Shalby Limited IPO sees tepid response from investors on day 1

Shalby Limited, Ahmedabad-based multi-speciality hospital chain, on Tuesday launched it's initial public offering (IPO)  received a tepid response from investors during the day.

At 1526 hours, as per NSE data, the company received bids of 25,91,700 equity shares, subscribing by just 18% compared to its total issue size of 1,45,21,686 equity shares.

Price band for the issue is fixed at upper end of Rs 248 per share and lower end of Rs 245 per share. It will be available for subscription till December 7, 2017.

50% of the issue is allotted to qualified institutional buyers (QIB), while 35% kept for retail individual investors (RII) and the remaining 15% for non-institutional investors (NII).

The company aims to raise about Rs 505 crore from its issue and utilize it for repayment of debt and purchase of medical equipment, furniture and infrastructure.

A day before the IPO issue, Shalby raised approximately Rs 150 crore from 13 anchor investors at the upper band of Rs 248 per piece.

Companies like Edelweiss Financial Services, IDFC Bank and IIFL Holding are acting as book running lead manager (BLRM) for the issue.

At the higher end of the price band of ₹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.

Its peers like Healthcare Global Hospitals are trading at P/E ratio of 111x (Highest), Apollo Hospitals are trading at P/E of 72x (moderate) and Fortis Healthcare is trading at P/E ratio of 15 (Lowest) and industry average is at 67x.

Analysts believe that Shalby is in a favourable position to benefit from the increasing demand of quality healthcare services in India.

Analysts at ADROIT said, “Healthcare industry is a growing business. Its issue price is also reasonably priced. Considering all these positive factors, investor can invest in this IPO with medium to long term perspective.”

Alpesh Thacker and Payal Pandya, Research Analysts at Centrum Wealth, said, "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."

Despite Shalby's promising business, analysts at ICICI Direct provided unrated recommendation to the IPO in the backdrop of steeper valuation and growing government intervention.

However, Centrum warns investors about three risks that Shalby sees ahead. They are - 1) Concentration risk (~77% of FY17 revenue came from only 2 out of 11 hospitals and ~80% comes from Gujarat state); 2) Change in government policies relating to patients covered by government schemes and 3) Increasing competitions from other hospitals and healthcare facilities.

Shalby's market valuation post the IPO issue is expected to range between Rs 2,652 crore and Rs 2,679 crore.