Thyrocare IPO: Today is the last day for the IPO, so just made a
quick view. I am not much in favor of investing in an IPO as usually they are
overvalued with regard to their present financials and growth. Like mostly they
are running at high PE ratios like in this case PE ratio is around 45. So if
there are growth options then one can invest in it but it will fall if it fails
to perform accordingly in the future. This is for slight long term period, for
listing gains there is no basis. It can
go anywhere based on market view, short term hype, analysts’ views, any pumping
news (like in the case of Quick Heal).
Also too much emphasis is put on the financial ratios like
net profit margins, return over assets, pe ratio etc. But these are all past
and thus provide only a point of reference, whereas generally an IPO is for
future growth. Financial data can only be used relative to the business scenario
like Kodak was the giant in photography and used to have scintillating
financial ratios but It failed to comprehend the digital revolution and just
vanished from the scene. Everything good about its financial was only related
to past so everything bad in financials is also for past. The thing to look is
to the future, whether one can improve upon it and this future analysis is the
most decisive factor in the performance of an investment.
Thyrocare is into diagnostic business which is largely unorganized
in india as diagnostics labs are everywhere in streets. So only thing which is
worth studying in this case is whether Thyrocare will be able to gain market share
from these unorganized players. And this is where I feel Thyrocare is very strong
due to its business model which provides cheap diagnostic solutions coupled
with high quality standards. It is having one centralized lab in Vashi Maharashtra
which is capable of doing around 2 lac tests everyday (this is huge). So
thyrocare operates on a unique model where its franchisee collects the samples
and send the same to centralized lab everyday via aircargo (That’s why
Thyrocare is primarily in cities with Air travel) where tests are conducted and
reports are made even at nights and then final reports are sent via email and
post. All this concludes within 24 to 48 hours!! This is electric. You make an
online appointment for test and shortly their franchisee visits your home and
collects the blood samples. This is so good. They have superior logistics and
IT capabilities to handle this huge volume of data.
Then comes the costs, I have checked that Thyrocare charge
something like Rs. 1600 for some tests which cost around Rs. 5000 if done in
a local lab!! I think due to this low cost model and very high tech logistic
abilities, it can disrupt the unorganized sector in a big way. Its turnover is
just 200 cr…if I take all the organized players like Dr. lal path and SRL…they
may be handling over 2000 cr to 3000 cr turnover whereas current market is
around 20000 cr which is going to grow much bigger due to spending on
healthcare by Indians and Govt. we are way underspent on healthcare. So future scale
is huge and it has all the strengths to run up to last mile.
I have some reports where they cite the low return over
assets of around 13% with 26% of Dr Lal path. I think these are not required
and useless….there can be reasons for this like underutilization of centralized
labs capacity, Thyrocare share around 50-60% of a lead with franchisee owners
whereas others just 30%. Although I could not check the reasons for this but
future growth will take care of it.
Promoters are good with high credentials. So I may like to
put my money into it for long term. Regarding listing gains there are 70%
chances of gains but if it falls then time will be for adding more of it. We need
to have a strategy for both because it is running at a high pe ratio of 45
although its business model supports this high valuation. . I couldn’t apply
for Quick Heal but when it falls to 190…I picked it and it is just doing what
it has planned as it is spending big on brand building on media.
I like these healthcare stocks like Narayana Hrudalya which
are providing high quality healthcare solutions at a fraction of cost of premium
service providers and of Global counterparts. I think these can bring huge
foreign earnings much higher than IT if our Government has the vision to look into
this sector. The vision is simple that we need to focus on our strengths and
utilize those for establishing a place for us at Global arena…..and there is no
need for a diagnostic test for it.
(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)
