June 12, 2008

Lotus Eye Care Hospital IPO opens Thursday

The initial public offering of Lotus Eye Care Hospital will open for on Thursday. The Rs 42-crore IPO is being made in the price band of Rs 38-42 per share. The issue closes on June 17.

Lotus Eye Care Hospital is a leading super-speciality eye care company with eye care hospitals and clinics at locations in South India. It has a network of four hospitals, out of which two are based in Coimbatore, and one each in Salem and Tirupur, Keynote Capital Services said in its report.

Keynote has not given a rating on the IPO, as it is being lead managed by their associate Keynote Corporate Services.

Lotus Eye Care Hospital’s top line and bottom line grew at 177.6 per cent and 147.7 per cent respectively in 2006-07 on year on year basis. EBITDA margin was 39.7 per cent in 2006-07.

Indian health care sector is valued at $34 billion and is projected to be $40 billion by 2012. Healthcare accounts for around 6 per cent of the GDP and is focused on by both the government and the private sector.

Medical tourism can be a major trigger. Indian medical tourism was estimated at $350 million in 2005-06 and is projected to grow to $2 billion by 2012. The emergence of India as a destination for medical tourism leverages the country’s well educated, English-speaking medical staff, state-of-the-art private hospitals and relatively low cost to address healthcare needs of western world. India provides treatment, at less than 1/10th of cost in US.

This industry is highly financial and human capital intensive. Lotus Eye Care scores well on this front; it has hi-tech eye care equipment and ophthalmic experts backed by a well-trained paramedical and administrative team. It has readily available human resources for the proposed expansion. It also has a training centre for budding ophthalmologists.

Expansion plan involves capital expenditure of Rs 55 crore to be funded through mix of equity, debt and internal accruals for expansion at existing units and setting up new centres.

Concerns are timely implementation of expansion and staff retention. Timely implementation of expansion of eye care centre may pose a challenge, as it may be difficult to get the required number of qualified doctors and other support staff to work in these locations. Retention of key personnel may also be a challenge, says the brokerage.

At the cap price, the IPO is priced at a 16 per cent discount to the price (Rs 50) in respect of pre-IPO placement in January 2008 to BCCL. IPO is priced at 31.8x based on pre-issue weighted average EPS and at 20.7x based on annualised EPS for nine months to December 2007 on pre-issue basis.

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