Shalby Limited IPO Review and Peer group Comparison

Shalby Limited IPO comprises of fresh issue of shares aggregating Rs. 480 crore and 1.0 million shares as an offer for sale (OFS). The post issue promoter holding in the company shall stand reduced to 79.4%. Shalby Limited IPO size is ~ Rs. 505 crore. Shalby Limited is one of the renowned healthcare service providers for orthopedics, mainly joint replacements and dental implants. Further, Shalby Limited has supportive departments like Pathology, Microbiology, Radiology and Physiotherapy and has been extending its multi-specialty services.

Shalby Limited IPO Details
Issue Period Tue, Dec 5, 2017 – Thu, Dec 7, 2017
Price Band Rs.245 – 248
Bid Lot 60 Equity Shares and multiple thereof
Issue Size ( in Rs.) Rs.504.50 Cr – 504.80 Cr
Issue size (in Shares) Fresh Issue of  shares aggregating upto Rs.480 Cr
  Offer For Sale of upto 1,000,000 Equity Shares
Issue Structure :  
QIB* 50% of the Net Offer-10,116,919 Shares– 250.90 Cr)
NIB 15% of the Net Offer- 3,035,075 Shares –  75.27 Cr)
Retail 35% of the Net Offer – 7,081,843Shares – 175.63 Cr
Appl. for 1x Retail subscription (based on min. lot) 1,18,030
Lead Manager Edelweiss Financial, IDFC Bank, IIFL Holdings
Registrar Karvy Computershare Pvt. Ltd.
About Shalby Limited
  • Shalby Limited operates a chain of leading multi-specialty hospitals in various areas of specialization such as orthopedics and cardiology among others. 
  • While most of its hospitals provide multi-specialty services, it  derives a substantial portion of its revenue from 
    orthopedic services.
  • The company is led by Dr Vikram Shah, an orthopedic surgeon who has more than 25 years of professional
    experience. Having performed approximately 54,105 joint replacements since 2007, Shalby Limited has
    been a market leader in the area of joint replacement surgeries.
  • Headquartered in Ahmedabad, Shalby Limited have a domestic and overseas outreach through a network of hospitals in India, and Outpatient Clinics and SACE (Shalby Arthroplasty Centre of Excellence) located in India, Africa, and the Middle East. Shalby Limited is having strong presence in western and central India and focus on Tier – I and Tier – II cities,
  • As on June 30, 2017, Shalby Limited had nine operational hospitals (now eleven) with an aggregate operational bed count of 841 beds. Its hospitals operate across five states, Outpatient Clinics operate across 37 cities in 12 states in India, and its SACE (Shalby Arthroplasty Centre of Excellence) are present in seven cities in six states in India.
  • Shalby Limited international footprint consists five Outpatient Clinics and one SACE in Africa, and two SACE in the UAE. 
  • The company has also started services on Home Care front from FY 2015. These services include a wide range of services which, inter alia, include attendant services, nursing services, physiotherapy services, pathology services, and home deputation of medical officers
  • Shalby also commenced Shalby Academy in FY 2016, which offers various educational programmes including diploma in orthopaedics, fellowship in critical care, and courses offered by the Paramedical Council of Gujarat.
  • The Company conducts clinical research trials since 2006 at SG Shalby and Krishna Shalby (both in Ahmedabad). It has undertaken 80 sponsored clinical research trials since 2006.
Rs. In Crore
Particulars Q1 FY18 FY 17 FY 16 FY15
Revenue from Operations 89.23 325.39 290.41 275.42
Revenue Growth (%) 12.05% 5.44%
Profit Before Tax 18.6 53.25 35.92 43.03
Net Profit after Tax 14.48 61.57 36.32 24.55
Net Profit Margin 16.23% 18.92% 12.51% 8.91%
EPS (Rs.)# 1.63 7.16 4.3 2.94
Face Value  (in Rs.) 10 10    
Share Capital 88.66 87.41 87.89 35.37
Reserves 200.24 178.29 117.14 133.05
Net worth 288.9 265.7 205.02 168.42
Net Asset Value (Rs.) 32.59 30.4 23.41 19.23
Long Term Borrowings 251.92 285.4 201.07 73.73
Short Term Borrowings 59.02 26.07 9.32 7.52
RONW(%)   23.54% 18.32% 15.26%
IPO Price 248  
Price/ Earning (PE) FY17 34.64  
Post Issue Share Capital 108.02
EPS on Post Issue Equity 1.34 5.70
PE -on Post IPO Equity 43.51
Price/ Book Value (P/BV) 7.61  
Cagr  Sales (Fy15-17) 8.69%  
Cagr NP (Fy15-17) 58.36%  
Market Cap 2199 crore
Market Cap/Sales(fy17) 6.76  
Objectives of the Issue
  • Repayment or prepayment in full, or in part of certain loans availed by our Company – Rs. 300 crore
  • Purchase of medical equipment for existing, recently set up and upcoming hospitals – Rs. 58 crore
  • Purchase of interiors, furniture, and allied infrastructure for upcoming hospitals – Rs. crore
  • Remaining amount for General corporate purposes
Rationale for Investment
  • Shalby Limited is led by Dr Vikram Shah, an orthopaedic surgeon with more than 25 years of professional experience. The company has grown from a single hospital to a chain of multi-specialty hospitals. From four hospitals in April 2012,Shalby Limited has grown to 11 hospitals as on the date of this Red Herring prospectus.
  • Shalby Limited had a 15% market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016. This hospital has specialized in some techniques named ‘OS Needle’ and ‘Zero Technique’ brought in by the promoter doctors. Through OS Needle, it has been successful in simplifying soft tissue procedures, thereby reducing the risk of infection and the high rates of failure that once existed while undertaking  orthopedic surgeries. Due to this, Shalby Limited enjoys leadership in this field.
  • Besides  owning hospitals, Shalby Limited is also engaged in operating and managing Hospitals on a Revenue Sharing Basis, by adopting an asset-light model.  Shalby Limited also associates with Third-Party Hospitals on a Revenue Sharing and/or professional fee basis.
  • The company intends to focus on cities with high growth rate and Intends to expand its hospital network to northern India, eastern India, and north eastern India. Shalby Limited is  expanding its  footprint in western and central India with hospitals being set up in Nashik and Vadodara.
  • While orthopaedics will continue to be a key focus area, the Company intends to set up multi specialty hospitals which focus on specialties other than orthopaedics.
  • The operational performance of Shalby Limited is given below:
    Particulars H1FY18 2017 2016 2015 2014 2013
    Total Bed Capacity 2,012 2,012 1,295 907 674 674
    No. of Operational Beds 841 781 823 593 455 373
    Revenue  (Rs. Cr) 90.6 332.86 292.56 277.63 261.68 229.83
    EBIDTA Margin (%) 2.89% 2.22% 19.10% 24.50% 24.20% 18.45%
    Bed Occupancy Rate (%) 33.76% 34.48% 31.75% 40.95% 39.62% 49.03%
    Average Revenue Per Occupied Bed (“ARPOB”) 36,720 33,032 34,034 39,706 38,662 40,272
    Average Length of Stay (“ALOS”) 3.88 3.99 4.14 4.03 3.96 4.1
    Average ROCE (%) 3.66% 11.12% 13.12% 21.15% 35.33% 24.75%
    Inpatient Volume 6,258 24,704 20,528 17,147 16,609 15,348
    Outpatient Volume 47,956 1,66,519 1,52,921 1,28,821 1,25,981 1,10,919
  • Operating efficiency of Shalby Limited has improved with patient’s average length of stay (ALOS) reduced to 3.99 days by FY17. Revenue generated by servicing inpatients during initial period of   stay is higher and hence Shalby Limited strategies to minimise the ALOS at its hospitals which in turn could improve the average revenue per operational bed (ARPOB) 
Risks & Concerns
  • Shalby Limited has a significant dependency on orthopedic services for income. For the three months ended June 30, 2017 and FY 2017, the orthopedic services contributed to as much as 67.51% and 67.77%, respectively, of its total revenues.
  • A significant portion of its revenue is currently generated from two hospitals SG Shalby and Krishna
    Shalby. Further, a majority of company’s hospitals are located in the state of Gujarat. Any material impact
    on the revenue from these hospitals will impact its business, prospects, financial condition and results
    of operations significantly
  • Company’s O&M partner, SMJH Trust, has not perfected its leasehold rights upon the land on which Shalby
    Jabalpur has been constructed. Accordingly, its rights arising out of its O&M arrangement with
    SMJH Trust in respect of Shalby Jabalpur may be impaired, thus adversely affecting its revenue,
    profits, and financial conditions.
  • Shalby Limited is significantly dependent on its Promoter, Dr Vikram Shah, and a loss of his services
    could adversely affect its  business and results of operations.
  • Change in government policies that relate to patients covered by government schemes could impact
    its revenue from operations. This includes both government moves to cap prices of medical implants & devices as well as charges allowable under medical services as part of  various government Central Government Health Scheme, the Ex-servicemen Contributory
    Health Scheme, and the Employees’ State Insurance Scheme.
Peer Group Comparison:
     (Rs. in Crore)
Particulars/ Company Name Apollo Hospital Narayana Hrudayalay Indraprastha
 Medical Corp
Shalby Ltd.
Market /IPO Price 1156.45 296.15 52.85 248
Face Value 5 10 10 10
Net Sales 6441.77 1645.914 765.72 325.39
PBDIT 799.89 217.595 77.67 73.92
PAT 285.146 95.109 26.25 61.57
Equity 69.56 204.36 91.67 87.41
Networth 3579.01 1,058.47 230.83 265.7
NAV 257.25 51.79 25.18 30.4
EPS 20.5 4.65 2.86 7.16
Price / Earning 56.41 63.69 18.46 34.64
Price / BV 4.50 5.72 2.10 8.16
PBIDTM % 11.97% 13.22% 10.14% 22.72%
PATM % 4.43% 5.78% 3.43% 18.92%
RONW % 7.97% 8.99% 11.37% 23.17%
Market Cap 16089 6052 484 2199
Market Cap/Sales 2.50 3.68 0.63 6.76
  • The Indian healthcare industry was estimated to be INR 9.2 trillion in 2016; grew at a CAGR of 14-15% over the
    last five years (2011 to 2015). The healthcare industry is expected to grow at a CAGR of 15-16% during 2015-20
    and expected to reach INR 17.2 trillion in 2020.
  • Overall healthcare and hospitality industry has good prospects.
  • Government has capped prices of knee implant which could be risky for the industry and for Shalby Limited.
  • Shalby Limited has used MAT credit entitlement in the year 2017 & so its taxes are lower. Going forward it will have to pay full taxes which may dent its net profit figure. 
  • The Peer analysis indicates that Shalby has better profitability metrics than larger hospitals like Apollo and Narayana Hrudayalay and has a commendable Return on Networth. Going forward as Shalby Limited expands into into areas and territories these pefot margins may not be sustainable. Further compared to mid size hospital Indraprastha Medical Hospitals, issue is not  cheap. Hosever the issue has been priced at a Lower PE than the larger hospitals like  Apollo and Narayana Hrudayalay.
  • On Post issue equity capital of 108.02  crore, EPS for FY 2017 works out  to Rs. 5.7. At the upper end of price band of Rs 248, The P/E based on FY 2017 on this diluted EPS works out to 43.51
  • While Shalby Limited performance in the past has been reasonable and company is showing strong urge to grow, its ability to do so with matching increase in profits will be tested due to reasons cited earlier in the post. 
  • Given lukewarm response to many high price IPO in the recent past, I am not very enthusiastic to apply for Shalby Limited IPO and would only do so incase of good response to IPO on last day.
  • 7/12/17 1:30 PM  – Shalby has got some amount of QIB support. At this moment it is not enhough. Iam watching it and if it gets minimum 5-6  times QIB  support. I may drop in 1-2 applications. 
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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