IPO: Jupiter Life Line Hospitals

Jupiter Life Line Hospitals, a multi-specialty tertiary and quaternary healthcare provider, has come out with its IPO (initial public offering). Here's a breakdown of the hospital's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality : Jupiter Life Line Hospitals' three-year average return on equity (ROE) and return on capital employed (ROCE) are 12.3 and 14.4 per cent, respectively. Moreover, it has also generated free cash flow in FY22 and FY23. Its FY21 business was impacted due to COVID-19-related restrictions which led to a decline in patient volumes and occupancy levels.
  
• Growth : Its topline grew by 21.7 per cent and 50.8 per cent in FY23 and FY22 respectively, driven by an increase in both inpatient and outpatient income. This is primarily because of the recommencement of surgical procedures, increase in patient inflows and increase in health check services. Moreover, increasing non-communicable diseases (NCDs) coupled with an increase in medical tourism in India will help it to grow further.
  
• Valuation : The stock will be priced at a P/E and P/B of 66.1 and 5.3 times, respectively, as compared to its peer's median and average of 46.1 and 7.8 times, respectively.
  
• Overview : The need for healthcare centres will rise with a continuous increase in illness (mainly non-communicable diseases) over the last few years primarily because of factors like unhealthy diet, high blood pressure, high blood sugar, high cholesterol and others.
  
• This will help the hospitals (especially tertiary and healthcare hospitals) to grow their operations further. While the debt burden on the hospital will be reduced by utilising the net process from IPO, the impact of any change in regulations (with respect to quality and pricing violations) will remain a key monitorable.

About Jupiter Life Line Hospitals

Jupiter Life Line Hospitals is a multi-specialty tertiary and quaternary (advanced healthcare services) healthcare provider. It currently operates three hospitals in Thane, Pune and Indore (operational bed capacity of 950 beds and 1306 doctors; FY23) under the "Jupiter" brand which caters to over 30 key specialities like bariatric surgery, cardiology, etc., and is also developing a hospital in Dombivli to accommodate over 500 beds. Moreover, it has also set up a hotel (Fortune Park Lake City) in collaboration with the ITC group to promote medical tourism.

Strengths of Jupiter Life Line Hospitals

• Low penetration of chained hospitals coupled with high population density and increasing penetration of health insurance in the western region of India will provide this healthcare hospital further room to grow (As per CRISIL report).
  
• A very low reliance on government schemes for revenue (1.09 per cent in FY23) such as ECHS, CGHS, EHS, West Bengal Swasthya Sathi and Ayushman Bharat.

Weaknesses of Jupiter Life Line Hospitals

• It draws most of its revenue from its Thane hospital (more than 50 per cent in FY23). Thus, any slowdown in the Thane operations will significantly impact its topline.
• Hospitals are highly exposed to maintaining quality (utmost priority) and pricing regulations. Thus, any kind of issues with respect to non-compliance with quality standards or violation of pricing regulations can significantly impact the operations.

Risk report

Company and business

• Are Jupiter Life Line Hospitals' earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. The hospital's profit before tax for FY23 was Rs 129 crore.
• Will Jupiter Life Line Hospitals be able to scale up its business?
  Yes. Rapidly increasing lifestyle-related illness or non-communicable diseases (NCDs) over the last few years coupled with increasing median tourism in India (especially from Bangladesh, Iraq, Yemen, Afghanistan, Oman and Nepal) due to lower costs and advanced technology will help it to scale up.
  Moreover, it is also developing a hospital in Dombivli, Maharashtra which is designed to accommodate over 500 beds and will contribute further to the growth.
• Does Jupiter Life Line Hospitals have recognisable brands with client stickiness?
  Client stickiness should not be applied to healthcare.
• Does the hospital have a credible moat?
  No. It faces competition from various other hospitals.

Management

• Do any of the 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 40.9 per cent post-IPO.
• Do the top three managers have more than 15 years of combined leadership at Jupiter Life Line Hospitals?
  Yes. Its founder, Chairman and Managing Director, Dr Ajay Thakker has been associated with the hospital since its inception.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
• Is the hospital's accounting policy stable?
  Yes. No information to suggest otherwise.
• Is Jupiter Life Line Hospitals free of promoter pledging of its shares?
  Yes. No shares have been pledged.

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?
  No. The hospital's three-year average ROE and ROCE are 12.3 and 14.4 per cent, respectively. In FY23, the hospital's ROE and ROCE were 20.0 and 20.9 per cent, respectively.
• Was the hospital's operating cash flow positive during the last three years?
  Yes. Cash flow from operations stood at Rs 176 crore, Rs 137 crore and Rs 123 crore in FY23, FY22 and FY21, respectively.
• Is the hospital's net debt-to-equity ratio less than one?
  Yes. The hospital's net debt-to-equity ratio, as of March 2023, is 0.9 times.
• Is Jupiter Life Line Hospitals free from reliance on huge working capital for day-to-day affairs?
  Yes. It has reported a negative working capital cycle in FY23.
• Can the hospital run its business without relying on external funding in the next three years?
  Yes. Its a profitable business and has generated free cash flows in the last two financial years. However, in FY21 operations got impacted due to COVID-19 which led to decline in patient volumes and occupancy levels.
  While more than 90 per cent of the net proceeds will be utilised for repayment of borrowings, for any further expansion plans it may raise debt.
• Is Jupiter Life Line Hospitals free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of equity is 1.4 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock will offer a 3.2 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  No. The hospital will trade at a price-to-earnings ratio of 66.1 times post-IPO as compared to its peers' median level of 46.1 times.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The hospital will trade at a price-to-book ratio of 5.3 times post-IPO as compared to its peers' average level of 7.8 times.

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

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