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There is going to be another big explosion in the Indian healthcare sector. The country’s leading hospital chain Manipal Health is coming with its IPO. Being a big name in the medical world, there is huge enthusiasm among retail and institutional investors regarding this IPO. However, market analysts are looking a bit cautious after looking at its draft paper (DRHP). While there has been a tremendous growth in the company’s revenue, there are also some red flags on the financial front, ignoring which can prove costly for any investor.
Big jump in earnings but brakes on profits
If we talk about the top-line performance of the company, Manipal Health has given excellent performance in terms of operational revenue. The company’s earnings are increasing rapidly every year due to the acquisition of new hospitals and better utilization of existing bed capacity. The company’s network has strengthened from metro cities to tier-2 cities. But the other side of the story is that the impact of this rapid growth is not visible on the net profit of the company. The company’s profits have declined in recent quarters due to higher operating expenses and the cost of setting up new centres.
Huge debt becomes the biggest headache
The biggest challenge facing Manipal Health at this time is its increasing debt. In the last few years, the company has taken huge loans to fund its aggressive expansion and to acquire other regional hospital chains. Due to this loan, the company has to pay a huge amount every quarter in the form of interest costs. This is the main reason why despite increasing revenue, the company’s net margin is under pressure. However, the management says that a large part of the funds raised from the IPO will be used to repay this debt, which will strengthen the balance sheet in the future.
Large network across the country including Delhi-NCR and Mumbai
If seen from the Geographical Footprint, the dominance of Manipal Healthcare is very strong. This journey, which started from Bengaluru, has now spread to major metros like Delhi-NCR, Mumbai, Kolkata and Pune. Due to strong brand value at the local level, the footfall in these hospitals is always good. The company is also directly benefiting from the increasing trend of medical tourism, because foreign patients are also giving preference to the premium centers of Manipal. This strong local and national network works in the company’s favor in the long run.
Experts’ opinion: Should investors invest money?
Market experts believe that Manipal Health IPO may hold good opportunities for long-term investors, provided the company is successful in reducing its debt after the IPO. If you are looking for short-term listing gains, you need to keep a close eye on the company’s valuation and gray market premium (GMP). Falling profits are definitely a matter of concern, but considering the overall growth of the healthcare sector, this stock cannot be completely ruled out. This could be a good bet for aggressive investors, while conservative investors should wait for the first quarter results.