GPT Healthcare Ltd IPO : AVOID

GPT Healthcare Ltd IPO : AVOID
  • Date

    22nd Feb, 2024 - 26th Feb, 2024

  • Price Range

    Rs. 177 to Rs. 186

  • Minimum Order Quantity

    80

Company Overview

Company Overview

GPT Healthcare is one of the key regional corporate healthcare companies in Eastern India in terms of the number of beds and hospitals as of FY23. The company operates a chain of mid-sized full-service hospitals under the ILS hospital brand and provides integrated healthcare services, focusing on secondary and tertiary care. As of September 30, 2023, GPT operates four multispecialty hospitals in Dum Dum, Salt Lake and Howrah in West Bengal and Agartala in Tripura, with a total capacity of 561 beds. The company offers a comprehensive range of healthcare services across 35 specialties and super specialties, including internal medicine and diabetology, nephrology (including renal transplants), laparoscopic and general surgery, gynaecology and obstetrics, critical care, gastroenterology, orthopaedics and joint replacements, interventional cardiology, neurology, neurosurgery, paediatrics, and neonatology. Each hospital of the company provides integrated diagnostic services and pharmacies catering to patients. The company’s strategic focus on the relatively under-penetrated healthcare market in Eastern India, where they have presence in three cities, has provided an understanding of regional nuances, patient culture and the mindset of medical professionals. Its hospitals in West Bengal are strategically located in densely populated cities of Kolkata (West Bengal) and Howrah (West Bengal). India also benefits from medical value travel from neighbouring countries such as Bangladesh, Nepal and Bhutan, from patients who prefer to obtain quality healthcare services in India. Eastern India is geographically well positioned for medical value travel from Bangladesh, Nepal and Bhutan, owing to the lower average cost of treatment for healthcare services compared to the northern and western parts of India and due to Eastern India being more accessible from these neighbouring countries.

Objects of the issue

The net proceeds from the fresh issue will be used towards the following purposes:

  • Repayment and / or prepayment in part or in full, of certain outstanding loans of company; from banks and financial institutions; and
  • General corporate purposes. 

Investment Rationale

A healthcare provider with a strong foothold in under-penetrated and densely populated regions of Eastern India

GPT Healthcare is one of the key regional corporate healthcare companies in Eastern India in terms of the number of beds and hospitals in FY23. The company has over 20 years of expertise in providing healthcare services in Eastern India since opening its first hospital in Salt Lake, Kolkata (West Bengal). The company’s strategic focus on the healthcare market in Eastern India, where they have a presence in three cities, has provided them with an understanding of regional nuances, patient culture, requirements, preferences and the mindset of medical professionals. The company is leveraging the opportunity in Eastern India where there is a significant and growing need for quality and affordable healthcare services. Additionally, specific departments, such as the Department of Minimal Access Surgery, have built a reputation in the market for their skilled professionals and specialized experience. As a result, GPT Healthcare has evolved as a brand that is recognized among the region’s patients, doctors, healthcare professionals and vendors.

Well-diversified specialty and location mix enables to cater to the growing demand for quality service

GPT Healthcare has an established presence in Eastern India, with multiple healthcare delivery verticals to serve various economic segments. The company’s operations encompass different levels of healthcare services from primary to tertiary and position GPT Healthcare as a one-stop destination for patient needs in the respective micro markets. The company offers a comprehensive range of healthcare services across 35 specialties and super specialties, including internal medicine and diabetology, nephrology (including renal transplants), laparoscopic and general surgery, gynaecology and obstetrics, critical care, gastroenterology, orthopaedics and joint replacements, interventional cardiology, neurology, neurosurgery, paediatrics and neonatology. Additionally, the company is associated with various consultant doctors in specialty service areas to ensure a diversified pool of resources and holistic expertise. As the company’s healthcare network serves diverse patient needs, this ecosystem of specialized doctors has enabled them to expand reach and leverage market opportunities to gain access to a larger patient base and achieve synergies across verticals while avoiding dependence on a limited pool of doctors.

 

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Repayment and/ or pre-payment, in full or part, of certain borrowings availed by the company;
  • Funding long-term working capital requirements of the company; and
  • General corporate purposes.

Investment Rationale:

Expertise in site selection and identifying opportunities to develop hotels

The company identifies micro-markets and locations within cities based on their proximity to airports, central business districts, areas with concentrated industrial catchments, and areas with high tourism activities. The company aligns the appropriate Hyatt sub-brand with each development. The right sub-brand, along with the right size of development in the optimal location in the chosen city, allows the company to cater to the high-end traveler and maximize long-term returns. The company has demonstrated a strong track record in establishing its presence across key cities. Its hotels and serviced apartments are located in (a) established markets such as Delhi and Mumbai; (b) emerging business destinations such as Ahmedabad, Lucknow, and Raipur; and (c) growing tourist destinations such as Hampi. In Raipur and Hampi, its hotels were the first international chain-affiliated hotels. The company believes that its foresight in identifying key locations to establish its hotels and serviced apartments has been key to the company’s success.

Increasing returns by having multiple revenue streams & complementary offerings

The company has introduced complementary revenue-generating streams at its hotels and benefits from revenue contribution from areas such as serviced apartments, restaurants, MICE services and other services to ensure optimal utilization of available resources. The company’s complementary offerings also result in a mix of customers and guests staying at its properties which improves its ARR. Further, the company consistently monitors the usage of available space at its hotels and aims to enhance its customer offering by adapting the available real estate space in its hotels to meet the ever-changing demands of the market. Guests at its serviced apartments consist a mix of expatriates and Indians and primarily comprise corporate employees. The average occupancy of its serviced apartments was 74.3%, 74.6%, 75.3%, 55.6%, and 47.2% in the six months ended September 30, 2023, and September 30, 2022, and Fiscals 2023, 2022, and 2021, respectively. The company’s hotels feature an aggregate of 22 renowned restaurants and bars, including several award-winning establishments. The company’s F&B offerings provide a dining experience that caters to a broad upscale demographic and its restaurants have developed a strong brand image and customer loyalty which has become an independent and significant business stream. The company also offers meetings, conferences, and banqueting spaces which are used to target customers for events, exhibitions, and meetings as well as for weddings and marquee social events such as G20 conference.

 

Valuation and Outlook:

Considering the current domestic environment, the hotel sector has much to contribute to India’s economy by way of GDP, asset and credit growth, employment, FDI, foreign exchange earnings, and tax revenues. The multiplier effect of developing a new hotel is significant. As of 2022, the overall travel and tourism sector contributed Rs. 15.7 trillion to India’s economy, with an expected increase to Rs. 16.5 trillion for 2023 and Rs. 37 trillion over the next 10 years. The sector is expected to employ 39 million persons by the end of 2023. The GDP contribution of the hotel sector was estimated at USD 40 billion in 2022, with a projected increase to USD 68 billion by 2027 and USD 1 trillion by 2047. The need and demand for hotel rooms and hotel services will benefit from and, in turn, support growth-orientated macroeconomic policies, economic development initiatives, and investments across multiple sectors as India moves towards becoming the third largest global economy. Infrastructure and air/road access enhancements have also helped the growth of leisure and will continue to enable further growth. Various factors such as increased use of hotels for leisure, weddings, and social travel; increased urbanization and access to infrastructure creating new travel destinations and micro-markets for hotels; changing demographics, with millennials and younger travelers seeking experiences and willing to spend on entertainment and recreation; and evolving attitudes towards recreation, entertainment, wellness, and lifestyle has created an opportunistic environment for the industry. These factors have provided a room for growth for asset-heavy business model companies like Juniper Hotels Ltd. to prosper in the longer run. On the financial performance front, the company’s revenue grew at a CAGR of 100.2% during the FY2021-23 period. The company’s EBITDA stood at Rs. 2,719 million in FY23 compared to a negative EBITDA of Rs. 43 million in FY21. The company’s net loss decreased to Rs. 15 million in FY23 from net loss of Rs. 1,995 million posted in FY21. However, considering the asset-heavy business model of the company, rising debt levels and continued loss-making status, we would recommend an “Avoid” rating for the issue. We would reconsider the company for further evaluation following sustained financial performance over the next few quarters.