IKS Health IPO analysis

IKS Health IPO (initial public offering) will open for subscription on December 12, 2024, and close on December 16, 2024. We breakdown the strengths, weaknesses and growth prospects of the tech-based healthcare service provider to help investors make an informed decision.

IKS Health IPO in a nutshell

• Quality: During FY22-24, Inventurus Knowledge Solutions or IKS Health reported a three-year average ROE and ROCE of 38 and 33 per cent, respectively.
  
• Growth: During FY22-24, its revenue and net profit grew by around 54 and 26 per cent per annum, respectively.
  
• Valuation: At the upper end of the price band, the stock is valued at a P/E and P/B ratio of 61 and 16.6 times, respectively.
  
• Overview: The company operates a tech platform for healthcare companies to help them manage administrative tasks. Growing healthcare expenditure in the US, where the company primarily operates, will help it scale up its business. However, the business has low entry barriers, which is a key risk.

About IKS Health

Inventurus Knowledge Solutions (IKS Health) offers a tech platform to healthcare enterprises in the US, Canada and Australia that handles their administrative tasks like clinical documentation, patient engagement, and revenue cycle management. This allows healthcare companies to focus on their core operations and work efficiently, saving resources on ancillary tasks like paperwork. As of September 30, 2024, the company had 778 healthcare companies in the US as its clients. About 96 per cent of its revenue comes from the US.

Strengths of IKS Health

• Strong client relationships: IKS Health has a strong track record of generating revenue from repeat clients. In the last three financial years (FY22-24), over 98 per cent of revenue was generated by existing clients.

Weaknesses of IKS Health

• Client concentration: Although IKS works with 778 clients in the US, a significant portion of its revenue is generated from a handful of them. The top 10 clients accounted for 68 per cent of its revenue in H1 FY25. Losing any of its major clients can be fatal for the business.

Risk report

Company and business

• Were IKS Health's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. Its earnings before tax was Rs 441 crore in FY24.
  
• Will IKS Health be able to scale up its business?
  Yes. The US healthcare market is experiencing significant growth, with health expenditure projected to grow 5.3 per cent per annum from 2023 to 2028 driven by an aging population and a rise in chronic diseases. This will help the company scale up its business.
  
• Do IKS Health have recognizable brands with client stickiness?
  Yes. IKS has maintained long-standing relationships with many of its clients, with some partnerships spanning over a decade. In FY24, repeat clients accounted for 99 per cent of the company's revenue.
  
• Does the company have a credible moat?
  No. The healthcare technology and services market has low-entry barriers. Any tech player with enough resources will not find it difficult to enter the market and offer similar services.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over 25 per cent stake in the company?
  Yes. After the IPO, the promoters will hold a 68 per cent stake in the company.
  
• Do the top three managers have over 15 years of combined leadership at IKS Health?
  Yes. Sachin Gupta, whole-time director, has been with the company since its incorporation in 2006.
  
• Is the company's management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is IKS Health free of promoters pledging their shares?
  Yes. The company is free of promoters pledging their shares.

Financials

• Did the company generate a current and three-year average ROE of more than 15 per cent and an ROCE of more than 18 per cent?
  Yes. The company's three-year average ROE and ROCE were 38 and 34 per cent, respectively. In FY24, it reported an ROE and ROCE of nearly 37 and 28 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  Yes. The company reported positive cash flow from operations in the last three years.
  
• Is IKS Health's net debt-to-equity ratio less than one?
  Yes. Its net debt-to-equity ratio was 0.5 as of H1 FY25.
  
• Is IKS Health free from reliance on significant working capital for day-to-day affairs?
  Yes. The business does not require high capital for daily affairs.
  
• Can the company operate its business without relying on external funding in the next three years?
  Yes. The nature of the business is not capital intensive. The company has been generating positive cash flows over the last three years. Moreover, its net debt to equity ratio is also well below one. This indicates that the company can operate its business without relying on external funding in the next three years.
  
• Is IKS Health free from meaningful contingent liabilities?
  Yes. As of FY24, its contingent liabilities as a percentage of equity was around 0.4 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an operating earnings yield of 2.3 per cent.
  
• Is the stock's P/E ratio less than its peers' median level?
  There are no listed players for comparison. The stock is valued at a P/E ratio of 61 times.
  
• Is the stock's P/B value less than its peers' average level?
  There are no listed peers for comparison. The stock is valued at a P/B ratio of 17 times.

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Disclaimer: This is not a stock recommendation. Investors should do their due diligence before investing.

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