Ever gone for an X-Ray scan? Or a blood test? These are called Diagnoses in medical terms. In the IPO boom, many hospitals, pharma companies, etc from the health industry have come up with their IPOs. Krsnsaa Diagnostics is one such company that has taken part. Krsnaa Diagnostics’ IPO opens on August 4, 2021, and closes two days later on August 6, 2021.
In this piece, we cover the business model, the financial health and future prospects of the company.
Business Model
Established in 2010, Krsnaa Diagnostics offers radiology, pathology/clinical laboratory and teleradiology services to public and private hospitals, medical colleges and community health centres. It operates 1,801 diagnostic centres offering both radiology and pathology services in 14 states across India, with the largest presence in Maharashtra, Rajasthan and Karnataka. These three states contain 690 diagnostic centres or ~29% of the total footprint.
Apart from operating its own diagnostic centres, it forms Public-Private Partnerships (PPP) contracts with different health agencies. Krsnaa has won 77.59% of all tenders that it has bid for, making it a preferable choice by public health agencies. Close to ~70% of the company’s revenue comes from tenders and partnerships with public health agencies. Krsnaa takes tenders from the National Health Mission to conduct operations in the premises of district hospitals and health care centres.
Krsnaa operates a capital intensive business. It needs to spend on syringes, refills, testing kits, X-Ray machines, testing kits, RT-PCR kits, testing devices, machines, nurses, staff, doctors and much more. In case the company falls short of working capital or has insufficient cash flows, it could impact the business.
Finances
| . | FY21 | FY20 | FY19 |
| Total Assets | 604.5 | 629.9 | 528.9 |
| Total Revenue | 661.40 | 258.42 | 209.23 |
| Profit After Tax | 184.90 | −111.95 | −58.05 |
| Total Expense | 366.0 | 429.7 | 292.0 |
| Debt | 231.2 | 169.2 | 100.6 |
Krsnaa Diagnostics’ revenue increased by 53.41% over a year to Rs 396.45 crore in March 2021. Close to Rs 147 crore of the revenue came from COVID-19 related diagnostics. 67.49% of the total revenue in FY21 came from tenders by public health agencies like National Health Mission to name one.
The company posted a profit of Rs 184.93 crore in FY21 versus a loss of Rs 58.06 crore in FY19.
The company has a total debt of Rs 231 crores as of March 31, 2021. It plans to repay Rs 146 crores of debt by the end of FY22.
A special mention to the revenue statement. Out of Rs 661.4 crore earned in FY21, only Rs 396.4 crores were earned from operations. Close to Rs 252.7 crores were earned because of ‘Gain on fair value movement of compulsory convertible preference shares (CCPS)’. CCPS are a form of fixed income instrument that companies use to raise capital. They can be converted to equity shares.
Industry Peer Comparison
| Peer Comparison | Total Income (Rs Crore) | PAT (Rs Crore) | PE (X) | RoNW (%) | Market Cap (Rs Crore) |
| Dr Lal PathLabs | 1,581.26 | 290.8 | 94.3 | 23.4 | 30,992.60 |
| Krsnaa Diagnostics | 661.40 | 184.90 | 95.3 | 79.8 | 2,994.00 |
| Metropolis Healthcare | 997.98 | 182.0 | 77.7 | 25.9 | 14,754.50 |
IPO In A Nutshell
The proceeds from the IPO will be used:
- To finance the cost of establishing diagnostics centres at Punjab, Karnataka, Himachal Pradesh and Maharashtra.
- For Repayment/pre-payment, in full or part, of borrowings from banks and other lenders availed by the Company
Conclusion
Krsnaa Diagnostics is looking to raise a total of Rs 1,213.33 crore through the IPO. It has received fair feedback from the grey market or the market for unlisted shares. In the grey market, the shares are trading for Rs 400 more (Grey Market Premium or GMP) than the expected price band. The company’s business model, India-wide market presence and rapport with public health agencies are impressive. The finances however print a different story. According to the company’s prospectus, FY21 has been the first profitable year, that too most of it comes from the gain on fair value movement of compulsory convertible preference shares (CCPS).
NIFTY index has crossed a record 16,000 mark for the first time just a day before the company’s listing. A correction in the market could hit valuations on listing day. Three more companies apart from Krsnaa have their IPOs debuting on the same day. The saturation might not attract sufficient interest, especially from retail investors. This is because they have a pool of IPOs to choose from, but have limited capital.
Do you think Krsnaa Diagonistics could give listing gains? Or it is a long term investor’s haven. You can let us know in the comments section in the marketfeed app available exclusively for Android and iOS.
