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Vijaya Diagnostic Centre Ltd (VDCL) is among the largest integrated diagnostic chain in southern India, offering pathological facilities across its extensive network. The company’s revenues have increased at a compound annual growth rate (CAGR) of 13.5% during FY19-FY21.
Vijaya Diagnostic, whose initial public offering (IPO) opened for subscription today, offers pathology (740 routine tests, 870 specialized tests and 220 basic tests) and 320 advanced radiology tests. Its extensive operational network comprises 81 diagnostic centres and 11 reference laboratories across 13 cities and towns in the states of Telangana, Andhra Pradesh, the National Capital Region and Kolkata.
Being focussed more on the B2C segment, it sources over 93% of its revenue from individual customers. This ensures a good margin profile compared to many other major diagnostic companies, where more than 30% of the revenue is derived either from corporate clients or from the PPP model, say analysts.
Not surprisingly, with a good revenue growth rate the company was able to maintain its high Ebitda margins during the period. Ebitda grew at a CAGR of 23.9% in FY19-FY21. The Ebitda margin marked sustained improvement from 37.1% in FY19 to 44% in FY21. The operating income per patient of ₹1214 during FY20, as per the company, was much better compared to most peers.
The net profit thereby has been able to grow at a stellar 35.5% CAGR during FY19- FY21. The delivered ratios too have been strong with return on equity or ROE at 23.6% and return on capital employed or ROCE at 42.0% for FY21.
With strong profit growth, the company has also been able to generate strong free cash flows. The cash flow generation has also been supported well by the negative working capital cycle. Analysts highlight that VDCL generated cumulative operating cash flows and free cash flows to the tune of ₹330 crore and ₹190 crore during FY19-FY21. This is encouraging as the company has consistently been paring down its debt and its current gross debt level is negligible.
Analysts at Reliance Securities Ltd said the IPO is valued at 64x of FY21 earnings, which appears to be at a discount of 15-40% compared to the valuation of its peers like Metropolis and Dr Lal PathLab. However, considering its annualized earnings for FY22 (estimated), it is priced at 41x, which looks reasonable, they add.
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