Kids Clinic IPO - 7 things to know

Kids Clinic Ltd, the operator of the Cloudnine brand in India, had filed its draft red herring prospectus (DRHP) in mid-February 2022. As of date, the SEBI approval, which comes in the form of observations, is yet to come in. The company can decide on the timing and game plan for the IPO only after the actual approval from SEBI comes in.

Normally, in case SEBI does not have any queries or does not seek any specific clarifications, then the approval is given between 2 months and 3 months from the date of the filing of the DRHP. The approval for the Kids Clinic IPO should come in around the end of April or by May this year.
 

7 important things to about the Kids Clinic Ltd IPO

1) Kids Clinic Ltd has filed for an IPO with SEBI which comprises of a fresh issue of Rs.300 crore and an offer for sale (OFS) of 132 lakh shares. However, since the price band for the stock has not been fixed, the size of the IPO and the value of the OFS component is not known as of now. Kids Clinic Ltd operates the Cloudnine brand in India, which is into the super specialty mother and baby care space.

2) As stated earlier, the OFS portion in the Kids Clinic IPO will comprise the sale of 132 lakh shares by the promoters and the early investors. Out of the total OFS, the 2 Founders viz. R Kishore Kumar and Scrips 'N' Scrolls India will sell over 18 lakh equity shares in total.

In addition, early investors like True North Fund V LLP, Indium V (Mauritius) Holdings and SCI Growth Investments II will jointly offload around 1.14 crore equity shares via offer for sale. This will take the total size of the OFS offering to 132 lakh shares.

The OFS portion is not capital dilutive or EPS dilutive. However, it improves the free float of the company by moving more shares from the promoters and early investors to the public. The offer will also include a reservation of shares for the company's employees.
 

3) Out of the overall IPO size, Kids Clinic Ltd is exploring the option of doing a pre-IPO placement to the tune of around Rs.60 crore. The pre-IPO placement is normally done well before the IPO and can be done at a price that is at divergence with the actual IPO price. Unlike the anchor placement, there is no compulsion on pricing.

However, the lock-in period entailed in a pre-IPO placement is higher than the anchor. Normally, the pre-IPO placement is done with HNIs, family offices and with qualified institutional buyers or QIBs. If the pre-IPO placement is successful, then Kids Clinic Ltd will reduce the size of the IPO by a corresponding amount.

4) Let us now turn to the fresh issue component. Kids Clinic Ltd will utilise the fresh issue proceeds for repaying loans to the tune of Rs.95 crore, an outlay of Rs.118 crore for setting up new centres, as well as for enhancing shareholding in its subsidiary, Acquity Labs.

5) Kids Clinic India, as per statements in the draft red herring prospectus (DRHP), is the leading brand in the super-speciality mother and baby-care segment. This ranking is based on the highest revenue and highest number of hospitals across major cities as of FY21.

The opportunity matrix is already quite huge as per estimates. The private maternity healthcare market in FY20 was pegged at Rs.20,800 crore and is projected to grow rapidly to Rs.26,100 crore by FY26.

6) Considering the upfront investment needed in the business, Cloudnine posted a net loss of Rs.34.71 crore for FY21. Revenues at Rs.555 crore were higher on yoy basis. Even for the six month period ended Sep-21, the losses have continued and could take time before these losses can be reversed into profits, considering the front-ended cost structure of the business.

7) The IPO of Kids Clinic Ltd will be lead managed by JM Financial, Axis Capital and ICICI Securities. They will act as the book running lead managers or BRLMs to the issue. The issue will be listed on the BSE and the NSE.

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