Thyrocare Technologies IPO: Should you subscribe?


Thyrocare Technologies, a pan – India diagnostics chain with focus on preventive and wellness health offerings under the Aarogyam brand is set to tap the markets today with its initial public offer (IPO).

The company plans to raise Rs 451 – 479 crore at a price band of Rs 420 – 446 per share. The issue which opens today for subscription, closes on April 29.
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On Tuesday, the company raised Rs 144 crore by allotting 3.22 million shares to anchor investors that included DSP Blackrock, HDFC MF and Birla Sunlife MF. The shares were allotted at Rs 446 apiece.

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Thyrocare competes with diagnostics chains such as the recently listed Dr Lal PathLabs. That apart, SRL Diagnostics, Metropolis Healthcare and Apollo Clinic are some of its other competitors.

The offer for sale is essentially to enhance the company’s brand name and provide liquidity to existing shareholders, analysts say. The company will not receive any proceeds from the offer.

So, should you subscribe to the IPO? Here’s a quick compilation of what country’s top research and brokerage houses suggest:


Thyrocare intends to grow the business by setting more number of RPLs and PET-CT scanning centres across India. It intends to set up 5 Regional Labs per annum for next 2-3 years (capex of Rs 15.0 crore per annum) to support increasing volume for Wellness and Preventive healthcare test and other thyroid related tests. The company also intends to set-up 2-3 PET-CT scanning centres per annum over next 3-4 years (capex of Rs 4-5 crore per annum).

Also Read: Ujjivan, Thyrocare IPOs command a premium in grey market

For FY2011-15, its compounded annual growth rate (CAGR) for sales is 23%, where the sales grew from Rs 78 crore to Rs 180 crore in FY2015. The company’s operating profit grew at CAGR of 20%, from Rs 35.6 crore to Rs 73.0 crore in FY2015. Its profit CAGR has been 18% from RS 25.0 crore to Rs 48.5 crore in FY2015. The company has no debt on books.

At a price band of Rs 420 – 446, the issue is priced at 47.7- 50.7x price-earnings (PE) ratio for FY2015 consolidated earnings per share (EPS) of Rs 8.8 and 30 – 32x EV/EBIDTA for FY2015. The valuations at the offer price are similar to that offered in the public issue of recently listed comparable players like Dr Lal Pathlabs. After listing, the premium valuations of Dr Lal Pathlabs have expanded further due to its strong track record, healthy return ratios and high free cash flows despite the aggressive expansion and exponential growth in the business.

The size of the diagnostic services market in India is estimated at $6.5 billion in FY15 and the industry is likely to post ~17% CAGR to touch $9.8 billion by FY18E. Moreover almost 85% of market remains unorganized which leaves significant opportunity for the organized players like Thyrocare, SRL Diagnostics, Dr Lal PathLabs and Metropolis.

Also Read: Alkem, Dr Lal soar over 30% on debut

We like the underlying business contours such as strong revenue visibility, stable margin profile and healthy free cash flows combined with RoE/RoCE of around 25?30%. We believe premium valuations are justified given the accompanying business fundamentals and recommend investors to ‘Subscribe’ at the upper price band.

As per CRISIL research, the overall diagnostic industry in India is estimated to be Around Rs 37,700 crore in FY15 and is expected to increase at a CAGR of 18% to Rs 61,600 crore by FY18E. Currently, organised players with a pan-India presence have a market share of roughly 35-40%. Thus there is tremendous opportunity for organised players. TTL with its proven track record and expansion plan of opening 20 new RPL’s is likely to benefit from this opportunity.

Also Read: Health care companies lining up a series of IPOs

At the higher price band of Rs 446, the stock is valued at 25.4x EV/EBITDA and 41.2x P/E on annualised 9MFY16 basis. While this may appear high, the company is expected to command premium valuation due to its strong brand image, proven track record, healthy financials and presence in niche high-growth business. Hence investors comfortable with such premium valuation, can subscribe to the issue.

In the past we have seen tremendous market interest in similar IPO of Dr. Lal PathLabs, with the issue getting 33.4x over-subscribed and is currently trading at much higher valuation of 69.4x FY16 P/E (though Dr. Lal Pathlabs is bigger in size in terms of revenue and market capitalisation).


Between FY11-15 Thyrocare’s revenues grew at CAGR of 23.3% while EBIDTA grew at a CAGR of 20% and PAT by 17%.
We expect the company to maintain healthy growth rate of 20-25% going forward as well, on the back of expansion of its base, opening of 20 new RLPs, eating share of standalone laboratories and increase spend by people on preventive and curative healthcare.

The issue price commands rich valuations of 21x EV/EBITDA (FY16 annualised) at the upper price of band of Rs 420-446, which we believe is justified given its pedigree and strong financials. On Consolidated financials, the issue price discounts EV/EBITDA by 22.7x (FY16 annualized) at upper price band. After Dr Lal Path Labs, Thyrocare is second diagnostics company to be listed on exchanges. Dr Lal is trading at 39.7x on FY16E EV/EBITDA. Considering the healthy balance sheet, improving growth prospects and strong profitability. We recommend ‘subscribing’ to the issue for listing as well long term gains.

An early entrant in cancer diagnosis, Thyrocare is also developing a network of molecular imaging centres for cancer diagnosis and has five operating PET/CT scanners. With offerings in preventive & diagnostic services and radiology procedure, Thyrocare is well placed in a high growth and underpenetrated market.

Key concerns: Dependence on authorised service providers; High revenue dependence on functioning of CPL and RPL; Competition risk; Vendor risk; Extensive regulatory compliance.


Although the issue seems to be priced at a discount to Dr Lal Pathlabs, we believe that Thyocare’s consolidated ROIC will come under pressure in the near term as it has entered the molecular imaging space by acquiring Nuclear Healthcare Ltd (NHL).

According to the company, this business will take 3-4 years to attain peak profitability while it accounts for almost 40% of its fixed assets of the company (as on 9MFY2016). Thus, though Thyrocare could potentially provide listing gains, the pressure on its ROIC in the near term and the not-so cheap valuation demanded by it will keep the upside in the stock limited. We are Neutral on the issue.