Krsnna Diagnostics IPO notes: 'Let's do Good' ❓

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A thread 🧵👇

1/ Basics about the IPO

Issue Dates: 4 - 6 August
Issue Size: ₹ 1,211 Crore (400crs Fresh Issue & 811crs OFS)
Mcap at the upper band: 2994crs
Price Band: ₹ 933 - 954
Retail Quota: 10%

Promoter stake to go from 32% to 27% post IPO.
2/ About the company.

Krsnaa Diagnostics provides technology-enabled services such as imaging (including radiology), pathology/clinical laboratory, and teleradiology

to public and private hospitals, medical colleges and community health centres across India.
3/ They focus on the public-private partnership (“PPP”) diagnostics segment and have the largest presence in the diagnostic PPP segment.

Contracts are typical of long-term in nature.

Won 77.6% of all tenders since inception & have thus deployed 1823 diagnostic centers.
4/ Operational performance indicators
5/ Strengths

- Cost Competitive: Radiology tests are priced 45%-60% below market rates & pathology tests are 40%-80% below
- Extensive footprint & Infra: Among the few cos. in India to have MRI machines ranging from 0.2-3 Tesla machines & multi-slice CT to 128 slice CT scanners

- High revenue visibility (Non-Covid rev) due to 2-10 year long govt. PPP contracts
- Experienced promoters & management team supported by a strong employee base
7/ Services they offer & the distribution.
8/ Objective of the issue

Plans to use Rs 150 crore to set up 29 diagnostic centres across multiple states.

It also plans to repay/ pre-pay debt worth Rs 146 crore to the lenders in FY22. The company’s total borrowings stood at Rs 231.7 crore as of March 2021.
9/ Financials

- Good Cashflow conversion (80%+ EBITDA)
- Capex heavy business, Working Capital under control
- Strong Margins at 25-30% & gross margins of 80-85%
- COVID benefited the revenues in FY21, Non-COVID rev back to pre-COVID
10/ Risks

- 70% of rev from government agencies: Could lead to payment delays
- Competitive tender bidding process to get in: cost competitiveness could be challenged by some new entrant
- Contracts are based on fixed price arrangements: margins are not under their control.

- 70% of rev from 3 states; Maharashtra, Rajasthan & Karnataka.
- Delays in the establishment of diagnostic centres could lead to termination of the agreements or cost overruns.
- Failure to establish and comply with appropriate quality standards could result in litigations.

At 8x EV/Sales, 32x EV/ EBITDA & more than 90 times earnings, plus the commoditized nature of the industry due to high competition & also the boost in sales from COVID-19, we would rather wait & watch this company face an increasing RM cost scenario.

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