsidiary of U.S.-based private equity firm Carlyle Group—will offload 74.1 lakh shares. The maiden offering—the third after Dr Lal PathLabs Ltd. and Thyrocare Technologies Ltd.—values Metropolis Healthcare at more than Rs 4,400 crore.

Business

Metropolis Healthcare is present across 19 states, especially in west and south India. It operates through the ‘hub-and-spoke’ model that includes reference laboratories, satellite laboratories and collection centres.

The operator of diagnostic centres has 115 clinical labs across key cities, with one global reference laboratory in Mumbai, 14 regional reference laboratories, 56 satellite laboratories and 44 express laboratories.

The company mainly conducts three types of diagnostic tests—routine tests, semi-specialised tests and specialised tests—for individual patients as well as institutional customers. It has 1,631 touch points for individual patients and 9,552 for institutional customers.

Financials

Metropolis Healthcare is currently a debt free company. It reported a return on capital of 30 percent, return on capital employed at 44 percent and return on net worth of 25 percent in the financial year ended March 2018, according to its red herring prospectus.

The free-cash conversion from Ebitda is almost 50 percent. So cash flow is not an issue as it is very sustainable business. There’s a lot of internal accruals which are enough to manage our working capital and growth expansion plans.
Ameera Shah, Managing Director, Metropolis Healthcare Ltd.

The company’s revenue grew at an annualised rate of 16 percent over financial years 2016 to 2018. Its operating and net profit grew at 17 percent and 16 percent, respectively, during the period. “Our profit margins have been stable for the last three years,” said Shah. “The jump in profit in one of the previous three years is due to sale of our South Africa business. It resulted in an extraordinary income and affected the profit growth next year due to a higher base.”

Peer Comparison And Valuation

Metropolis Healthcare will be India’s second-largest diagnostic centre by revenue among listed peers. Fortis Healthcare Ltd.-owned SRL Diagnostic is not separately listed.

While Metropolis Healthcare trades at a discount of 16 percent to Dr Lal PathLabs by 2018-19 price-to-earnings ratio, it's at a 22 percent premium to Thyrocare Technologies.

At current valuation, there is a little upside in the near term, but that can be looked at as an investment option for the medium- to long-term investment horizon, according to Sharekhan’s IPO note.

IDBI Capital is upbeat on the issue, citing the company’s asset-light model as a positive.

Watch the full interview with the management here: