About the company:
Along with a slew of new IPOs landing in the markets, Krishna Institute of Medical Sciences Limited (KIMS) is coming out with its IPO wherein the company is looking to raise Rs. 2,143 crore with a fresh issue of Rs. 200 crore and an offer for sale of 23,560,538 shares. The price band has been set at Rs. 815 to Rs. 825 per share for a lot size of 18 shares. Post the issue, the implied market capitalization of the company is expected to stand between Rs. 6,525 crore and Rs. 6,602 crore based on the lower and upper price bands, respectively. With the funds raised via the IPO, the company aims to repay some borrowings to the tune of Rs. 150 crore while utilising the rest for general corporate purposes.
Company Overview
Krishna Institute of Medical Sciences Limited (KIMS) is one of the largest corporate healthcare groups in AP and Telangana in terms of number of patients treated and treatments offered. They operate 9 multi- specialty hospitals under the “KIMS Hospitals” brand, with an aggregate bed capacity of 3,064, including over 2,500 operational beds as of March 31, 2021, which are 2.2 times more beds than the 2nd largest provider in AP and Telangana. KIMS offers a comprehensive range of healthcare services across over 25 specialties and super specialties, including cardiac sciences, oncology, neurosciences, gastric sciences, orthopaedics, organ transplantation, renal sciences and mother & child care.
Their flagship hospital at Secunderabad is one of the largest private hospitals in India at a single location (excluding medical colleges), with a capacity of 1,000 beds. They have significantly expanded their hospital network in recent years through their acquisitions of hospitals in Ongole in Fiscal Year 2017, Vizag and Anantapur in Fiscal Year 2019 and Kurnool in Fiscal Year 2020.
Their hospitals are equipped with high-quality medical equipment and employ practices and policies which help them provide quality healthcare services to their patients. KIMS Secunderabad was the second hospital in Hyderabad to install the 4-Arm HD da Vinci robotic surgical system, which facilitates complex surgeries that are virtually scarless. KIMS Vizag was one of the first hospitals in AP to have (i) an Endoscopic Ultrasound System with Radial & Linear Scopes; (ii) a 2T scope to perform high end endoscopy procedures such as ESG & therapeutic procedures; and (iii) a Power Spiral Endoscopy for performing end to end enteroscope through motorized scope.
About a third of their 3,064 beds were launched over the last 4 years. KIMS has added over 940 beds, in aggregate, in their hospitals in Visakhapatnam, Anantapur, Rajamundry and Kurnool in Fiscal Years 2019 and 2021, and improved the overall bed occupancy rate in these hospitals from 71.83 percent to 78.60 percent over the same period. They strive to provide quality service to more patients, and have scope for additional patients and improved occupancy rates. KIMS strategically focus on the southern India healthcare market where they have a strong understanding of regional nuances, customer culture and the mind-set of medical professionals and where there is significant and growing need for quality and affordable healthcare services. Each of their hospitals also has integrated diagnostic services and pharmacies that cater to their patients.
KIMS has approached their network expansion with financial prudence and has been disciplined with taking on financial leverage for capital investments. All of their significant capital investments are carefully deliberated and approved by their experienced Board. In Fiscal Year 2020, the capital expenditure per bed was Rs. 6.35 million for hospitals in Tier 1 cities and Rs. 2.21 million for hospitals in Tier 2-3 cities, compared to the industry average of Rs. 5-8 million in Tier 1 cities and Rs. 1-5 million in Tier 2-3 cities. Their ability to keep the capex / bed at these levels has been important to their model of providing quality and affordable healthcare services. They expect to remain disciplined with expansion. In Fiscal Year 2021, their capital expenditure per bed was Rs. 6.91 million for hospitals in Tier 1 cities and Rs. 2.21 million for hospitals in Tier 2-3 cities.
Operating Metrics
|
FY19
|
FY20
|
FY21
|
|
Bed Capacity
|
2,804
|
3,004
|
3,064
|
|
Operational Beds
|
2,209
|
2,434
|
2,590
|
|
Operational Beds (percent)
|
78.8 percent
|
81.0 percent
|
84.5 percent
|
|
Occupancy Rate (percent)
|
71.8 percent
|
80.5 percent
|
78.6 percent
|
|
ARPOB (Rs.)
|
18,334
|
18,307
|
20,609
|
|
Avg Length of Stay (ALOS)
|
4.47
|
4.34
|
5.53
|
|
Inpatient Volume
|
1,11,382
|
1,40,676
|
1,16,592
|
|
Outpatient Volume
|
9,00,043
|
11,37,560
|
8,30,211
|
|
Revenue from Inpatients (Rs mn)
|
7,176.52
|
8,799.42
|
10,480.63
|
|
Revenue from Outpatients (Rs mn)
|
1,956.27
|
2,388.02
|
2,799.65
|
In Fiscal Year 2021, ARPOB for their hospitals situated in Tier 1 cities was Rs. 39,571 and ARPOB for their hospitals situated in Tier 2-3 cities was Rs. 11,187.
The revenue is diversified across specialties and doctors. In Fiscal Year 2021, their total income mix was 17.82 percent from cardiac sciences, 12.55 percent from neuro sciences, 9.30 percent from renal sciences, 4.64 percent from orthopaedics, 5.25 percent from gastric sciences, 5.71 percent from oncology, 6.11 percent from mother & child care, 1.86 percent from organ transplant, 35.28 percent from other specialties and 1.48 percent from other income. In the same year, their top 10 doctors contributed 21.80 percent of the total income and the top 25 doctors contributed 36.10 percent of the total income.
This is how KIMS stacked up against peers as of FY21:
|
ARPOB (Rs./Day)
|
ALOS
|
ARPP
|
|
KIMS
|
20,609
|
5.53
|
1,13,968
|
|
Apollo Hospitals
|
39,106
|
4.32
|
1,68,938
|
|
Fortis Hospitals
|
43,288
|
3.59
|
1,55,403
|
|
Max Health
|
50,800
|
5.2
|
2,64,160
|
|
Narayan Hrudayalaya
|
28,493
|
4.6
|
1,31,068
|
|
Shalby Hospitals
|
27,400
|
5.42
|
1,48,508
|
KIMS has a lower ARPOB and the highest ALOS among its peers due to the fact that the company offers lower specialized services in Tier 2 and 3 cities which has brought the average revenue down while they currently have a low turnaround time for patients causing the ALOS to be higher. The management indicated that they will be working on improving the metrics over time.
Financial Performance
KIMS has posted a linear growth across its financials over the past 3 years with both revenues and margins growing as the company has been expanding its network and working on cost efficiencies simultaneously.
|
Rs. Cr
|
FY19
|
FY20
|
FY21
|
|
Revenue
|
918.01
|
1,122.65
|
1,329.94
|
|
EBITDA
|
80.96
|
245.00
|
370.88
|
|
EBITDA Mgn (percent)
|
9 percent
|
22 percent
|
28 percent
|
|
PAT
|
-48.81
|
115.07
|
205.48
|
|
PAT Mgn (percent)
|
-5 percent
|
10 percent
|
15 percent
|
|
EPS
|
-6.1
|
14.4
|
25.7
|
|
Return On Equity
|
-9 percent
|
19 percent
|
23 percent
|
|
ROCE
|
3 percent
|
18 percent
|
26 percent
|
|
EV/EBITDA
|
9.9
|
3.4
|
2.1
|
|
OCF/EBITDA
|
1.7
|
0.8
|
1.0
|
|
Debt/Equity
|
0.5
|
0.5
|
0.3
|
|
P/E
|
-135.3
|
57.4
|
32.1
|
|
P/S
|
7.2
|
5.9
|
5.0
|
|
P/B
|
11.6
|
10.8
|
7.5
|
The company has managed to grow its revenues at 20.4 percent CAGR over the past 3 years while making the operations profitable and improving margins as well. The company has also maintained lower debt levels with the debt/equity ratio coming in at just 0.27x as of FY21.
The company has also managed to deliver strong return ratios with the ROEs being at -8.6 percent in FY19, 18.8 percent in FY20 and 23.5 percent in FY21. The same story lies with the ROCE which has moved from 2.7 percent in FY19 to 17.8 percent in FY20 and 26.0 percent in FY21.
Even among peers, the company has posted a higher-than-average ROE in FY21 as given in the table below:
|
ROE
|
|
KIMS
|
23.5 percent
|
|
Apollo Hospitals
|
12.9 percent
|
|
Fortis Hospitals
|
1.4 percent
|
|
Max Health
|
9.7 percent
|
|
Narayan Hrudayalaya
|
10.5 percent
|
|
Shalby Hospitals
|
5.2 percent
|
Risks
While KIMS is a decent player in the hospital industry but faces multiple challenges. As COVID-19 hit in India, a lot of hospitals were repurposed to serve patients of COVID-19. Many patients refrained from going to the hospitals from fear of catching COVID-19 and delayed their surgeries. Along with this, medical tourism also suffered as international restrictions came in place. Any potential waves in the future can similarly impact the company negatively.
57 percent of the doctors under the company are on a consultancy basis with many doctors not working exclusively with KIMS. The company also has a high attrition rate of consultant doctors at over 39 percent. With a high dependency on such doctors, KIMS faces risks of not having required professionals on demand.
The company derives over 60 percent of its overall revenues from its Telangana. A high level of concentration exposes KIMS to high risk from any regulatory issues. Any reduction in that hospital’s revenues can have a significant impact on the overall performance of the company.
Given the high regulations of the healthcare industry, KIMS is subject to risks arising from any action undertaken by the govt which may move to reduce patient costs or increase taxes from these facilities. Such measures can significantly impact the growth and margins of KIMS.
Conclusion
While KIMS lags its peers as far as the operating metrics are concerned, it makes up for it with a superior set of return ratios and financial strength. While the growth in revenues and margins are an impressive feat, especially during such times, the IPO issue period clashes with other IPOs and because there are a couple of other PE/VC backed names with issue periods in the same week, retail investors might look at others who have a comparatively favorable risk-reward profile. Given these factors, KIMS may not deliver strong listing gains as other new IPOs.
Therefore, investors should subscribe to this IPO for listing gains with UTMOST caution and only if they find it suitable from a risk perspective. Otherwise, this company’s future quarterly numbers can be observed before taking any long term investment decision in it.
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