IPO - Goodwill Hospital and Research Centre: Avoid

Small scale of operations, high gearing and dependence on the Gamma Knife are dampeners.

Investors can give the initial public offering of Goodwill Hospital and Research Centre (GHRC) a miss for now. The company runs a single multi-specialty hospital at Noida under the name Ojjus Medicare and is among the few private hospitals in South and South-East Asia that offers Perfexion Gamma Knife services (non-invasive treatment for brain diseases). But, the small scale of operations, high gearing, intense competition in the region and high dependence on the Gamma Knife are dampeners and could make it difficult for the company to replicate its earlier growth rates.

Growth concerns

The company operates a 220-bed multi-specialty hospital at Noida with focus on areas such as cardiology, orthopaedics, laparoscopic surgeries and neurosciences. Though the hospital's services straddle across other specialties, its unique selling proposition is the Gamma Knife Machine, which was acquired in FY10. Gamma Knife is a speciality equipment that uses robotic technology to treat brain diseases without having to open up the skull. This service alone makes up about a third of the company's income.

No doubt, the company has grown its revenues and profits at high rates in the last couple of years (compounded growth rates of about 126 per cent and 170 per cent respectively to Rs 54 crore and Rs 16 crore in the last two years). But the growth has largely been on a small base, and driven primarily by its Gamma Knife facility. With ordinary occupancy rates of about 54 per cent and high competition in the region (private hospitals such as Fortis, Max Healthcare, Wockhardt and Apollo), growth momentum is likely to come down in the coming years. Other rivals could acquire the Gamma Knife technology, posing a threat to its revenues. The high debt on its books also adds to the challenges. As of June 2011, the company had a total debt of Rs 104.2 crore (includes ECB of about Rs 18 crore), leading to a debt equity ratio of 2.8 times. GHRC however plans to retire a portion of its debt, about Rs 10 crore, from the IPO proceeds.

GHRC's wholly-owned subsidiary, Ojjus Fidelity Healthcare Private Ltd, plans to set up a super specialty for oncology and rehabilitation and neurology and neurosurgery with 700 beds at Faridabad (estimated cost of Rs 227 crore, of which it has received term loan sanction for Rs 150 crore). GHRC plans to set up a diagnostic centre there for an estimated cost of Rs 16.2 crore, using the IPO proceeds.

Note that GHRC and Ojjus Fidelity would be sharing the gross revenues from the diagnostic centre in the ratio of 70:30 respectively. The company also plans to establish six polyclinics (estimated total cost of Rs 34 crore) using the money raised through the offer. The polyclinics have been planned in Muzzafarnagar, Bulandshahar, Meerut, Saharanpur, Hapur and Moradabad — cities which depend on Delhi and Noida for their high-end healthcare needs. While the company is moving in the right direction, it would be a while before it starts seeing a decent footfall of patients in the new centres.


In the price band of Rs 175-185, the offer is priced at 11-12 times its expected March 2012 per share earnings on post-offer equity. The company is also offering detachable tradable warrants that can be converted after 13 months from the date of allotment at a discount of 20 per cent to then prevailing market price. But the above-stated concerns in addition to the current market conditions make the offer somewhat unattractive. Investors may be better off taking a relook at a later date.

Offer details

The initial public offer is open from December 30 to January 9. The company plans to raise Rs 62 crore through this offer. SPA Merchant Bankers is the book-running lead manager and Beetal Financial & Computer Services in the registrar to the issue.

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