Shalby IPO recommendations: Subscribe is the call


The public offer of Ahmedabad-based Shalby Hospitals opens today for subscription and it has garnered positive recommendations and reviews from analysts and brokerage houses. Most analysts have highlighted the company’s growing revenues and margins, although some have also indicated that excessive reliance on Gujarat for business presents a downside. This is something we also mentioned in our analysis. Nevertheless, analysts are hopeful about the company benefitting from operating leverage in the coming years. Here is a snapshot of Shalby IPO recommendations.

Choice Broking has put a subscribe rating on the IPO. “On financial front, SHL’s operating income (OI) grew at an average of ~8% during FY15-FY17 in line with peer’ average while average EBIDTA margin maintained 21.9% (avg. EBIDTA margin of peer ~12.1%) and avg. RoE during the last three fiscals stood at 19.0% (higher than peer avg. RoE 9.1%). SHL is fundamentally strong and well managed company and at P/E (x) of 42.8 (considered post issue EPS), the issue is available at attractive valuation. Thus, we assign ‘subscribe’ rating to the issue,” opined the brokerage house in its report.

Bolstering positive Shalby IPO recommendations were analysts at Angel Broking which  like the company’s growth story. “At the upper end of the price band (`245-`248), the issue is priced at 42.8x of its FY2017 earnings vs. Apollo hospitals (73.7x) and Healthcare Global (121.2x). On EV per bed, it is available on 3.8x vs Apollo (2.3x) and Healthcare Global at 2.1x. We like its growth story, better returns profile than peers and strong growth prospects ahead,” added the report.

HEM Securities is also positive on the prospects and cited the scalable business model behind its subscribe rating. “Company is bringing the issue at price band of Rs 245-248/share at p/e multiple of 46-47. Co has leadership in orthopaedics with integrated and scalable business model enhancing patient reach and is experienced player with longstanding presence. Hence, we recommend “Subscribe” on issue for long term,” said analysts in their IPO note.

Centrum further increased the number of positive Shalby IPO recommendations as it cited strong balance sheet and future prospects. “At the higher end of the price band of Rs 248, the issue is priced at 42.8x its FY17 earnings and 41.1x its EV/EBITDA. At this valuation, the issue of Shalby is attractively priced compared to close peer Narayana Hrudayalaya (recent IPO in the sector) trading at 72x P/E and 27.1x EV/EBIDTA. Shalby’s RoE of 26.6% is better compared to peers’ average of 11.8% for FY17. Considering robust growth, high return ratios, strong balance sheet and future prospects, investors can be advised to ‘subscribe’ to the issue. There is an underlying assumption that Shalby would maintain healthy growth rates going ahead,” noted the brokerage house.

Another positive word came from SMC Global Securities which said the government’s move to cap the cost of knee replacement and heart surgeries may limited the hospital chain’s margins. “The company intends to strengthen its hospital presence in western and central India and continue expanding into new geographies, implement initiatives to improve operational efficiencies and continue to grow ancillary businesses. At present, the Company is dependent on one field of specialty for a substantial portion of its revenue, i.e. orthopaedics. In order to reining the higher medical cost, the government has recently capped the cost of Knee replacement and heart surgery, which could be risky for the health care industry as the move has the potential to limit the margins. Investors may consider investment for medium to long term,” said the brokerage house which offered two stars to the IPO in its report.

SPA Securities is bullish on the company’s prospects and finds it a good long term bet. “Since FY12, the company has experienced a steady growth in providing orthopedic and non-orthopedic healthcare services, maintaining higher margins and RoE than its peers because of several cost efficiency measures, such as procurement of medical consumables, lower capital expenditure per bed, higher beds to operation theatre, and better space utilization. This helps the company achieve EBITDA positive levels for new hospitals in less than two years. The company’s revenues, EBITDA and PAT have grown at a CAGR of 7.9%, 5.1% and 16.8% respectively, between FY14-17. The company has showcased healthy EBITDA margins in the range of 20-25% consistently. At the upper price band of INR 248/share, the issue is valued at a PE of 35x with FY17 Adj. EPS of INR 7.0. We recommend to SUBSCRIBE to the issue as a good long term investment,” said its analysts.

While concerns remain, analysts’ bullish views in Shalby IPO recommendations indicate investors have reasons to look forward to the IPO in the positive light.



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