Aditya Birla Money IPO note on Healthcare Global Enterprises

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IPO Note | Healthcare Global Enterprises Ltd. 14 March 2016
Page No. 1
Aditya Birla MoneyLimited
Cello Triumph, Unit No. 502-503 & 505 | I. B. Patel Road | off W.E. Highway | Goregaon (East) | Mumbai - 400063 | Tel: +91 22 61802800
Healthcare Global Enterprises Limited (HCG) is a speciality healthcare provider in India
with a focus on cancer and fertility. Under the brand “HCG”, the Company operates the
largest cancer care network in India in terms of the total number of private cancer
treatment centres licensed by the AERB as of May 31, 2015. Under the brand “Milann”, it
operates fertility centres. HCG has a network of 14 comprehensive cancer centres,
including its centre of excellence in Bengaluru, three freestanding diagnostic
centres and one day care chemotherapy centre across India. Each of its
comprehensive cancer centres offers, at a single location, comprehensive cancer
diagnosis and treatment services (including radiation, medicaloncology and surgical
treatments). Its freestanding diagnostic centres and day care chemotherapy centre offer
diagnosis and medicaloncology services, respectively.
 Established market leader in cancer care: HCG has largest cancer care network
in India in terms of the total number of private cancer treatment centres licensed by
the AERB as of May 31, 2015. During H1FY16 and FY15, HCG registered 18,079 and
37,458 new cancerpatients across its network and delivered radiation therapy to
6,163 and 12,647 patients, respectively. It has also performed 12,253 and 23,988
PET-CT procedures, 25,453 and 48,360 chemotherapy administrations and 4,630 and
8,707 surgeries, respectively. Its strong footprint in the niche segment of the
Indian healthcare industry provides HCG a competitive edge over its peers.
 Asset light approach: HCG sets up joint ventures and limited liability partnerships
with other hospitals/entities or gets into revenue/profit sharing arrangements with
them. This allows a faster ramp up of network without having to setup or invest in the
physical infrastructure. Under this approach, HCG is currently setting up 12 Cancer
Centres over next 24 months. Out of the 14 cancer centres under HCG’s network,
only four are owned and controlled by HCG while others are on joint venture or
profit sharing basis.
 Robust expansion plans: HCG plans to expand its operations by setting up 12
Cancer Centres in cities including Jaipur, Kanpur, Baroda, New Delhi and Kolkata
over next 24 months. It also plans to establish a network of speciality cancer
centres in Africa to cater increasing unmet demand for cancer care in this region by
replicating its successful model in India. This will provide a significant growth
opportunity to the Company, as a large number of cancer patients travel outside the
Africa to avail quality cancer care.
 Significant scope for increasing utilization levels: HCG’s average occupancy
rate per operational bed (AOR) stands at ~52% as on 30th
September, 2015. As a
result, there is a significant scope for improving utilization levels and thereby
profitability of the Company.
Outlook and Valuations
HCG is a provider of speciality healthcare in India focused on cancer and fertility. Its sales
have grown at a CAGR of ~25% to ~`5.24 bn while operating profit has grown by a
CAGR of ~19% to ~`0.76bn during FY11-FY15. Net funds received from the IPO would
be used mainly for pre-payment of debt, purchase of medical equipment and investment in
IT infrastructure.
At the higher price band of `218, the stock is valued at ~3.5x of its FY15
consolidated sales. Given its proven management background, niche segment of
operations, strong expansion plans and opportunities present in the healthcare industry in
India, we recommend “Subscribe”on HCG IPO for long term investors as the Company is
on the course of aggressive expansion, benefits of which can be seen in the medium to
long term period. However, given the vast demand-supply mismatch among the
institutional investors considering the limited investment options available in the healthcare
space, HCG may catch the fancy of investors on the listing day.
Issue Opens 16th
March, 2016
Issue Closes 18th
March, 2016
Equity Offerings (In mn
shares)
29.8
Face Value 10
Price Band 205-218
Bid Lot 65 & in multiples
Issue Size (`) 6496m
Maximum Application for
Retail Investor (`)
200,000
Issue Type 100% Book Building
Listing BSE & NSE
BRLMs
Kotak,Edelweiss,
Goldman Sachs,
IDFC, IIFL, Yes Bank,
Registrar
Karvy
Computershare
Source: RHP
Pre Issue Post Issue
Promoter 28.75 22.92
Non Promoter 71.25 77.08
Source: ABML Research,RHP
Issue size 29.8
Offer for sale 18.2
Fresh Issue 11.6
Break-up of net issue to public:
QIB's portion (minimum) 22.35
Non-institutional portion (minimum) 4.47
Retail Portion (minimum) 2.98
Source: ABML Research, RHP
Suresh Gardas, CFA
022-61207619
suresh.gardas@adityabirla.com
Issue Structure (In mn no.shares)
Shareholding Pattern (%)
Issue Details
SubscribeLong term Investors
Key Highlights
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 Regulatory risks: Change in government policies that relate to patients covered by government schemes could materially and
adversely impact financial condition, cash flows and results of operations of the company.
 High concentration of revenue from Bengaluru centre: More than 30% of the revenue is derived from single centre at Bengaluru.
Any economic or regulatory concern over the Bengaluru centre can lead to severely adverse effect on the operations and results of
the company.
 High dependence on non-employee specialist physicians: If the specialist physicians discontinue their association with the
company for any reason, the business and results of the company will be materially and adversely affected.
 Outstanding litigations: Two of the Promoters and one of the Directors are party to criminal proceedings and if convicted the
business and reputation of the company could be adversely affected.
IPO details
 The Company plans to raise around ~ 6.5bn through the issue.
 An offer for sale of shares worth ~4bn by promoters.
 A fresh issue of 11.6mn shares at the higher price band of `218 worth ~2.5bn.
 At the higher end of the price band, the issue will contribute to ~35% of post issue equity.
 At the higher end of the price band, the market-cap stands at ~18.55bn.
Source: RHP
Company Overview
Healthcare Global Enterprises is provider of speciality healthcare in India focused on cancer and fertility. Under the “HCG” brand, the
Company operate the largest cancer care network in India in terms of the total number of private cancer treatment centres licensed by
the AERB as of May 31, 2015. (Source: Government of India, Atomic Energy Regulatory Board) Under the “Milann” brand, it operates
fertility centres. As of December 31, 2015, HCG’s network consisted of 14 comprehensive cancer centres, including its centre of
excellence in Bengaluru, three freestanding diagnostic centres and one day care chemotherapy centre across India. Each of its
comprehensive cancer centres offers, at a single location, comprehensive cancer diagnosis and treatment services (including radiation,
medical oncology and surgical treatments). Its freestanding diagnostic centres and day care chemotherapy centre offer diagnosis and
medical oncology services, respectively.
HCG network operates on a “hub and spoke” model, wherein its HCG centre of excellence in Bengaluru serves as a “hub” to its other
cancer centres. Its centre of excellence provides its other centres access to centralised quality control and assurance services;
establishes treatment protocols that are adhered to across its HCG network; provides centralised treatment planning and teleradiology
services to help with diagnosis and treatment; conducts weekly central tumour board meetings to review complex cases; and also gives
its HCG network access to advanced technologies (like WBRRS) and specialised procedures (such as liver transplants and stem cell
therapies). The Company believes this model allows its HCG network of cancer centres to leverage the expertise and capabilities of its
centre of excellence, which when combined with the diagnostic and treatment facilities at its cancer centres, allows them to deliver quality
cancer care to patients across India in a seamless manner.
Key Risks

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In ` million FY11 FY12 FY13 FY14 FY15 8MFY16
Net sales 2148.18 2665.83 3383.05 4513.34 5193.75 3788.87
YoY (%) - 24.10 26.90 33.41 15.08 -
Total expenses 1769.50 2253.52 2920.76 4130.90 4431.35 3231.47
EBIDTA 378.68 412.31 462.29 382.44 762.40 557.40
YoY (%) - 8.88 12.12 (17.27) 99.35 -
EBIDTA (%) 17.63 15.47 13.66 8.47 14.68 14.71
Depreciation &Ammor 176.06 237.68 295.74 361.76 398.25 289.93
Other income 13.72 36.34 23.78 39.72 48.15 23.95
EBIT 216.34 210.97 190.33 60.40 412.30 291.42
Interest 136.11 239.75 291.78 322.29 342.28 244.22
Extraordinary income/(expenses) - - - (4.63) (45.62) (50.51)
PBT 80.23 (28.78) (101.45) (266.52) 24.40 (3.31)
(-) Tax 9.80 2.27 7.14 53.52 (16.83) 7.30
PAT 70.43 (31.05) (108.59) (320.04) 41.23 (10.61)
Share in loss (net) attributable to MI (7.44) (2.26) 3.45 (35.49) (35.77) (26.50)
PAT (after MI) 62.99 (33.31) (105.14) (355.53) 5.46 (37.11)
Equity capital 533.04 592.72 668.9 682.45 699.84 734.76
Reserves 1,177.43 1,519.63 2,165.10 1,955.24 2,095.08 2,210.59
Minority Interest 53.98 82.22 125.81 183.09 252.95 271.98
Total Debt 1152.94 1,871.22 2,773.59 2,697.99 3,095.08 3,851.38
Deferred tax Liabilities 14.7 15.53 14.57 12.07 5.15 5.92
Other Non Current Liabilities 30.47 130.02 163.2 41.27 36.33 35.78
Total liabilities 2962.56 4211.34 5911.17 5572.11 6184.43 7110.41
Goodwill 88.66 98.68 606.61 601.98 608.88 608.88
Asset Block (Net) 2,534.44 3,766.31 4,222.91 4,337.53 4,516.92 4,596.55
Intangible Assets 8.87 9.72 192.73 175.68 159.15 28.39
Capital work-in-progress 37.29 48.2 62.74 108.73 422.38 1334.31
Deferred Tax Asset 19.12 17.68 11.38 2.26 58.79 72.32
Other Non Current Assets 434.87 280.51 443.6 540.69 774.61 937.65
Investments 1.16 1.16 2.21 23.33 1.21 1.21
Current assets 503.30 839.53 1,547.63 1,096.48 1,219.75 1,332.32
Current liabilities 665.15 850.45 1,178.64 1,314.57 1,577.26 1,801.22
Net current assets -161.85 -10.92 368.99 -218.09 -357.51 -468.90
Total assets 2,962.56 4,211.34 5,911.17 5,572.11 6,184.43 7,110.41
Balance Sheet (Consolidated)
Income Statement (Consolidated)

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Cash Flow from Operations 363.72 186.87 311.26 514.22 596.53 474.47
Cash Flow from Investing -343.83 -459.21 -1,970.13 -116.03 -797.12 -1220.99
Cash Flow from Financing -8.43 380.93 1,395.96 -268.51 215.64 678.26
Per Share FY11 FY12 FY13 FY14 FY15 8MFY16
EPS - Diluted (`) 1.18 -0.56 -1.74 -5.18 0.07 -1.02
Book value (`) 30.70 35.64 42.28 38.57 39.82 40.09
Debt-equity (x) 0.70 0.89 0.98 1.03 1.11 1.31
Net debt-equity (x) 0.67 0.81 0.94 0.93 1.01 1.24
ROCE 7.76% 5.30% 3.40% 1.13% 7.01% 4.29%
RoE 3.84% -1.57% -4.12% -13.43% 0.18% -2.54%
Cash Flow

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Research Team
Vivek Mahajan HemantThukral
Head of Research Head – Derivatives Desk
022-61802820 022-61802870
vivek.mahajan@adityabirla.com hemant.thukral@adityabirla.com
Fundamental Team
Shreyans Mehta Construction/Real Estate 022-61802829 shreyans.m@adityabirla.com
Jaymin Trivedi Banking & Finance 022-61802833 jaymin.trivedi@adityabirla.com
Naveen Baid IT 022-61325250 naveen.baid@adityabirla.com
Quantitative Team
Sudeep Shah Sr.Technical Analyst 022-61802837 sudeep.shah@adityabirla.com
Rahil Vora Technical Analyst 022-61802834 rahil.vora@adityabirla.com
Ammolh Paatil Sr. Derivative Analyst 022-61325226 ammolh.paatil@adityabirla.com
Advisory Team
Avinash Nahata Head - Advisory Desk 022-61802824 avinash.nahata@adityabirla.com
Suresh Gardas Advisory Desk 022-61207619 suresh.gardas@adityabirla.com
Salim Hajiani Advisory Desk 022-61207618 salim.hajiani@adityabirla.com
Pradeep Parkar Advisory Desk 022-61207625 pradeep.parkar@adityabirla.com
Mohan Jaiswal Sr. Exec.-Research Support 022-61802838 mohan.jaiswal@adityabirla.com
ABML research is also accessible in Bloomberg at ABMR

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Aditya Birla Money IPO note on Healthcare Global Enterprises

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