IPO: Yatharth Hospital and Trauma Care Services

In a nutshell

• Quality : Yatharth Hospital's three-year average ROE and ROCE are 32.9 per cent and 22.5 per cent, respectively. It has also maintained a healthy operating margin of over 20 per cent in each of the last three years.
  
• Growth : In the last three years, Yatharth Hospital grew its topline and PAT by 50.8 per cent and 90.3 per cent per annum, respectively. Higher footfalls and its ability to treat various speciality needs are expected to be the key growth drivers.
  
• Valuation : The stock will be priced lower than its peers in terms of P/E and P/B.
  
• Overview : The Indian healthcare industry is improving rapidly, which should drive growth ahead. It also has a proven track record in various speciality segments. However, failing to adapt to evolving technology, unfavourable regulatory changes and running up its debt might prove fatal.

About Yatharth Hospital

Yatharth Hospital offers a range of healthcare services across 30 specialties and operates three multi-speciality hospitals in Noida. Its recently-acquired hospital in Orchha, Madhya Pradesh, commenced operations in April 2022.

Strengths of Yatharth Hospital

• Two of Yatharth's hospitals are among the top 10 (eighth and tenth) private hospitals in Delhi-NCR (in terms of number of beds).
  
• It witnessed steady growth in average revenue per occupied bed and occupancy rate over the last three years. Moreover, the in-patient volume more than doubled from 21,356 in FY21 to 45,358 in FY23.

Weaknesses of Yatharth Hospital

• The nature of the hospital business makes Yatharth Hospital highly dependent on skilled medical professionals. Thus, its financials are sensitive to attrition rates . In FY23, it reported an attrition rate of 47 per cent among doctors and 74 per cent among nurses.
  
• The healthcare segment is highly competitive . In addition, a huge chunk of the big players operates from the same geography (Delhi-NCR).
  
• The healthcare industry operates under tight regulatory oversight .

Risk report of Yatharth Hospital

Company and business

• Are Yatharth Hospital's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. It reported a profit before tax of Rs 88 crore in FY23.
• Will Yatharth Hospital be able to scale up its business?
  Yes. It is planning to develop its existing hospitals by adding new specialities and beds. Demand for quality healthcare and the government's increased focus on the healthcare sector should help it scale up.
• Does Yatharth Hospital have recognisable brands with client stickiness?
  Client stickiness should not be applied to healthcare.
• Does the hospital have a credible moat?
  No. There are other speciality hospitals in the regions Yatharth operates.

Management

• Do any of Yatharth Hospital's founders still hold at least a 5 per cent stake in the hospital? Or do promoters hold more than a 25 per cent stake in the hospital?
  Yes. Promoters' stake will be 66.3 per cent post IPO.
• Do the top three managers have more than 15 years of combined leadership at Yatharth Hospital?
  Yes. The chairman and managing director have been associated with the hospital since its incorporation in 2008.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  No information to suggest otherwise.
• Is the hospital's accounting policy stable?
  No information to suggest otherwise.
• Is Yatharth Hospital free of promoter pledging of its shares?
  The promoter holding is pledge free.

Financials

• Did the hospital generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  Yes. Yatharth Hospital's three-year average ROE and ROCE are 32.9 and 22.5 per cent, respectively. In FY23, the hospital's ROE and ROCE were 36 and 26.1 per cent, respectively.
• Was the hospital's operating cash flow positive during the last three years?
  Yes. The hospital has reported positive operating cash flow during the last three financial years.
• Is the hospital's net debt-to-equity ratio less than one?
  No. As of FY23, the hospital's net debt-to-equity ratio is 1.2 times.
• Is Yatharth Hospital free from reliance on huge working capital for day-to-day affairs?
  Yes. It reported a negative working capital cycle in the last three years.
• Can the hospital run its business without relying on external funding in the next three years?
  Yes. It reported a positive operating cash flow in the last three years. Also, its debt can be settled using the IPO proceeds.
• Is Yatharth Hospital free from meaningful contingent liabilities?
  No. Contingent liabilities as a percentage of equity is 129 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock will offer 3.8 per cent operating yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  Yes. Yatharth Hospital will trade at a P/E of 39.1 times compared to peers' median level of 49.3 times.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The hospital will trade at a P/B of 3.8 times compared to peers' average of 7.9 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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