Errata: IPO Note - Thyrocare Technologies Limited (TTL) - (Long term Investors – Subscribe)
Please note that the IPO report published yesterday (Thyrocare Technologies Ltd IPO Note) had erroneously assigned a P/E of 20x (within the outlook and valuations section of the report) to Thyrocare Technologies Lt (TTL), whereas the value was derived using a P/E multiple of 30x. Also note that the P/E multiple of 30x represents a nearly 37% discount to the only listed peer available (i.e. Dr Lal Path Labs). Rest of the investment arguments remain unchanged.
Apologies for the error.
IPO Note - Thyrocare Technologies Limited (TTL) (Long term Investors – Subscribe)
Key Highlights
· Portfolio of wide range of specialized tests and profiles of tests: TTL provides a wide range of diagnostic tests which include 198 tests and 59 profiles of tests. These tests cover the fast growing segment of wellness and preventive healthcare. According to CRISIL Research, this segment is expected to grow at a CAGR of 25% over next three years.
· Preventive medical tests catching up fast in the country: The profiles of tests include 16 profiles of tests administered under the “Aarogyam” brand, which offers patients a suite of wellness and preventive health care tests.
· Multi-lab Model driving volume: TTL operates through one central lab and 5 regional processing labs which enabled it to boost the tests volume to over 38% CAGR over the past three years. Given the business model of the company, it is expected to maintain the growth trajectory in the medium to long term.
· Pan-India, widely spread collection network: TTL has built a nation-wide network of collection centers using 1041 franchises in 466 cities and spread across 24 states and one union territory which has helped the company to penetrate deep in the Indian diagnostic services market.
· Strong operating performance and asset light model leading to high returns: The franchise model of the company has helped it to minimize its capital expenditure leading to higher returns on equity as well as return on capital employed. TTL’s sales and EBITDA have grown by a CGAR of ~24% and ~22% respectively over the past 5 years.
Outlook and Valuations
Thyrocare Technologies Ltd. was among the first Indian diagnostic laboratories to obtain internationally renowned quality accreditations like ISO 9001-2000 rating as early as 2001, having over 1000 franchises spread in 466 cities across 24 states and one union territory in India. TTL’s sales have grown at a CAGR of ~24% to over the past five years.
Given a) strong management background, b) established brand and c) strong growth statistics, we value TTL at `486 per share (i.e. ~20x its FY18E profits based on our estimated sales growth of 24% CAGR between FY16 – FY18, and normalized net profit margins of 25%) and recommend “Subscribe” on TTL IPO for both long term and near term investors as it is one of its kind companies in this space, with this kind of a business model.
Key Risks
TTL operates in industry which is highly competitive and fragmented: Due to low entry barrier, the diagnostic industry in India is
highly competitive as the company has to compete with organized as well as unorganized players. At the same time, company also
faces competition from their franchises as they may decide to start their own laboratories.
Negative Publicity of Brand may harm the business and also the survival: Brand is among the most valuable asset to the
company. Any negative publicity may harm the Brand of the company which it turns may affect the operations and business of the
company adversely. This may also challenge the survival of the company. At the same time company may not be able to control all
the factors as some are beyond its control.
Delay in transportation or logistics could disrupt the Hub n Spoke model of the company: Since the company operates through
one central processing lab and five regional processing labs, timely delivery and logistical efficiency is critical is maintaining its quality
and promptness of service (the entire hub and spoke model is dependent on the efficiency of the logistics). Any disruption in that
poses business risk to the company.
High dependency on the franchises: Company operates in franchise based revenue model. It becomes important for the company
to attract new franchises and retain the existing ones to maintain and grow the test volumes. At the same time it has to ensure the
efficiency with which the franchises work (as to how they collect samples).
IPO details
The Company plans to raise around `4.79bn through the issue.
An offer for sale of shares worth `4.79 bn (at the upper end of the price band).
The issue will constitute up to 20% of post issue equity.
At the higher end of the price band, the market-cap will stand at ~24.00bn.
WHAT EVER YOU EARN FROM MY CALLS PLEASE GIVE 10% PROFIT'S FOOD TO COWS AND DOGS HELP THM GOD WILL HELP YOU-!!!
Please note that the IPO report published yesterday (Thyrocare Technologies Ltd IPO Note) had erroneously assigned a P/E of 20x (within the outlook and valuations section of the report) to Thyrocare Technologies Lt (TTL), whereas the value was derived using a P/E multiple of 30x. Also note that the P/E multiple of 30x represents a nearly 37% discount to the only listed peer available (i.e. Dr Lal Path Labs). Rest of the investment arguments remain unchanged.
Apologies for the error.
IPO Note - Thyrocare Technologies Limited (TTL) (Long term Investors – Subscribe)
Key Highlights
· Portfolio of wide range of specialized tests and profiles of tests: TTL provides a wide range of diagnostic tests which include 198 tests and 59 profiles of tests. These tests cover the fast growing segment of wellness and preventive healthcare. According to CRISIL Research, this segment is expected to grow at a CAGR of 25% over next three years.
· Preventive medical tests catching up fast in the country: The profiles of tests include 16 profiles of tests administered under the “Aarogyam” brand, which offers patients a suite of wellness and preventive health care tests.
· Multi-lab Model driving volume: TTL operates through one central lab and 5 regional processing labs which enabled it to boost the tests volume to over 38% CAGR over the past three years. Given the business model of the company, it is expected to maintain the growth trajectory in the medium to long term.
· Pan-India, widely spread collection network: TTL has built a nation-wide network of collection centers using 1041 franchises in 466 cities and spread across 24 states and one union territory which has helped the company to penetrate deep in the Indian diagnostic services market.
· Strong operating performance and asset light model leading to high returns: The franchise model of the company has helped it to minimize its capital expenditure leading to higher returns on equity as well as return on capital employed. TTL’s sales and EBITDA have grown by a CGAR of ~24% and ~22% respectively over the past 5 years.
Outlook and Valuations
Thyrocare Technologies Ltd. was among the first Indian diagnostic laboratories to obtain internationally renowned quality accreditations like ISO 9001-2000 rating as early as 2001, having over 1000 franchises spread in 466 cities across 24 states and one union territory in India. TTL’s sales have grown at a CAGR of ~24% to over the past five years.
Given a) strong management background, b) established brand and c) strong growth statistics, we value TTL at `486 per share (i.e. ~20x its FY18E profits based on our estimated sales growth of 24% CAGR between FY16 – FY18, and normalized net profit margins of 25%) and recommend “Subscribe” on TTL IPO for both long term and near term investors as it is one of its kind companies in this space, with this kind of a business model.
Key Risks
TTL operates in industry which is highly competitive and fragmented: Due to low entry barrier, the diagnostic industry in India is
highly competitive as the company has to compete with organized as well as unorganized players. At the same time, company also
faces competition from their franchises as they may decide to start their own laboratories.
Negative Publicity of Brand may harm the business and also the survival: Brand is among the most valuable asset to the
company. Any negative publicity may harm the Brand of the company which it turns may affect the operations and business of the
company adversely. This may also challenge the survival of the company. At the same time company may not be able to control all
the factors as some are beyond its control.
Delay in transportation or logistics could disrupt the Hub n Spoke model of the company: Since the company operates through
one central processing lab and five regional processing labs, timely delivery and logistical efficiency is critical is maintaining its quality
and promptness of service (the entire hub and spoke model is dependent on the efficiency of the logistics). Any disruption in that
poses business risk to the company.
High dependency on the franchises: Company operates in franchise based revenue model. It becomes important for the company
to attract new franchises and retain the existing ones to maintain and grow the test volumes. At the same time it has to ensure the
efficiency with which the franchises work (as to how they collect samples).
IPO details
The Company plans to raise around `4.79bn through the issue.
An offer for sale of shares worth `4.79 bn (at the upper end of the price band).
The issue will constitute up to 20% of post issue equity.
At the higher end of the price band, the market-cap will stand at ~24.00bn.
WHAT EVER YOU EARN FROM MY CALLS PLEASE GIVE 10% PROFIT'S FOOD TO COWS AND DOGS HELP THM GOD WILL HELP YOU-!!!
Trend in FII flows: The FIIs were Net Value of Rs -233.56 the cash segment on Tuesday while the DIIs were Net Value of Rs -268.77 as per the provisional figures.
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