Deccan Healthcare IPO is scheduled to open on 18 December for subscription as one of the last public offers in 2018. In order to help our readers take investing decision, we have compiled a set of 25 parameters. The Telangana-based nutraceutical and pharmaceutical player offers a diversified portfolio of hair care, skin care, heart care, immunity building products. Here is a snapshot of Deccan Healthcare IPO Review, please scroll down for the total score.
Deccan Healthcare IPO Review: Business Basics
Are the company’s annual revenues more than INR50 crore?
No, Deccan Healthcare had revenues of INR39.8 crore in FY2018.
Are the company’s annual profits after tax in excess of INR5 crore?
No, Deccan Healthcare’s net earnings stood at INR12.7 crore in FY2018.
Has the company got a strong and recognizable brand?
Nopes. Despite its growing revenues, the company doesn’t enjoy a significant brand power. Majority of its sales are based on its relationships with sellers and a vast sales organization.
Is there a strong moat in place in the form of entry barriers, market reach etc?
Yes, Deccan Healthcare has a network of 140 distributors and 6,100 marketing agents. Although it has no edge in product development through patents, its market reach offers it some advantage.
Is the company free of big client risks in terms of impact on revenues?
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Yes. The company sells its products through a network of distributors and marketing agents and doesn’t cater to institutional market.
Do exports contribute a sizeable chunk to annual revenues, giving the company an edge over its competitors?
Is there a strong connect between the company and retail consumers?
No. As mentioned above, the company is depending on a market push approach and doesn’t enjoy a strong retail connect yet.
Deccan Healthcare IPO Review: Management Analysis
Is the company’s top management experienced enough to lead operations through difficult times?
Yes, Deccan Healthcare has experienced management which has steered business operations through a variety of operating conditions so far.
Are the management members/promoters paying themselves fairly without jeopardizing shareholders’ interests?
Yes, we didn’t find excessive remuneration for management.
Do the promoters have sizeable equity left in the company after the IPO?
Yes, the promoters and promoter group currently own 10,060,214 shares or 74.51% equity stake in the company and plan to sell 2,000,000 shares through the IPO.
Is the current management trustworthy? Are there instances of putting shareholders’ interests at risk for personal gains?
No. There have been instances indicating otherwise in promoters’ other companies. Please see the note below.
Are the litigations or criminal proceedings against the company insignificant in nature and doesn’t involve big numbers?
No. There are criminal cases pending against the promoters and directors. In one case, promoter Minto Purshotam Gupta and director Meenakshi Gupta are accused of defrauding and misleading investors to the tune of INR2.6 crore in Omega Herbs Pvt. Ltd. by making false promises of high return on investments. Minto Purshotam and Meenakshi Gupta’s children were directors at Omega Herbs Pvt. Ltd.
In another criminal case, promoter Hitesh Patel is accused of illegally trading in accounts of M/s Quantam Buildtech Ltd and G Satyanarayana and making false claims with help of forged documents.
Yet another criminal litigation involves director Meenakshi Gupta where she is accused by her daughter-in-law of inhuman mental and physical violence in connection with demand of dowry.
All the three cases are currently pending in courts.
Are the company management’s shares free from any pledge with banks or financial institutions?
Yes. As on the date of the prospectus, no promoter shares are pledged.
Are there external investors such as private equity or venture capital firms on board?
Yes, the company counts Kent RO Systems and Valueworth Capital Management among external investors. The two firms own nearly 10% equity in Deccan Health Care.
Deccan Health Care IPO Review: Financial performance
Have the company revenues grown at a CAGR of at least 10% in the last three years?
Yes. Revenues have jumped from INR16.12 crore in FY2016 to INR39.76 crore in FY2018.
Have the company’s net profits grown at a CAGR of at least 25% in the last three years?
Yes. In the same three years, its earnings surged from INR3.54 crore to INR12.69 crore.
Has the Average Return on Equity (ROE) in the last three years been more than 15%?
Yes. The company’s average Return On Net Worth (RONW) in the last three years has been 40%.
Has the company maintained positive operating cashflows in the last three years?
Has the company witnessed a declining trend in debt/equity (D/E) in the last three years?
Are the company’s working capital requirements less than 20% of its annual sales?
No. Deccan Health Care requires high working capital. In FY2018, its working capital requirement stood at 51.2% of its annual revenues.
Is the Debt/Equity ratio less than 1?
Yes, the company’s D/E ratio as of 31 March 2018 stood at 0.30.
Deccan Health Care IPO Review: IPO objectives and valuations
Are the IPO objectives in line with the broad corporate guidelines? Debt reduction is fine, funding fancy furniture with IPO funds is not.
Yes, the funds will be primarily used towards payment of loans and purchase of plant and machinery.
Is the company offering some discount on Price/Earnings (P/E) ratio compared to its peers?
Yes. The company is offering its shares in the P/E range of 9.74 – 10.26 which is quite reasonable. The company has listed a much-bigger Zydus Wellness as its peer but these valuations are attractive when compared with companies of similar size.
Is the company offering some discount on Price/Book Value (P/BV) ratio compared to its peers?
Yes, P/BV is in the range of 3.52 – 3.70 which is lower than comparable companies.
Are the contingent liabilities less than 10% of latest annual revenues?
Yes. Contingent liabilities including commercial tax and income tax stood at INR1.41 crore in FY2018, translating to 3.56% of annual revenues.
Disclaimer – The objective behind Deccan Health Care IPO Analysis is to offer an unbiased view of the company’s operations, offer details, strengths, weaknesses, financial performance and valuation. The IPO rating framework helps investors in taking a call if Deccan Health Care IPO is worth investing or not. Nevertheless, this is not an IPO recommendation to subscribe or avoid and the decision to invest should be based on individual investor’s risk profile.