Krsnaa Diagnostics - IPO Note

Krsnaa runs a chain of diagnostic centres offering a wide array of diagnostic services including imaging, radiology, routine clinical laboratory tests, pathology analysis and tele radiology services. These services are offered on a B2B model and is offered to the private and public hospitals, medical colleges / institutions as well as community health centres. 
On a pan-India basis, Krsnaa Diagnostics operates over 1,800 diagnostic centres and in the full calendar year 2020 alone, it had serviced a total of 53 lakh patients for various diagnostic needs. Now, Krsnaa Diagnostic is coming out with a public issue of Rs.1,213 crore consisting of fresh issue of Rs.400 crore and an offer for sale (OFS) of Rs.813 crore. 

Key terms of the IPO issue of Krsnaa Diagnostics
 

_{Data Source: IPO Filings}

Some of the advantages in the business model of Krsnaa can be summarized as under.
•    Comprehensive range of services offered under one roof with B2B tilt
•    Health consciousness is growing in India, especially preventive medical check-ups
•    Offers quality value proposition at reasonable pricing
•    Valuations likely to benefit from the recent COVID aftermath
•    Strong market footprint with deep links to medical service originators

A quick look at the financials of Krsnaa Diagnostics

A quick glance at the financials of Krsnaa Diagnostics would tell you that the company has managed a turnaround in financial bottom line which has also resulted in its net worth going into positive. The company has also expanded its capital base by raising more capital during the year.
 

_{Data Source: Company RHP}

If one were to just look at the financials, the growth is apparent. Clearly, the company has benefited from the substantially higher health consciousness in the aftermath of COVID. The revenues have almost doubled in the last 2 years, so between pre-COVID to post-COVID, the sales stand at twice the original figure. This has offered economies of scale to the company which resulted in a sharp turnaround from losses to profits in the latest fiscal year.

The public issue is intended for two main purposes. The fresh issue component will be used to finance the establishment of diagnostic centres in the states of Punjab, Himachal Pradesh, Maharashtra and Karnataka. In addition, part of the fresh funds will also be used to repay loans in the books so as to make the company less levered and improving solvency metrics.

Investment Perspective for Krsnaa Diagnostics

The company has just turned around in the current quarter, so the financial bottom line sustenance needs to give more positive indications. Meanwhile, there are some merits that the company brings to the table..

a)    The business model is scalable and in the current context where health consciousness is at a high post-COVID, this business is only likely to boom in the coming years. That holds a vast market for the company and a huge opportunity.

b)    The company plans to reduce the debt via the proceeds of the issue and that normally values accretive for such service intensive businesses. Also, the network expansion planned by the company is likely to be revenue accretive.

c)    The Krsnaa Diagnostics IPO price discounts the latest year earnings at around 21X, which is lower than the peer group. However, the company must show evidence of sustaining profits in the coming years. That could hold the key.

Also Check: List of Upcoming IPOs in August 2021

Investors can look at the company as a play on the fast growing diagnostics space, although it does not have a sustained profit track record to justify valuations. Investors with a slightly higher risk appetite can consider investing in this issue.