IPO: GPT Healthcare

GPT Healthcare, a hospital chain owner, launched its IPO (initial public offering) on February 22, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality: Its three-year average ROE and ROCE are 22 per cent. It also reported positive cash flow from operations in each of the last three financial years.
  
• Growth: Its revenue grew 22 per cent annually in the last three years. Its profit after tax grew 36 per cent annually in the same period.
  
• Valuation: The stock is valued at a P/E and P/B of 33.5 and 7.2 times, respectively.
  
• Overview: Low penetration in the Eastern Indian market offers a long growth runway. Rising healthcare spending and health insurance penetration should drive growth. It plans to open two new hospitals in Ranchi and Raipur. It has also stated that it will expand its operation in four new cities. However, high capital requirements and intense competition from both listed and unlisted players may pose a threat going forward.

About GPT Healthcare

GPT Healthcare owns and operates several hospitals under the brand name ILS. It primarily focuses on secondary (treatment from specialists) and tertiary care (a higher level of specialised medical care).

Strengths of GPT Healthcare

• Presence in underpenetrated geography. It is a relatively known brand in Eastern India, operating four hospitals with a total capacity of 561 beds. Note that the Eastern Indian market is comparatively underpenetrated compared to other regions. As of 2020, East India had only five doctors and 13 nurses per 10,000 individuals.

Weaknesses of GPT Healthcare

• High competitive intensity. It faces stiff competition from players with higher bed capacity.
  
• The hospital business has high capital requirements .

Risk report

Company and business

• Are earnings before tax of GPT Healthcare more than Rs 50 crore in the last 12 months?
  Yes. It reported a profit before tax of Rs 68 crore in the twelve months ending September 2023.
• Will GPT Healthcare be able to scale up its business?
  Yes. The underpenetrated East Indian market provides a long growth runway. Rising healthcare spending and health insurance penetration will further aid growth.
• Do GPT Healthcare have recognizable brands with client stickiness?
  Not applicable. Client stickiness is not a metric to be used for hospitals.
• Does the company have a credible moat?
  No. It faces stiff competition from other listed and unlisted players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Post IPO, the promoters' stake will be 65.6 per cent.
• Do the top three managers have more than 15 years of combined leadership at GPT Healthcare?
  Yes. Key managerial personnel and senior management have more than 15 years of combined experience.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise. However, Ishwari Prasad Tantia, a member of the promoter group, was listed among wilful defaulters in the Tantia Construction Limited liquidation proceedings. GPT Healthcare has clarified that he has no material connections with the company.
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
• Is the company free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company 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. Its three-year average ROE and ROCE are 22 per cent. In the twelve months ending September 2023, its ROE and ROCE were 27 and 31 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  Yes. It reported positive cash flows from operations in each of the last three years.
• Is the company's net debt-to-equity ratio less than one?
  Yes. Its net debt-to-equity ratio, as of September 2023, was 0.4 times.
• Is GPT Healthcare free from reliance on huge working capital for day-to-day affairs?
  Yes. While it does rely on small short-term debt for some day to day activities, it has a healthy cash conversion cycle.
• Can the company run its business without relying on external funding in the next three years?
  Yes. It has healthy cash flows. However, note that the IPO proceeds will be solely used for deleveraging.
• Is GPT Healthcare free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of total equity stood at around 1 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 a 4.4 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  Yes. The stock is valued at a P/E of 33.5 times as compared to its only listed peer's P/E of 82 times.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The stock is valued at a P/B of 7.2 times as compared to its only listed peer's P/B of 13.4 times.

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

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