Suraksha Diagnostic Ltd (Avoid)

Highlights

Suraksha Diagnostic Limited (SDL) incorporate on 2005, offering one-stop integrated solution for pathology and radiology testing, and medical consultation services through extensive operational network, consisting of their flagship central reference laboratory, 8 satellite laboratories and 215 customer touchpoints which include 49 diagnostic centres, and 166 sample collection centres (primarily franchised) across the states of West Bengal, Bihar, Assam, and Meghalaya.

SDL’s central reference laboratory has an accreditation from the College of American Pathologists, 3 of their laboratories hold National Accreditation Board for Testing and Calibration Laboratories (NABL) and 3 of their advanced diagnostic centres hold National Accreditation Board for Hospitals & Healthcare Providers (NABH) accreditations.

Their diagnostic test menu included (a) 788 routine pathology tests ranging from basic biochemistry and hematology to 664 specialized pathology tests such as advanced biochemistry, histopathology, and molecular pathology, and (b) 766 basic/intermediate radiology tests ranging from basic x-rays, ultrasonography (USG), and computerized tomography (CT) scans to 119 advanced radiology tests such as magnetic resonance imaging (MRI) scans and specialized CT scans.

They also provide vaccination services, and a broad spectrum of customized test packages, aimed at prediction/early detection of diseases. In addition to integrated pathology and radiology testing services, they also offer omnichannel medical consultation services via online and offline modes to customers under a single roof through 44 of diagnostic centres which house 126 polyclinic chambers hosting 750+ doctors.

Out of the total proceeds of Rs. 8,462 mn, entire Rs. 8,462 mn would go towards existing selling shareholders of the company and company will not get any proceeds from the issue.

Key Highlights

• The Indian diagnostics services market, estimated to at Rs. 860 to Rs. 870 bn in FY24, is projected to grow at CAGR of around 10 pct-12 pct to Rs. 1,275-Rs. 1,375 bn by FY28, out of which the eastern and north-eastern India market, estimated at Rs. 170-Rs. 180 bn in FY24, is projected to grow at CAGR of around 10.50 pct – 12.50 pct to Rs. 260-Rs. 280 bn by FY28.
• As of FY24, the market share of SDL in Eastern India is 1.15 pct to 1.30 pct, which is less than peers such as Dr. Lal Pathlabs Limited which has a market share of 5.30 pct to 5.70 pct in its major market i.e north India and Vijaya Diagnostic Centre Limited which has a market share of 2.20 pct to 2.50 pct in its major market, i.e. South India. SDL believe this indicates headroom for growth in core geography.
• SDL derive the majority of their revenues from the B2C segment (i.e., individual patients, who either walk into customer touchpoints or use home collection services or avail medical consultation services through SDL polyclinics. B2C segment contributed to 93.83 pct of their revenue from operations for the FY24.
• The company intend to focus on consolidation opportunities in a largely unorganized diagnostics service market. While expanding into different geographies, SDL intend to replicate their (a) hub and spoke model to unlock economies of scale and (b) polyclinic model to drive higher number of patient footfalls into their centres. SDL plan to set up additional diagnostic centres in these regions.
• SDL Key growth strategies includes (i) Strengthen their position in core geography i.e. Kolkata and the rest of West Bengal (ii) Expand beyond core markets in adjacent geographies of eastern and north-eastern India (iii) Supplement organic growth with selective acquisitions (iv) Leverage technology to elevate customer experience (v) Augmenting medical consultation services offered through polyclinic chambers at diagnostic centres to boost revenue (vi) Enhance their revenue by inking business-to-business (B2B) and corporate partnerships.
• Sales of the company has grown by 15.03 pct YoY in FY24 and it stood at Rs. 2,187 mn. While EBITDA of the company jumped by 55 pct YoY to Rs. 736 mn and EBITDA margin expanded by 869 bps to 33.66 pct in FY24. During FY24, the company reported profit of Rs. 231 mn, which grew 281 pct YoY. In Q1FY25 sales and EBITDA of the company stood at Rs. 607 mn and Rs. 212 mn while profit came at Rs. 77 mn.

Key Risk

• 95.48 pct of SDL Revenue was generated from West Bengal, and any loss of business in such region could have an adverse effect on their business.
• SDL promoters and certain members of Promoter Group pledged some of the Equity Shares held by them in favour of Vistra ITCL (India) Limited, in its capacity as debenture trustee for the benefit of the debenture holders, as security for debentures issued by the Promoter Group entity, Tinni Investments Limited, and there is disposal restrictions created on Equity Shares held by certain other shareholders. Upon creation, any invocation of such pledge could dilute the aggregate shareholding of Promoters, and such members of Promoter Group, which may cause a change in control of Company and trigger an open offer requirement under the Takeover Regulations.
• Implementation of pricing policies by the Government or other authorities could adversely affect SDL business, results of operations and financial condition.
• The diagnostics industry in India is highly competitive and SDL inability to compete effectively from other healthcare service providers may adversely affect their business. Further, as of FY24, the market share of SDL in their major market which is East India is 1.15-1.30 pct whereas peers have more market share than the company.

Financial Performance

Peer Comparison Based on FY24

Valuation

Suraksha Diagnostic Limited believe that the combination of their dominant position driven by operating history in core geography, extensive network and reputation for providing quality diagnostic services positions them best to continue to grow their business in Kolkata and remaining east Indian and adjacent north-east Indian markets. At the upper end of the price of Rs. 441, the issue quotes at PE of 75x on FY25E annualized earnings. The issue looks fully priced. One can avoid this issue.

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