Will Thyrocare IPO perform as smartly as Dr Lal Pathlabs?

The revival of markets has once again seen companies raising money through public issues. Joining the line of companies raising money is a pathology service provider, Thyrocare Technologies. This issue comes within months of another pathology service provider Dr Lal Pathlabs raising money successfully from the markets.

Naturally, investors are interested in comparing Thyrocare with Dr Lal Pathlabs before betting on the company. Dr Lal Pathlabs, which came out with its IPO at Rs 550 per share, was listed at a 30% premium at Rs 720 and touched a high of Rs 1,045 a few weeks ago. Investors might be hoping for a repeat performance in Thyrocare.

Here is our take on how the two companies stack up on various parameters:

Background

Thyrocare: In revenue terms, it is the fourth largest pan-India diagnostic chain that conducts an array of medical diagnostic tests and profiles of tests that center on early detection and management of disorders and diseases. Through a subsidiary the company also operates a network of molecular imaging center. The company is more focused on the preventive & wellness, and the non-preventive segments.

Dr Lal Pathlabs: It is the second largest provider of diagnostic and related healthcare tests and services player in India. Through an integrated, nationwide network, it offers patients and healthcare providers a broad range of diagnostic and related healthcare tests and services for use in core testing, patient diagnosis and the prevention, monitoring and treatment of disease and other health conditions.

Testing profile

Thyrocare: It offers a portfolio of 198 tests and 59 profiles of tests to diagnose a number of disorders, including thyroid, metabolism, autoimmunity, diabetes, anaemia, cancer, cardiovascular, infertility and various infectious diseases. In addition, it also offers patients and corporations a suite of wellness and preventive health care tests under brand Aarogyam. In technical parlance, Thryocare offers biochemistry tests which are conducted on body fluids.

Dr Lal Pathlabs: Apart from conducting routine clinical laboratory tests — such as blood chemistry analyses and blood cell counts the company offers specialized testing services — such as histopathology analyses, genetic marker-based tests, viral and bacterial cultures and infectious disease tests. Their preventive testing service offers screenings for hypertension, heart disease and diabetes. We perform these tests and services in our clinical laboratories using sophisticated and computerized instruments. The company offers 3,368 tests as compared to 198 by Thyrocare. The difference is on account of a wide range of molecular, anatomical and clinical tests carried out by Dr Lal Pathlabs while Thyrocare offers tests on only body fluids through biochemistry route.

Infrastructure

Thyrocare: The company has a pan-India network of 1,041 authorised service providers across 466 cities and 24 states & union territories. In addition, through its subsidiary, Nuclear Healthcare (NHL), Thyrocare has set up a network of molecular imaging centres in New Delhi, Navi Mumbai and Hyderabad focusing on early and effective cancer monitoring.

Dr Lal Pathlabs: The company has built a national, “hub and spoke” network that includes a National Reference Laboratory in New Delhi, 172 other clinical laboratories, 1,554 patient service centers and over 7,059 pickup points.

Financials

Thyrocare: Annual revenue of the company stands at Rs 183 crore in FY15 and a net profit of Rs 44.2 crore. It operates with an operating margin of 39.2 per cent and a Return on Capital Employed (RoCE) of 13.96 per cent (including cash and current investments). Operating margin is higher on account a centralised and automated testing laboratory which requires lower staffing.

Dr Lal Pathlabs: Annual revenue stands at Rs 792.7 crore in FY16 and a profit of Rs 143.4 crore with an operating 26 per cent. The company has a much better RoCE which stands at 36.5 per cent.

Valuation

Thyrocare: The present issue is offered to the public at a price to earnings ratio of 42 times. On a standalone basis it looks expensive the strong growth rate and high margins and return ratios in the segment may attract investor interest in the company. With scope for adding more offerings in the form of tests and market reach makes higher growth rate a possibility.

Dr Lal Pathlabs: The company trades at 70 times its FY16 expected profits a substantial premium to Thyrocare.


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