Wockhardt Hospitals IPO

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Price Band:225 to 260

Free pricing regime seems to mean issuing shares to promoters at par, or maybe, even at a discount while issuing to the public, 30 times of its face value. The company had issued 50 lakh shares of Rs 10 each, at par, on 11th June 2007, to the Chairman of the company Khorikawala. To add sweetener to this, bonus of 35% was issued on 3rd July, 2007. See, how generous, the companies are towards its promoters. This has led the paid-up equity of the company to rise to Rs 80 crore.

Inspite of the company’s hospital in operations, since 2002, financial performance is yet to catch on, especially on the bottomlines. Mumbai Hospital with 191 beds started in July 2002, while Bangalore Hospital with 92 beds started in 1991. FY 07 financial performance has been nothing great with total income at Rs.237 crores, PBT of Rs 16.18 crore and PAT of Rs 15.59 crore. For 9 months ending 31-12-07 total income was at Rs 260 corre with PBT of Rs 16.32 crore and PAT of Rs 7.31 crore. Thanks to Deferred Tax of Rs 6.55 crore, which has reduced the bottomline.

The company is now setting up 10 hospitals with an estimated outlay of Rs 636 crore, of which Rs 569 crores is being sourced from the proposed IPO. The total plan of the company is to set up 17 hospital with 3,419 beds. Rs 285 crore is being mobilized to liquidate the debt of the company, maybe to bring it on better financial parameters.

At the upper band, the company intends to mobilize about Rs 780 crore, of Rs.310 per share, by diluting 24.06% stake. This values the company at around Rs 3,200 crore excluding net debt of Rs 150 crore. Apollo Hospital with annual revenue of over Rs 1,000 crore and PAT of Rs 80 crore is valued at about Rs.2,300 crores, while expected EPS for FY 08 is close to Rs 20. This stock is ruling at a PE multiple of close to 22 on historic earning. Similarly, Fortis Health Care has a market capitalization of Rs 1,800 crore while adding debt thereto of Rs.600 crores, it works out at Rs 2,400 crore. Even Fortis has an annual topline of Rs 500 crore, though the company has yet to post its bottomline in black.

If established profit making company like Apollo Hospitals or company from Ranbaxy stable with promoters’ stake of 75% is available at much cheaper valuations, why to go for this issue, which is definitely very expensive. Afterall, one can’t pay such a steep price for having Wockhardt tag.