Krsnaa Diagnostics IPO - Is it worth investing in?

Can you think of an industry that witnessed exponential growth during the past year? It’s a no brainer - the healthcare industry. The healthcare industry in India is expected to reach up to 372 billion dollars by 2022, more than double in just five years!

The reason we mentioned the industry is that one such healthcare company “Krsnaa Diagnostics” is coming up with its IPO worth Rs.1,213.33 crore that opens on the 4th of August 2021. So, let’s analyze this offering.

Krsnaa Diagnostics - about the company

Established in 2011 with an aim to provide quality diagnostic services at affordable prices, Krsnaa Diagnostics Limited is India’s largest service provider in Radiology and Pathology. They offer a wide range of imaging/radiology services and clinical laboratory tests, including routine and specialized tests/studies and profiles.

One of India’s largest teleradiology reporting hubs is operated by Krsnaa. It also established India's first ICMR accredited COVID-19 testing facility under the PPP model in Pune.

Growth prospects of the Company 

• The company is looking forward to expanding its operations in places where they already exist and establishing centers in states they haven't explored yet. 

• The company is also actively implementing technologies to improve customer satisfaction and also strengthen its relations with the vendors.

• So far, the company has grown through the organic route. Here on, it plans to grow by pursuing strategic alliances and selective acquisitions further.

• It is also actively working with the state governments to provide diagnostic services at no charge or subsidized rates to patients who cannot afford these services.

Financials of Krsnaa Diagnostics Ltd

The financial statements of the company are as follows:

The financials of Krsnaa Diagnostics reveal that over the past 3 years, the volume of fixed assets hasn’t fluctuated significantly.

The total revenue generated witnessed a spike in the FY 2020-21, the possible reason for which could be the volume of COVID-19 testing. This increase in revenue generation aided in improving profitability.

The debt-equity and interest coverage ratio are not very satisfactory because the company has a significant debt weighing down its balance sheet. 

Details of the IPO

The IPO consists of both fresh issue and an offer for sale. A fresh issue is where the company issues fresh shares to the public, which the company would receive. In an offer for sale, the existing shareholders sell their stake to the public. The company does not receive any monetary benefit from this.

The lead managers for this issue are DAM Capital Advisors Limited, IIFL Securities, JM Financial, and Equirus Capital. 

Other details pertaining to this issue are tabulated below:

Purpose of the IPO

The company intends to utilize the amount realized on fresh issue for the following purposes:

• To cover the cost of establishing diagnostic centers in Maharashtra, Punjab, Himachal Pradesh, and Karnataka.

• To repay or prepay the company's debts either in full or in part from banks and other lenders.

• General corporate purposes.

Why should you invest?

We’ve summarised a few points on why you must invest in this IPO:

• The operations of the company are spread over 13 states, with a presence in over 1,800 locations. The advanced technology aids the company in carrying out operations smoothly.

• The company believes that the brand is associated with affordability, reliability, and standardized quality services.

• The company also claims that it is the fastest-growing chain of diagnostics in India regarding operating income.

• The hospital partnership model of business has successfully helped this company maintain cost competitiveness. 

• The company is confident that any pricing caps imposed by the government would not harm its revenue generation. 

Why should you not invest?

Let’s now look at the other side of the coin, a few reasons for which you might want to let this IPO pass.

• Most of the centers are operated under PPP contracts awarded through a competitive bidding process. There isn't any assurance that the company would manage to win every tender.

• The revenue generation of the company majorly depends on the contracts with public health agencies. In the fiscal year 2020, almost 73% of the revenue generated accrues to services provided to such agencies. This level of dependence is not a good sign.

• Though the pandemic aided in an overall increase in testing volume regarding RT PCR testing, it did negatively affect the core business of the company, which is radiology and pathology.

• The business of Krsnaa is capital intensive. Therefore, inadequate working capital could adversely affect the operations.

Final words

Considering the current scenario, the healthcare industry is definitely a good place to park your surplus. But should you go for an IPO or one that has been listed for quite some time? Both have their share of pros and cons. Where the former would provide listing benefits, the latter focuses on the steady growth of your investment. The choice is yours to make!

So, what’s it going to be? A hit or a miss? Tell us in the comments.