Metropolis Healthcare IPO: Information analysis

2018 was a lacklustre year for the markets. Following a dry run of listings, a couple of IPOs have recently listed in the markets, with Metropolis Healthcare coming out with a Rs 1200-crore IPO on April 3, 2019. A leading diagnostics chain in India, Metropolis Healthcare provides a wide range of clinical laboratory tests for the detection and diagnosis of diseases. At present, it is providing 3487 clinical laboratory tests and 530 profiles. Leveraging a 'hub and spoke' model, the company now has 115 clinical laboratories, with its main 'hub' being in Mumbai. This Mumbai-based hub is the company's global reference laboratory wherein a majority of tests are conducted. Its satellite laboratories (the 'spokes'), on the other hand, are well-equipped to conduct all routine and semi-specialised tests. Currently, the company is operating a total of 56 satellite labs, along with 44 express labs which conduct routine tests. In India, the company has a presence in 197 cities. Besides, it enjoys a global footprint with 17 clinical laboratories, 28 patient touch points and seven assisted referral centres. Strengths As a professionally-managed, promoter-led company, Metropolis Healthcare was transformed from a standalone pathology laboratory into a recognised national diagnostic chain by its managing director, Ms Ameera Shah. With 1631 patient touch points and 9552 institutional touch points, the company boasts a strong network, which provides it with an edge in the market. The company was able to gain the highest revenue per patient at Rs 847 in nine months ending December 31, 2018, which was significantly higher than its listed competitors, Dr Lal Pathlabs and Thyrocare. Over the past few years, the company has achieved inorganic growth through acquisitions. However, despite this, it has been net debt free for the past three years. In FY18, Metropolis gave a higher return on net worth of 27 per cent as against 25 per cent of Dr Lal Pathlabs and 21 per cent of Thyrocare. When it comes to revenue generation, the contribution from its individual patients increased to 51 per cent in 9MFY19. Going further, the company is planning to increase it to 60 per cent by expanding its network through third-party patient service centres. Weaknesses Even though the company boasts of its widespread presence, about 50 per cent of its revenues come from five cities, namely Mumbai, Bengaluru, Chennai, Surat and Pune. This makes Metropolis prone to various region-specific risks. Another point to consider is its high dependence on vendors for its testing equipment. The company has agreed upon certain minimum quantities and values of purchasing the equipment. However, any breach can suspend its relations with vendors, thereby disrupting its operations. Furthermore, its promoters have pledged 28 per cent of the total share capital, owing to loans taken by one of its promoters, Mets Advisory LLP. Promoters have also given personal guarantees fo