Yatharth Hospital IPO fully priced, sector offers better choices

ET Intelligence Group: Delhi-based Yatharth Hospital & Trauma Care Services (YHTCS) is a regional hospital chain in the National Capital Region operating three super speciality hospitals in Noida, Greater Noida and Noida Extension in UP and a recently acquired facility in Madhya Pradesh. It is raising ₹686 crore through an IPO comprising ₹490 crore of fresh issue and ₹196 crore of offer for sale wherein promoters are selling a part of their stake. The funds raised will be used for repaying debt, incurring capex and making acquisitions.

Business: Established in 2010, YHTCS is among the top 10 largest private hospitals in Delhi-NCR having a capacity of 1,405 beds with a total occupancy rate of 45.3% at the end of FY23. Its average revenue per bed has increased steadily from ₹21,287 in FY21 to ₹26,538 in FY23. It has a balanced mix of patients with one-third paying under Central government schemes, one-third covered under health insurance and the remaining being self-paying customers. The hospital charges are around 20% lower than the larger hospitals in the NCR.

Financials: Since FY21 was a Covid-impacted year, the company's revenues have more than doubled over the past three years from ₹229 crore in FY21 to ₹520 crore in FY23. Its net profit has grown from ₹19.6 crore to ₹65.6 crore during this period. The Ebitda margin for FY23 is at 25.7% with return on capital employed at 26% and return on equity standing at 36%.

Growth Prospects: Acquiring a facility in the Jhansi-Orchha region in Madhya Pradesh helps the Noida-based company to diversify into an underserved healthcare market. The company is foraying into new specialities at the existing hospitals and is working at attracting medical tourists. The company proposes to utilise ₹65 crore towards funding its inorganic growth in existing as well as adjacent markets.

Valuations & Risk Factors: Post-Covid recovery in the healthcare sector has meant several hospital companies hitting the Street with their public offers. The IPO values YHTCS at 39 times its earnings for FY23. These valuations seem to be fully factoring in the growth and potential of the company - leaving little for the investors. For investors interested in the healthcare space, there are larger and more promising players available for investing at similar valuations.