Vijaya Diagnostic Centre makes tepid Dalal Street debut, lists at 2 percent premium

IPO

Vijaya Diagnostic’s public offer was subscribed 4.54 times compared with 64.54 times for Ami Organics, which was open at the same time

Representative Image (Source: Reuters)

Representative Image (Source: Reuters)

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Vijaya Diagnostic Centre, the Hyderabad-based diagnostic chain operator that came out with an initial public offering in early September, debuted on Dalal Street at a 2 percent premium to the issue price of Rs 531 per share.

The stock listed at Rs 542.30 on the BSE, 2.13 percent higher than the issue price, while it opened 1.69 percent higher at Rs 540 on the National Stock Exchange.

Vijaya Diagnostic’s public offer was subscribed 4.54 times compared with 64.54 times for specialty chemical company Ami Organics. Both issues were open for subscription from September 1 to 3.

Vijaya Diagnostic’s public issue was largely supported by qualified institutional buyers, who put in bids for 13.07 times the shares reserved for them. The portion for non-institutional investors was subscribed 1.32 times and the retail investor portion 1.09 times. Employees bid for 98 percent of the portion set aside for them.

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The Rs 1,895 crore public issue was entirely an offer for sale by promoter S Surendranath Reddy and investors Karakoram and Kedaara Capital Alternative Investment Fund – Kedaara Capital AIF 1.

Brokerages had mixed opinions on the issue because it has a regional presence (Telangana and Andhra Pradesh) and could face stress on profitability due to rising healthcare costs. However, it has an integrated business model with superior financial performance.

“Vijaya Diagnostic has a presence in both diagnostic and radiology segment; however, its peers mainly have presence in diagnostic business only,” said Choice Broking. “It primarily derives almost all of its business from walk-in customers, which is much higher than its peers. The diagnostic sector will continue to have a secular growth trend with good cashflow generation capabilities. However, rising healthcare costs may put stress on profitability of the sector.”

Choice Broking said that at the higher price band of Rs 531, Vijaya Diagnostic had demanded a trailing 12 month P/E multiple of 47x, which was in line with the peer average. It said the issue seemed to be fully priced and had recommended an “avoid” rating.

Hem Securities liked the company’s integrated business model due to which its financial performance was superior.

“The company’s operating profit before depreciation, interest and tax margin ranked second among other major diagnostics along with negative working capital and high cashflow generation, leading to strong net cash position. Also, the company’s strategy of expanding in Telangana and Andhra Pradesh, which are expected to grow at CAGR of 12-13 percent by 2023, will be the next growth driver for company. Hence… we recommend ‘subscribe’ on issue.”

Vijaya Diagnostic is the largest integrated diagnostic chain in southern India and was one of the fastest-growing diagnostic chains in FY20, offering a one-stop solution for pathology and radiology testing services through a network of 81 diagnostic centres and 11 reference laboratories across 13 cities and towns.

The company derived 96.2 percent of its revenue from Hyderabad and the rest of Telangana and Andhra Pradesh in FY21.

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