Shalby IPO kicks off today; should you subscribe?

Shalby, an operator of multi-specialty hospitals chain kicked off its initial public offering (IPO) on Tuesday in a price band of Rs 245-248 per share to raise Rs 504 crore. The issue will close on Thursday. 

The offer comprises a fresh issue of equity shares aggregating up to Rs 480 crore and an offer for sale of up to 10,00,000 equity shares by the promoter Vikram Shah Burman, which at the upper end of the price band will fetch Rs 24.8 crore.

Proceeds of the IPO will be utilised towards repayment of borrowings availed by the company besides purchasing medical equipment for existing, recently set-up as well as upcoming hospitals, the company said in an IPO note. 

Here's is what brokerages recommend on the issue:

Centrum Broking 

At the higher end of the price band of Rs 248, the issue is priced at 42.8x its FY17 earnings and 41.1x its EV/EBITDA. At this valuation, the issue of Shalby is attractively priced compared to close peer Narayana Hrudayalaya (recent IPO in the sector) trading at 72x P/E and 27.1x EV/EBIDTA. Shalby’s RoE of 26.6% is better compared to peers’ average of 11.8% for FY17. Considering robust growth, high return ratios, strong balance sheet and future prospects, investors can be advised to 'subscribe' to the issue. There is an underlying assumption that Shalby would maintain healthy growth rates going ahead.

Choice Broking

At the higher price band of Rs 248, Shalby’s share is available at a P/E multiple of 42.8x which is at a discount to its peer’s P/E(x) (Apollo Hospitals – 67.7x, Narayana Hrudayalaya – 90x and Healthcare Global – 118.4x). 

The brokerage has a 'subscribe' rating on the IPO.

Hem Securities 

Company is bringing the issue at price band of Rs 245-248 per share at P/E multiple of 46-47. It has leadership in orthopaedics with integrated and scalable business model enhancing patient reach and is experienced player with longstanding presence .Hence, we recommend 'Subscribe' on issue for long term.

Key risks based on IPO note

1. Concentration risk: Nearly 77% of FY17 revenue came from only 2 out of 11 hospitals and nearly 80% comes from Gujarat state 
2. Change in government policies relating to patients covered by government schemes 
3. Increasing competitions from other hospitals and healthcare facilities
4. Dependent on orthopaedics and inpatients: For the three months ended June 30, orthopaedic services and impatients contributed to 67.5% and 89.95%, respectively to the total revenues