Another healthcare IPO of the year after the successful IPO of Narayan Hridalaya. This time it’s a cancer care and fertility specialist- HealthCare Global Enterprise Ltd. (HCG). The company provides complete cancer and fertility care service that includes diagnosis, research, treatment, surgery, etc. The company aims to raise Rs. 611- 650 crores by offering shares at Rs. 205-218 per equity share.
About the company
In 1998 “Curie Centre of Oncology” was incorporated at Bengaluru, Karnataka. In 2005, by changing its name to HealthCare Global Enterprise Ltd., the company was re-incorporated.
HCG’s operations are focused on two areas under the healthcare sector in India- cancer and fertility. The company provides its services under two brands:
- HCG– is the brand name for the company’s cancer care network. The complete cancer care network works on the Hub and Spoke model; the center of excellence in Bengaluru being the hub.
The company intends to expand its network to Africa, as a large number of cancer patients from Africa travel abroad for better treatment.
In terms of number of cancer care centers, HealthCare Global Enterprise Ltd. is India’s largest cancer care provider. As of 31st December 2015, HCG had 18 operational centers, which includes its 14 comprehensive cancer centers, 1 day care chemotherapy center and 3 freestanding diagnostic centers.
During FY2015, HCG had 37,458 new cancer patients and 18,079 new patients during the H1FY2016. HCG delivered radiation therapy to 12647 patients in FY2015 and to 6,163 patients during the six months ended Sep-15.
- Milann– the Company operates its fertility centers under this brand.
In 2013, the company acquired 50.10% of BACC Healthcare. BACC itself and its wholly-owned subsidiary- DKR Healthcare operate the fertility centers the Milann brand. And post this acquisition, HCG Enterprise operates 4 Milann fertility centers.
The fertility treatment is emerging and still an underdeveloped segment in India, thus having a great scope to grow. Due to lack of awareness or access to treatment or maybe because of the high cost of fertility treatments, a very small number of people, compared to the overall infertile couples, are seeking proper treatment. However, the numbers are gradually increasing and are yet to rise more.
In FY2015, 8,027 new patients came in to Milann fertility centers for treatment and 1,111 IVF procedures were performed during this period.
The company also owns a Triestabrand. Under this, clinical reference laboratory services is provided. It also offers R&D service to pharmaceutical and biotechnology companies.
The company is freshly issuing 11,600,000 equity shares and the existing shareholders are cumulatively offering 19,498,000 equity share for sale. Thus, the total issue size of HealthCare Global Enterprise Ltd. comes to 31,098,000 equity shares.
Risk factors (regarding the company and industry)
HealthCare Global Enterprise Ltd. incurred consolidated net loss of Rs. 355.53 million in 2014 and 105.14 million in 2013. Its standalone net losses were23.66 mn in 2015; 394.98 mn in 2014 and 71.58 mn in 2013.
There have been incident where the financial statements of the company were misrepresented by the employees of a subsidiary and senior managers of cancer centers. However, the entries have been reversed in the later years and action against the employees have been taken.
The kind of treatments this company specializes in are expensive and often involve a third-party who makes the payment for the patient’s treatment (e.g. charity for a cancer child). Delays or non-payments of such transactions affect the company’s financials. In H1FY2016, 33% revenues were billed to third-party.
The company bears high financial costs. As of 30th November 2015, the company’s total debt amounted to Rs. 429 crores (on floating interest rate). The interest cost was Rs. 24 crore for these 8 months.
A significant part of the revenue is derived from its Centre of excellence in Bengaluru. In 2015 the Center contributed 31.91% of total revenue; 34.26% in 2014 and 39.42% in 2013.
In FY2015 21.52% of the revenues were earned by the subsidiaries of HCG; in 2014- 24.41% and in 2013-15.59%.
Apart from the losses the company has made in preceding years, negative cash flows from investing activities is another financial flaw it has. The investing activities such as capital expenditure on fixed assets including capital advances, purchase of medical equipment, leasehold improvements, etc.had accounted for Rs. -797.12 net cash flow from investing activity in 2015, Rs. -116.03 mn in 2014, Rs. -1,970.13 mn in 2013.
The company’s net worth as on 31st March 2015 was Rs. 2,794.91 million. As on this date, the Net asset value per equity share was Rs. 36.26.
In H1FY2016, the company had 912 operational beds, recorded an Average Length Of Stay (ALOS) of 2.90 days, Average Occupancy Rate (AOR) of 51.6% and an Average Revenue Per Occupied Bed (ARPOB) of Rs. 26,685 per day. These figures for the FY2015 were- operational beds: 875; ALOS: 3days; AOR: 53.5%; ARPOB: Rs. 24,467 per day.
Use of IPO proceeds
The company is making a complete business package deal. Its existing shareholders are off loading their part-equities. The net proceeds from offer for sale which amounts to Rs. 400 crores shall be directly passed on to them. The remaining Rs. 250 crores will be used by the company to:
- Purchase medical equipment – Rs. 42.2 crores.
- Pre-payment of debt- Rs. 147.1 crore
- Investment in IT (software, hardware and service) – Rs. 30.2 crore
- Other general corporate purposes.
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