Goodwill Hospital and Research Centre IPO Analysis

Goodwill Hospital and Research Centre (GHRC) is the wholly owned subsidiary of Ojjus Medicare Private Ltd (controlled by Harvansh Chawla). GHRC has a multi specialty hospital at Noida under the name Ojjus Medicare with focus on Neurology and Neuro surgery, Cardiology and Cardiac surgery and Orthopedics with emphasis on Joint Replacements and Sports Injuries. The 220-bed hospital is the few amongst private hospitals in South and South East Asia equipped with Perfexion Gamma Knife (Sophisticated radio surgery) for minimally invasive surgeries. The hospital also offers services in areas of Mother & Child Care, Pediatrics, Diagnostic, Critical Care Medicine, Oncology, Gynecology & Obstetrics, Nephrology, Dermatology, Gastroenterology, Dental & Eye care etc.



GHRC's wholly owned subsidiary, Ojjus Fidelity Healthcare Pvt ltd (OFHPL) has proposed 700-bed super specialty hospital for oncology & rehabilitation and neurology & neurosurgery at an estimated cost of Rs 227 crore (already incurred Rs 16.33 crore) at Faridabad. The hospital is being set up on an area of land measuring 16935 sq. mtrs and GHRC intends to setup a diagnostic centre. For this, it has already entered into an agreement with Ojjus Fidelity on January 01st 2011 for leasing out 40,000 sq.ft of constructed space with basic infrastructure. Ojjus Fidelity has committed to provide the space by March 2012 and the diagnostic centre is expected to commence its operations by May 2012 even before the commencement of the hospital. However, as part of the agreement, total gross revenues from Diagnostic Centre will be shared with GHRC and Ojjus Fidelity in the ratio of 70:30 respectively. The 700-bed hospital is proposed to be commenced in phases, the first phase will be that of OPD (Out Patient Department), daycare facilities and the Diagnostic Centre.

GHRC is coming out with a public issue to raise Rs 62 crore at a price band of Rs 175 to Rs 185 per share. The company intends to utilize these funds for setting up of six polyclinics for high end treatment within a radius of 150 km of Noida and setting up of Diagnostic centre at Faridabad and to repay the loans.

The issue also comes along with one detachable warrant, which is convertible into one equity share upon exercise. Interestingly, the warrant exercise price shall be at 20% discount to the then prevailing market price of equity share at the time of exercise. The prevailing market price shall be the average of the daily closing prices of the equity shares during the one-month period ending immediately on completion of the period of 13 months from the date of allotment. The funds raised through warrant conversion will be utilized for longterm working capital and further expansion.

The six polyclinics are expected to come up at Muzaffarnagar, Bulandshahar, Meerut, Suhasranpur, Hapur and Moradabad. Interestingly, all these cities depend on Delhi and Noida for the high-end healthcare needs.

Recent Financial Performance and Key Metrics:

GHRC reported consolidated revenues Rs 16.07 crore for the quarter ended June 2011 and posted net profit Rs 4.33 crore for the same period. Average Occupancy improved to 58% and Average inpatient admissions per day to 28 for the quarter ended June 2011 compared to 54% and 26 for the year-ended March 2011 respectively. Further, Average Revenue per bed in use was at 0.12 lakhs per day and Average length of Stay was at 2-3 days for the same period. Meanwhile, it has performed 122 gamma Knife procedures including neurosurgeries & neuro interventions, 105 Cardiac surgeries and cardiac interventions and 231 Orthopedics, General surgeries and Gynae procedures for the quarter ended June 2011.

Consolidated Revenues jumped 134% to Rs 53.53 crore for the twelve months ended March 2011. The substantial increase in revenues was due to increased bed capacity, increased inpatient admissions coupled with the commencement of higher number of treatments using Perfexion Gamma Knife machine for non-invasive treatments. The largest contributor to revenues was Gamma knife procedures (including other receipts) with 31% to the total revenues and more or less evenly distributed among the others such as Operation theaters (18%), Room Rents (18%), Consultancy receipts (15%) and Lab Receipts (16%). However, operating margins fell by 330 basis points to 71.4% on the back of rise in SG&A expenses and cost of materials as percentage to the sales. Nevertheless, the company recorded robust 123% growth in operating profit to Rs 38.24 crore. Interest cost increased by 21% to Rs 4.52 crore while depreciation rose by 39% to Rs 10.83 crore. The company recorded 312% spike in PBT to Rs 22.94 crore. Further, after accounting tax Rs 7.22 crore compared to Rs 2.82 crore in the corresponding previous period, net profit jumped by 472% to Rs 15.72 crore.

GHRC has consolidated outstanding debt of Rs 104 crore as of 30th June 2011. It has 292 employees including 32 doctors, 72 nurses as on 31st August 2011.

Strengths:

The strong expertise and experience in the specialty procedures such as neuro surgeries and cardiac surgeries, which are high margin business. Considering the rising incidence of lifestyle diseases in India, this niche segment has good growth potential.
Plans to set up Polyclinics in relatively new areas in selected tier II cities, where the there is significant untapped business potential.

Weaknesses:

The key metrics such as Average Occupancy Rate and Average Income per Bed in use per day were below the industry leaders.
Intense competition from industry major players such as Fortis healthcare and Max India in the Gurgaon region. Such players have large scale and expertise to penetrate faster than smaller players like GHRC.
The consolidated Debt-Equity ratio is at 2.82 as on June 30th 2011.
On a consolidated basis, the company will have to raise additional finances to fund OFHPL's Rs 227 crore 700 bed hospital project at Faridabad. The current issue objects do not cover this project.

Valuation:

At the issue price 175-180, the consolidated EPS for FY'11 (on post issue and warrant conversion equity) works out to Rs 9.8-10 and P/E 17.9 –18.5 times. Similar sized player Fortis Malar Hospitals' consolidated EPS for FY'11 is Rs 2.9 and it trades at P/E of 9 times.

via CM