IPO Review
April 25, 2016
Thyrocare Technologies Ltd
Rating matrix
Rating
:
Unrated
Price band | 420-446
Issue Details
Issue Details
Issue Opens
Issue Closes
Issue Size (| crore)
Price Band (|)
No. of Shares on Offer (crore)
QIB (%)
Non-Institutional (%)
Retail (%)
27-Apr-16
29-Apr-16
451-480
420-446
1.1
50.0
15.0
35.0
Thyrocare Technologies (Thyrocare) is one of the leading pan-India
diagnostic chains. The company currently offers 198 tests and 59 profiles of
tests to detect a number of disorders. Thyrocare also offers patients and
corporations a suite of wellness and preventive healthcare tests under the
brand Aarogyam. The company has a pan-India network of 1041 authorised
service providers across 466 cities and 24 states & union territories. In
addition, through its subsidiary, Nueclear 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.
Objects of the Issue
Key Strengths
The offer for sale is essentially to enhance company's brand name
and provide liquidity to the existing shareholders. The Company
will not receive any proceeds from the Offer.
Emphasis on wellness and preventive care in diagnostic industry
The need for preventive and wellness healthcare test offerings has been
rising steadily in India given the rising middle class population, growing
awareness on lifestyle diseases and benefits of preventive healthcare. An
early entrant in cancer diagnosis, Thyrocare is also developing a network of
molecular imaging centres for cancer diagnosis and has five operating PETCT scanners. With offerings in preventive & diagnostic services and
radiology procedure, Thyrocare is well placed in a high growth and underpenetrated market.
Portfolio of specialised tests
The company 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. The company has also recently commenced testing
services for water samples under the brand Whaters. Further, through the
brand Sugar Scan, the company also offers a sugar scan blood glucose
monitor, which is one of the simplest ways for patients to instantly
determine their blood glucose levels at an affordable cost.
Pan-India network of collection centres
In FY15, the company processed more than 9 million samples and
conducted more than 47 million tests. Thyrocare collects these samples
through a pan-India network of authorised service providers, which operate
under franchise agreements. It has a network of 1041 authorised service
providers spread across 466 cities and 24 states & union territories. The
wide network of authorised service providers is complemented by a fully
automated central processing lab (CPL) in Navi Mumbai and recently
opened regional processing labs (RPLs).
Shareholding Pattern
Pre-Offer
65.0
35.0
Promoters & Promoters Group
Others
Post-Offer
64.0
36.0
Financial Summary
(| crore)
Total Revenues
EBITDA
EBITDA Margins
PAT
EPS
FY11
77.9
35.6
45.7
24.8
4.6
FY12
109.1
49.0
44.9
34.9
6.5
FY13
134.3
63.5
47.3
32.8
6.1
FY14
150.0
68.7
45.8
46.2
8.6
FY15*
183.0
71.8
39.2
44.4
8.3
* Consolidated Financials
Research Analyst
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Mitesh Shah
mitesh.sha@icicisecurities.com
Nandan Kamat
nandan.kamat@icicisecurities.com
Key concern
•
•
•
•
•
Dependence on authorised service providers
High revenue dependence on functioning of CPL and RPL
Competition risk
Vendor risk
Extensive regulatory compliance
Priced at 51-54x on FY15 EPS of | 8.3
At the IPO price band of | 420-446, the stock is available at 51-54x on
consolidated FY15 EPS of | 8.3.
ICICI Securities Ltd | Retail Equity Research
Exhibit 1: Key Financials
(| crore)
Total Revenues
EBITDA
EBITDA Margins
PAT
EPS
RoE
RoCE
FY11
77.9
35.6
45.7
24.8
4.6
36.8
40.7
FY12
109.1
49.0
44.9
34.9
6.5
34.1
40.8
FY13
134.3
63.5
47.3
32.8
6.1
35.5
35.6
FY14
150.0
68.7
45.8
46.2
8.6
22.4
29.8
FY15*
183.0
71.8
39.2
44.4
8.3
16.2
24.2
9MFY16*
175.9
76.2
43.3
40.0
7.4
14.5
22.9
Source: RHP, ICICIdirect.com Research; * Consolidated financials
Indian Diagnostics Industry
In India’s healthcare industry, diagnostic services play the role of an
information intermediary, providing useful information for the accurate
diagnosis and treatment of patient’s diseases. During FY12-15, the Indian
diagnostic industry grew at a CAGR of ~16% to ~| 37700 crore (US$6.2
billion). For the next three fiscal years, Crisil has estimated that the Indian
diagnostic industry is likely to grow at a CAGR of ~16-18% to | 5850061600 crore (US$9.3-9.8 billion) in FY18.
Exhibit 2: Indian diagnostic industry (| crore)
70000
16-18% CAGR
60000
50000
16% CAGR
37700
40000
30000
58500-61600
24000
20000
10000
0
FY12
FY15
FY18E
Indian Diagnostic Industry (| crore)
Source: RHP, ICICIdirect.com Research, CRISIL Report
Pathology testing vs. imaging diagnostic services
The diagnostic industry in India can be classified into pathology testing
services and imaging diagnostic services. Pathology testing or in-vitro
diagnosis involves the collection of samples, in the form of blood, urine,
stool, etc, and analysing them using laboratory equipment and technology
to arrive at useful clinical information, to assist in treatment of diseases. The
pathology testing segment includes biochemistry, immunology,
haematology, urine analysis, molecular diagnosis and microbiology.
Imaging diagnosis or radiology involves imaging procedures such as X-rays
and ultrasounds, which help mark anatomical or physiological changes
inside a patient’s body, to assist doctors to diagnose patient’s disease. The
imaging diagnostic segment also includes more complex tests, such as CT
scans and MRIs and highly specialised tests, such as PET-CT scans.
Pathology testing is often the preferred first line of diagnosis for a majority
of diseases and, thus, contributes to a major portion of the diagnostic
industry. Given the high volumes of pathology testing conducted in India,
pathology testing still accounts for more than half of the revenue of the
Indian diagnostic industry, although the cost of imaging diagnostic services
is often more expensive compared to pathology testing. The pathology
business is highly scalable as blood samples can be shipped to a remote,
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centralised location to achieve economies of scale. In contrast, imaging
business operators have to install diagnostic equipment close to the patient.
Imaging services cannot be centralised and, as a result, are difficult to scale
up.
Exhibit 3: Pathology and imaging diagnostic break-up
Pathology
Diagnostics
56%
Imaging Diagnostics
44%
Source: RHP, ICICIdirect.com Research, CRISIL report
Pathology testing services
Pathology tests can be classified into three broad categories based on
methods used and types of diseases targeted for investigation. The three
broad categories are clinical pathology, anatomical pathology and
molecular pathology. Clinical pathology tests are aimed at diagnosing
diseases through the study of chemical and biochemical mechanisms of the
human body, such as detecting changes in electrolytes and enzymes in the
blood and body fluids samples to analyse various diseases. Common
clinical pathology tests include, among others, blood sugar level tests, lipid
profiles, pregnancy tests, cholesterol tests and blood cell count tests.
Anatomical tests are aimed at diagnosing diseases such as cancer, through
microscopic study of organs and tissue samples. The tissue samples may
consist of tissues obtained from any part of the human body using biopsy
techniques, specimens of separated cells in fluids or tissue smears.
Molecular tests analyse DNA and RNA to detect heritable or acquired
disease-related genotypes, mutations, phenotypes or karyotypes. Molecular
tests assist doctors to determine the severity of a disease, identify carriers
and conduct clinical diagnoses or prognoses.
Wellness and preventive diagnostic services
Wellness and preventive diagnostic services are aimed at identifying preexisting diseases or the likely risk of particular diseases before the onset of
actual symptoms. It is expected that wellness and preventive diagnostic
services will assist people to more accurately identify risks so that they can
take corrective or precautionary measures before any chronic condition
substantiates. According to a Crisil Research Report, a majority of these
wellness and preventive tests consist of biochemistry tests to screen for an
individual’s risk of chronic diseases, such as cardiovascular diseases,
diabetes and cancers. Some diagnostics service providers also offer basic
imaging services, such as X-rays and ultrasounds, in addition to pathology
testing services.
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Exhibit 4: Wellness and preventive (W&P) diagnostic services as percentage of total market
FY18E
FY15
Rest of
the
market
92-94%
W&P
market
6-8%
CAGR 23-25%
W&P
market
7-9%
Rest of
the
market
91-93%
Source: RHP, ICICIdirect.com Research, CRISIL report
Organised vs. unorganised category
Historically, the diagnostic industry has been dominated by standalone
diagnostic centres and hospital-based diagnostic services. Standalone
diagnostic centres are diagnostic centres with a single laboratory/centre.
Hospital-based diagnostic services include all diagnostic procedures carried
out at hospital for patients who are either admitted as an in-patient or are
treated as an out-patient of the hospital.
Standalone centres usually carry out basic tests, which require minimal
investments and physical space. In FY15, ~48% of the revenue generated
by the diagnostic industry was contributed by standalone diagnostic
centres. Since a large number of hospitals in India are unorganised, Crisil
has categorised both hospital-based diagnostic laboratories (labs) and
standalone centres as part of the unorganised diagnostic segment of the
India diagnostic industry.
Diagnostic chains, which constitute the organised market, have emerged in
recent years. The Crisil Research Report defines the organised market as
constituting diagnostic service providers that offer pathology and imaging
services and operate out of more than one centre, with large chains that
have a pan-India presence. These players adopt the hub-and-spoke model
of business operations and utilise modern logistics and information
management systems to operate their network.
Exhibit 5: Revenue contribution of diagnostic centre models
FY15
FY18E
Diagnostic chains
15%
16%
Hospital based Diagnostics
37%
37%
Standalone Diagnostic centers
48%
47%
Source: RHP, ICICIdirect.com Research, CRISIL report
Diagnostic chains can be further categorised into large pan-India chains and
regional chains. Currently, there are approximately seven large diagnostic
chains in India, based on their revenues (Source: publicly available revenue
figures from companies). These chains had ~35-40% of the diagnostic
chains market share in FY15. Regional chains are diagnostic chains with
centres concentrated in a single city or state in India. Regional chains had
~60-65% of the market share of diagnostic chains in India in FY15. In FY18,
it is expected that pan-India diagnostic chains will grow to ~37-42% of the
diagnostic chains market share.
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Exhibit 6: Pan-India diagnostic chains in India
Diagnostic chain Type of tests
Pathology and
Dr Lal Pathlabs imaging
Metropolis
Healthcare
Pathology
International Presence
Oman, Saudi Arabia, Kuwait, Nepal, Malaysia,
Bangladesh, Qatar
UAE, Sri Lanka, South Africa, Kenya, Mauritius,
Ghana
Domestic Presence
Accreditations
NABL, ISO, CAP,
CDC(USA)
NABL, ISO, CAP, CLIA
(USA)
Pathology and
SRL Diagnostics imaging
Pathology and
Thyrocare
nuclear
Technologies
imaging*
Dubai, Sri Lanka, Nepal, Africa, Middle-East, Hong
NABL, ISO, CAP,
Kong, Maldives and SAARC countries
Pan-India
ICAL, APLAC
Pan-India coverage through 1,041
authorized service providers covering 466
Nepal, Bangladesh, Gulf
cities and 24 states and one Union Territory ISO, CAP, NAGL
Pan-India
Pan-India
EBITDA
Margins
ROCE
28%
NA
29%
26%
18%
NA
47%
33%
Source: RHP, ICICIdirect.com Research; *Nuclear imaging consists of highly-specialised tests, such as PET_CT scans
Hub-and-spoke model of chain diagnostics centres
The components of a hub-and-spoke model typically include a reference
lab, satellite labs and collection centres.
Exhibit 7: Hub-and-spoke model
National Reference Lab
Regional Reference Lab
Satellite Lab
CC
Satellite Lab
CC
CC
CC
Source: RHP, ICICIdirect.com Research; CC: Collection Centres
National reference lab: The national reference labs are located centrally,
usually in a large metropolitan area and typically serve as the corporate
headquarters of diagnostic chain companies. The national reference labs
are equipped to conduct both routine and specialised pathology and
imaging tests. They may be spread over an area of 2,000-3,000 square feet,
usually divided into a work area, front office, back office and sample
collection area.
Regional reference lab: Regional reference labs are situated in large
metropolitan cities and act as regional hubs, which accumulate samples
from satellite labs and collection centres across the country. Like national
reference labs, regional reference labs also offer comprehensive and
specialised testing facilities.
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Satellite Labs: Satellite labs offer a limited range of services. They mainly
act as feeders for reference labs. Satellite labs may be either owned or
franchised by a diagnostic chain company.
Collection centres: Collection centres are located in hospitals, nursing
homes, pathology labs, doctors’ clinics, prime commercial properties and
retail spaces, among other places. Collection centres may be companyowned or franchised. A franchisee usually pays a franchise fee, around
| 30,000-50,000, to get the license to operate a collection centre for a
satellite lab. Typically, the collection centres are mainly involved in the
collection and forwarding of patient samples to a satellite or reference lab.
However, the collection centres of certain chains may also be equipped to
conduct some basic tests. The centres usually have basic equipment in the
form of a refrigerator and a centrifuge, and employ minimal staff, such as a
receptionist, lab technician, attendants and delivery staff.
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Company Background
Thyrocare is one of the leading pan-India diagnostic chains and conducts an
array of medical diagnostic tests and profiles of tests that focus on early
detection and management of various disorders and diseases. The
company primarily operates its testing services through a fully-automated
CPL and recently expanded its operations to include a network of RPLs. It
collects samples through a pan-India network of authorised service
providers, which operate under franchise agreements. In addition, through
its subsidiary, 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.
The company offers a profile of 198 tests and 59 profiles of tests to detect a
number of disorders, including thyroid disorders, growth disorders,
metabolism disorders, autoimmunity, diabetes, anaemia, cancer,
cardiovascular disorders, 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 July 2015, the company also commenced providing testing services for
water samples under the brand Whaters. The tests that Whaters is currently
conducting include physical and chemical testing, elements testing,
microbiology testing, pesticide testing and volatile organic compounds
testing. Further, through the brand Sugar Scan, the company also offers a
sugar scan blood glucose monitor, which is one of the simplest ways for
patients to instantly determine their blood glucose levels at an affordable
cost.
Exhibit 8: Locations of services and operations
Source: RHP, ICICIdirect.com Research
Product offering
In the early years of inception, Thyrocare focused on offering tests specific
to thyroid testing. However, over the years, the company expanded its
offering to include 198 tests and 59 profiles of tests to detect a number of
disorders, including growth disorders, metabolism disorders, autoimmunity, diabetes, anaemia, cancer, cardiovascular disorders, 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. The company expects to expand its diagnostics test
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offerings through the testing of new technology and development of
innovative testing. The table below provides an overview of the types of
tests Thyrocare offers and the laboratory that performs these tests.
Exhibit 9: Thyroid tests
Types of Thyroid Tests
Thyroid Stimulating Hormone
Total Triiodothyronine
Total Thyroxine
Performed at CPL
3
3
3
Performed at RPL
3
3
3
Source: RHP, ICICIdirect.com Research
Exhibit 10: Non-thyroid tests
Non-Thyroid Tests Based on the Technologies
Employed by the Company
CLIA
ELISA
HPLC
Electrophoresis
Flow cytometry
Fluorescence Flowcytometry
Nephelometry
Photometry
Liquid Chromatography Mass Spectrometry
ICP-MS
Performed at CPL
3
3
3
3
3
3
3
3
3
3
Performed at RPL
3
3
3
3
Source: RHP, ICICIdirect.com Research
Exhibit 11: Wellness and preventive tests
Wellness and Preventative Tests
Performed at CPL
Performed at RPL
Aarogyam 1.1
3
3
Liver, cholesterol, kidney, thyroid and iron deficiency
Aarogyam 1.2
3
3
All of Aarogyam 1.1 profiles and complete hemogram and diabetes
Aarogyam 1.3
3
3
All of Aarogyam 1.2 profiles and vitamin and testosterone
Aarogyam 1.4
3
All of Aarogyam 1.3 profiles and Cardiac risk profile, pancreas, electrolyte
Aarogyam 1.5
3
All of Aarogyam 1.4 profiles and Folic acid, Blood element analysis profile, testosterone and homocysteine
Aarogyam 1.6
3
All of Aarogyam 1.4 profiles and arthritis, serum ferritin, folic acid
Aarogyam 1.7
3
All of Aarogyam 1.6 profiles and a toxic elements profile
Source: RHP, ICICIdirect.com Research
Thyroid Tests
Thyroid profile is one of the key test offerings of the company and includes
total Triiodothyronine, total Thyroxine and thyroid stimulating hormone
tests (which are collectively referred to as thyroid tests). Thyroid tests
comprised ~28% of the total samples that the company processed in FY15
and generated revenue of ~| 27.2 crore, which constituted 15% of its total
standalone revenue for FY15.
Exhibit 12: Thyroid tests
Particulars
Number of Thyroid tests
Approximate % of total tests
FY13
FY14
FY15
9200977
10604523
13618280
37
30
28
Source: RHP, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
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Wellness and preventive health test offering
Thyrocare also offers a wide range of wellness and preventive health tests
and or profiles to its customers under the Aarogyam brand. In December
2012, the company launched a ‘profile of profiles’ package termed
Aarogyam 1.1. Under this package, it bundled together several profiles of
tests including lipid profiles, liver profiles and thyroid profiles with the
objective of improving its revenue per sample. Since December 2012,
Thyrocare has launched several more ‘profile of profiles’ packages including
Aarogyam 1.2, Aarogyam 1.3, Aarogyam 1.4, Aarogyam 1.5, Aarogyam 1.6,
and Aarogyam 1.7.
Exhibit 13: Share of company’s wellness and preventive health test increasing steadily
Particulars (%)
Wellness and preventive healthcare tests
Others
FY13
41.0
59.0
FY14
47.0
53.0
FY15
51.0
49.0
9MFY16
54.0
46.0
Source: RHP, ICICIdirect.com Research
Thyrocare has a multi-lab model, which encompasses a fully automated
centralised processing laboratory (CPL), supported by four regional
processing laboratories (RPLs). Thyrocare’s fully automated CPL, located in
Navi Mumbai, is equipped with automation systems, diagnostic testing
instruments and processes from leading international and Indian healthcare
brands. The CPL is driven by a barcoded and bi-directionally-interfaced
system and a laboratory information system (LIS). The CPL meets
international standards of quality and has received global accreditations
from the College of American Pathologists (CAP), the National Accreditation
Board for Testing and Calibration Laboratories (NABL), and the International
Organisation of Standardization (ISO).
Exhibit 14: Samples and tests conducted at CPL
Samples processed
Average samples processed per day
Tests conducted
Average tests conducted per day
FY13
6,278,439
17,201
25,027,132
68,567
FY14
7,012,669
19,213
34,897,640
95,610
FY15
8,990,196
24,631
47,420,906
129,920
9MFY16
5,937,842
21,671
32,503,132
118,625
Source: RHP, ICICIdirect.com Research
Thyrocare started setting up RPLs in 2015. Currently, it has four operational
RPLs, one each in New Delhi, Coimbatore, Hyderabad and Kolkata, which
process samples sourced from their respective regions. Since the opening
of the RPLs in 2015, Thyrocare has seen an increase in the volume of tests
that the company has conducted from a daily average of ~95,610 in FY14 to
~131,073 in FY15 and ~119622 in the 9MFY16.
Exhibit 15: Samples and tests conducted at CPL and RPL combined
Samples processed
Tests conducted
Average samples processed per day
Average tests conducted per day
FY14
7,012,669
34,897,640
19,213
95,610
FY15
9,093,828
47,841,710
24,915
131,073
9MFY16
8,427,020
43,661,898
23,088
119,622
Source: RHP, ICICIdirect.com Research
Pan-India network of collection centres and robust logistics
Thyrocare collects samples through a pan-India network of authorised
service providers comprising Thyrocare Aggregators (TAGs) and Thyrocare
Service Providers (TSPs), which operate under franchise agreements. TSPs
and TAGs are both responsible for procuring samples from local hospitals,
laboratories, diagnostic centres, nursing homes, clinics and pathologists.
TSPs are additionally authorised to draw samples from patients and retail
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customers that are either procured by them or referred to them by the
Company. As of November 30, 2015, Thyrocare had a network of 1,041
authorised service providers, including 354 TSPs and 687 TAGs across 466
cities and 24 states & union territories. Through these service providers, the
company has developed a pan-India network and expanded the reach of the
CPL and RPLs.
Exhibit 16: Hub Locations of authorised service providers
Source: RHP, ICICIdirect.com Research
The network of authorised service providers is further complemented by the
recent addition of RPLs, which enable the authorised service providers to
deliver samples to the closest RPL rather than only to the CPL. To optimise
logistics cost, RPLs have been established in regions in close proximity to
rail or road networks. All samples that require routine tests and that are
drawn by the authorised service providers within a particular distance from
the RPLs are transported to RPLs by means of railroad or road networks. If
the location of the authorised service provider is such that it is unfeasible to
send the samples to a RPL, or the sample requires non-routine tests, the
authorised service providers send these tests to the CPL via airline, road
and rail networks. RPLs have, therefore, assisted the company with the
optimisation of logistics costs. Additionally, the time involved in
transporting tests to RPLs is less than that required to transport tests to the
CPL, thereby enabling the company to provide test results to its patients
relatively faster.
At present, the company has a minority equity interest in Thyrocare
International Holding Company, which holds Thyrocare Gulf Laboratories
WLL that conducts business in Bahrain. At present, the CPL receives
samples requiring non-routine tests from Thyrocare Gulf Laboratories WLL.
Thyrocare Gulf conducts its own routine tests on samples that it receives.
The company has entered into a royalty agreement with Thyrocare Gulf and
Thyrocare Bangladesh, pursuant to which the company and Thyrocare
International Holding Company provide: (a) certain services, including
technical and IT support, equipment and reagent and consumables
procurement, operational support and training; (b) exclusive rights to use
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the trademark, trade name, operating procedures and software for a period
of 25 years (to be automatically renewed for 10 years unless cancelled), as
specified, to Thyrocare Bangladesh in return for a royalty payment.
Nueclear Healthcare
Thyrocare is developing a network of molecular imaging (radiology) centres
for cancer patients through its wholly owned subsidiary NHL. The imaging
centres each include Positron Emission Tomography-Computed
Tomography (PET-CT) imaging scanners. PET-CT scanners provide
molecular imaging to assist in cancer diagnosis, staging, monitoring of
treatment efficacy and evaluation of disease recurrence. PET-CT scanners
are also used for cardiology, neurology, infection, and inflammatory disease
applications. As depicted in the map below, the company has five operating
PET-CT scanners across three centres with two in Navi Mumbai, two in New
Delhi and one in Hyderabad. NHL’s planned network also includes medical
cyclotrons that produce radioactive bio-markers required for cancer
imaging.
Exhibit 17: Locations of services and operations
Source: RHP, ICICIdirect.com Research
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Exhibit 18: Key Events
Year
2000
Particulars
The company was incorporated in the name of ‘Thyrocare Technologies’
2001
Commences commercial operations under the brand name Thyrocare pursuant to the acquisition of business of TDPL and TBPL (which were incorporated in 1996)
2005
Receives NABL accreditation
2007
Receives accreditation from the College of American Pathologists (CAP).
2010
Launches wellness packages under brand Aarogyam
2011
Migrates to ‘total laboratory automation system’ installed by Siemens for efficient handling increasing volumes
2012
NVP acquires certain equity shares aggregating to | 1,20 crore from certain entities
2013
NHL commences operations at the PET-CT centres at Navi Mumbai and conducts over 1,000 scans in the first year of operations.
2014
Installs India’s first and the world’s longest track automation system for seamless sample movements from Siemens
2014
Commissions operations in medical cyclotron facility in Navi Mumbai
2014
NHL commences operations at the PET-CT centres in New Delhi, Hyderabad and PET-CT centres at New Delhi conducted over 1,000 scans in the first year of
operations.
Opens RPLs in Delhi, Coimbatore, Hyderabad and Kolkata to expand its coverage and volume of tests and samples processed daily
2015
2015
Acquires equipment for testing of water samples and commences operating the equipment under brand WHATERS. These tests, at present, include physical and
chemical testing, elements testing, microbiology testing, pesticide testing and volatile organic compounds testing
2015
NHL completes over 10,000 scans at the PET-CT centres in New Delhi, over 10,000 scans at the PET-CT centres in Navi Mumbai and over 1,500 scans at the PET-CT
centres in Hyderabad since inception
Source: RHP, ICICIdirect.com Research
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Key strengths
Emphasis on wellness and preventive care in diagnostic industry
The need for preventive and wellness healthcare test offerings has been
rising steadily in India given the rising population of middle class, growing
awareness about lifestyle diseases, and benefits of preventive healthcare.
An early entrant in cancer diagnosis, Thyrocare is also developing a
network of molecular imaging centres for cancer diagnosis, and has five
operating PET-CT scanners. With offerings in preventive & diagnostic
services and radiology procedure, Thyrocare is well placed in a high growth
and under-penetrated market.
Portfolio of specialised tests
The company offers a portfolio of 198 tests, 59 profiles of tests to detect a
number of disorders, including thyroid disorders, growth disorders,
metabolism disorders, autoimmunity, diabetes, anaemia, cancer,
cardiovascular disorders, infertility and various infectious diseases. Also, it
offers patients, corporations a suite of wellness and preventive health care
tests under brand Aarogyam. The company has also recently commenced
testing services for water samples under the brand Whaters. Further,
through the brand Sugar Scan, the company also offers a sugar scan blood
glucose monitor, which is one of the simplest ways for patients to instantly
determine their blood glucose levels at an affordable cost. In recent years,
the company’s focus has been on the development of a wide range of tests
and profiles in the fast growing segment of wellness and preventive
healthcare. According to the Crisil Research Report, this segment is
expected to grow at a CAGR of ~25% in the next three years.
Pan-India network of collection centres
In FY15, the company processed more than 9 million samples and
conducted more than 47 million tests. Thyrocare collects these samples
through a pan-India network of authorised service providers, which operate
under franchise agreements. It has a network of 1,041 authorised service
providers across 466 cities and 24 states and union territories. The wide
network of authorised service providers is complemented by fully
automated central processing lab (CPL) in Navi Mumbai and recently
opened regional processing labs (RPLs).
Multi-lab model driving volume growth, economies of scale
Its multi-lab model comprises a fully automated CPL supported by network
of RPLs that conduct routine tests conducive to high volume testing. Where
logistically feasible, the authorised service providers direct samples
requiring such tests to the RPLs. By routing these tests to RPLs, the
resources of the CPL can be utilised to process and test the additional
samples generated by pan-India network of authorised service providers
that are not proximate to an RPL.
Since opening of RPLs in 2015, the company has seen an increase in the
volume of samples processed by the company. Its laboratories processed
~12% more samples in FY14 compared to FY13. With the opening of the
RPLs, it processed ~30% more samples in FY15 compared to FY14.
Expand product offerings
The company intends to expand its diagnostics test offerings through
acquisition of new technologies, including both instruments and processes.
Thyrocare is currently focusing its efforts on new test offerings based on
clinical application of mass spectrometry.
In May 2015, Thyrocare commenced providing testing services for water
samples through newly-acquired equipment which it operates under the
brand Whaters. Whaters conducts physical and chemical testing, elements
testing, microbiology testing, pesticide testing and volatile organic
compounds testing for water samples.
ICICI Securities Ltd | Retail Equity Research
Page 13
Financials
| crore
Exhibit 19: Revenues
200.0
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
183.0
150.0
134.3
109.1
77.9
FY11
FY12
FY13
FY14
FY15*
Total Revenues
Source: RHP, ICICIdirect.com Research; * Consolidated financials
| crore
Exhibit 20: EBITDA & PAT margins trend
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
45.7
47.3
44.9
45.8
39.2
32.0
31.9
30.8
24.4
FY11
FY12
FY13
EBITDA Margins
24.3
FY14
FY15*
PAT Margins
Source: RHP, ICICIdirect.com Research; * Consolidated
| crore
Exhibit 21: Net profit trend
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
34.9
46.2
44.4
FY14
FY15*
32.8
24.8
FY11
FY12
FY13
PAT
So
urce: RHP, ICICIdirect.com Research; * Consolidated
ICICI Securities Ltd | Retail Equity Research
Page 14
Exhibit 22: Return ratios trend
60.0
55.7
50.0
| crore
40.0
36.8
30.0
50.8
34.1
33.4
33.6
20.5
20.0
24.2
22.4
16.2
10.0
0.0
FY11
FY12
FY13
RoE
FY14
FY15*
RoCE
Source: RHP, ICICIdirect.com Research; * Consolidated
Exhibit 23: Free cash flows
40.0
30.0
28.9
31.2
FY11
FY12
31.6
24.5
| crore
20.0
10.0
0.0
-10.0
FY13
FY14
FY15*
-20.0
-30.0
-22.8
FCF
So
urce: RHP, ICICIdirect.com Research; * Consolidated
ICICI Securities Ltd | Retail Equity Research
Page 15
Key concerns
Dependence on authorised service providers
Thyrocare has a network of 1,041 authorised service providers. The network
helps the company serve local hospitals, laboratories, diagnostic centres,
clinics, nursing homes, pathologists and patients referred by doctors.
Further, Thyrocare provides services to end-customers and patients directly
through offices of TSPs and through its system of home collection services.
All this makes the company significantly dependent on its ability to attract
and retain qualified authorised service providers as well as the ability of its
authorised service providers to grow their customer base, execute the
business model and capitalise on brand recognition and marketing.
High revenue dependence on functioning of central or regional labs
Thyrocare’s multi-lab model encompasses a fully-automated CPL supported
by four RPLs. The CPL performs all tests that the company offers while RPLs
are equipped to perform the tests that are more routine in nature and
conducive to high volume testing. Any disruption at CPL and/or RPLs can
reduce or restrict sales and materially affect the business of the company.
Any delay or interruption in transporting samples to CPL and or RPLs can
also hurt the effectiveness of this business model.
Competition risk
Thyrocare offers 198 tests and 59 profiles of tests. The thyroid profile
contributed 17% of the company’s revenue from diagnostic services for
FY15 and the wellness and preventive care offerings contributed 51% of the
company’s revenue from diagnostic services for FY15. If the company’s
competitors develop diagnostic tests with competitive pricing, its test
offerings fall out of favour, its customer’s preferences change or its ability to
conduct these tests is impaired in any way, the company’s business,
financial condition and results of operations could be material and adversely
impacted.
Vendor risk
The equipment and systems at Thyrocare’s CPL have been provided by
vendors at low or no capital cost in consideration for a minimum purchase
commitment of reagents and consumables for a specified contractual
period. The title to and the ownership of such equipment and automation
systems remains with vendors and may only be passed on to the company
upon completion of the term of the relevant arrangement at a mutually
agreed price. This means that unless the company acquires the equipment
at its CPL as per the terms set out in the relevant arrangement with the
vendor, the vendor may at its discretion withdraw or retake possession of
its equipment.
Extensive regulatory compliance
Thyrocare is amenable to laws and regulations relating to protection of
environment and human health and safety, including those related to
handling, transportation and disposal of medical specimens, medical waste
including bodily fluids, infectious and hazardous waste and radioactive
materials as well as regulations relating to safety and health of laboratory
employees. The company’s molecular imaging business uses radioactive
materials, which are inherently hazardous. Failure to comply with applicable
environment, human health, safety laws and regulations could lead to
revocation of operating permits or licenses, orders to curtail or cease
operations, substantial fines, criminal penalties and/or other enforcement
actions and penalties.
ICICI Securities Ltd | Retail Equity Research
Page 16
Valuations
At the IPO price band of | 420-446, the stock is available at 51-54x on FY15
EPS of | 8.3.
Objects of issue
The offer for sale is essentially to enhance the company's brand name and
provide liquidity to existing shareholders. The company will not receive any
proceeds from the offer.
ICICI Securities Ltd | Retail Equity Research
Page 17
Financial summary
Profit and loss statement
| Crore
(Year-end March)
Revenues
Growth (%)
Raw Material Expenses
Employee Expenses
Other Expense
Total Operating Expenditure
EBITDA
Growth (%)
FY11
77.9
NA
23.4
5.3
13.5
42.3
35.6
NA
FY12
109.1
40.1
29.1
7.1
23.9
60.1
49.0
37.6
FY13
134.3
23.1
35.6
9.0
26.2
70.8
63.5
29.5
FY14
150.0
11.7
42.5
12.1
26.7
81.3
68.7
8.2
FY15*
183.0
NA
55.8
17.8
37.5
111.2
71.8
NA
Depreciation
Other Income
Exceptional Items
PBT after EO/Forex
Total Tax
Profit from minority shareholders
PAT
Growth (%)
Adjusted PAT
EPS
1.3
3.3
0.0
37.6
12.8
2.1
5.1
0.0
52.0
17.1
3.3
5.7
12.0
53.9
21.1
6.4
6.6
0.0
68.9
22.7
24.8
NA
24.8
4.6
34.9
40.8
34.9
6.5
32.8
-6.1
32.8
6.1
46.2
40.6
46.2
8.6
12.9
7.4
0.0
66.3
23.1
-1.2
44.4
NA
44.4
8.3
(Year-end March)
Equity Capital
Reserve and Surplus
Total Shareholders funds
Minority Interest
Total Debt
Deferred Tax Liability
LTP & Other LTL
Total Liabilities
Tangible assets
Intangible assets
Net Block
Capital work-in-progress
Total Fixed Assets
Goodwill on Consolidation
Investments
Non Current Assets
Inventory
Debtors
Loans and Advances
Other Current Assets
Cash
Total Current Assets
Creditors
Provisions
Other current libilities
Total Current Liabilities
Net Current Assets
Application of Funds
| Crore
FY11
10.8
56.7
67.5
0.0
25.0
0.0
3.9
96.4
16.2
0.2
16.4
0.0
16.4
0.0
24.0
4.6
4.0
3.0
7.9
1.1
40.0
56.0
3.5
0.3
0.7
4.5
51.4
96.4
FY12
10.8
91.7
102.5
0.0
25.0
0.0
6.2
133.6
19.1
0.6
19.6
0.0
19.6
0.0
24.0
3.7
5.1
3.4
21.9
0.3
59.0
89.8
0.6
1.0
1.9
3.4
86.3
133.6
FY13
10.9
149.2
160.1
0.0
25.0
0.1
7.4
192.6
74.2
0.8
75.0
10.5
85.5
0.0
77.2
5.4
5.2
3.3
2.2
0.1
17.5
28.4
0.2
1.1
2.7
4.0
24.5
192.6
FY14
10.9
195.3
206.3
0.0
25.0
0.6
7.5
239.3
86.5
0.9
87.3
6.4
93.8
0.0
119.0
5.6
6.3
4.9
4.3
0.0
11.9
27.4
1.5
0.4
4.5
6.4
21.0
239.3
Source: Company RHP, ICICIdirect.com Research; * Consolidated financials
ICICI Securities Ltd | Retail Equity Research
| Crore
(Year-end March)
Profit after Tax
Add: Depreciation
(Inc)/dec in Current Assets
Inc/(dec) in CL and Provisions
Others
CF from operating activities
(Inc)/dec in Fixed Assets
(Inc)/dec in Investments
Others
CF from investing activities
Issue/(Buy back) of Equity
Inc/(dec) in loan funds
Dividend paid & dividend tax
CF from financing activities
Net Cash flow
Opening Cash
FY11
24.8
1.3
7.0
1.1
-3.4
30.8
-1.8
-24.0
1.9
-23.9
0.0
25.0
0.0
25.0
31.9
8.2
FY12
34.9
2.1
3.2
0.4
-4.1
36.6
-5.4
0.0
-12.2
-17.6
0.0
0.0
0.0
0.0
19.0
40.0
FY13
32.8
3.3
2.9
1.7
5.2
45.9
-68.7
-40.5
20.9
-88.3
0.8
0.0
0.0
0.8
-41.6
59.0
FY14
46.2
6.4
-4.6
3.1
-4.9
46.2
-14.6
-39.1
1.9
-51.8
0.0
0.0
0.0
0.0
-5.5
17.5
FY15*
44.4
12.9
-5.5
2.0
-19.4
34.5
-9.9
-8.8
0.8
-17.9
0.0
0.0
-22.9
-22.8
-6.3
11.4
Closing Cash
Free Cash Flow
40.0
28.9
59.0
31.2
17.5
-22.8
11.9
31.6
5.1
24.5
Source: Company RHP, ICICIdirect.com Research; * Consolidated financials
Source: Company RHP, ICICIdirect.com Research; * Consolidated financials
Balance sheet
Cash flow statement
FY15*
50.5
223.7
274.2
36.0
0.0
0.0
12.1
322.3
149.6
1.1
150.7
5.6
156.2
45.3
85.9
15.7
7.4
4.9
9.0
0.0
5.1
26.4
0.8
1.2
5.3
7.3
19.1
322.3
Key ratios
(Year-end March)
Per share data (|)
Adjusted EPS
BV per share
Dividend per share
Operating Ratios (%)
Gross Profit Margins
EBITDA Margins
PAT Margins
Inventory days
Debtor days
Creditor days
Asset Turnover
EBITDA conversion Rate
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt / EBITDA
Debt / Equity
Current Ratio
Quick Ratio
FY11
FY12
FY13
FY14
FY15*
4.6
12.6
0.0
6.5
19.1
0.0
6.1
29.8
0.0
8.6
38.4
0.0
8.3
51.0
4.3
69.9
45.7
31.9
18.8
13.9
16.6
0.8
86.5
73.4
44.9
32.0
17.1
11.5
1.9
0.9
74.6
73.5
47.3
24.4
14.3
9.1
0.6
0.7
72.4
71.7
45.8
30.8
15.3
11.9
3.7
0.6
67.3
69.5
39.2
24.3
14.7
9.8
1.7
0.7
48.0
36.8
55.7
71.7
34.1
50.8
76.0
20.5
33.6
32.1
22.4
33.4
31.4
16.2
24.2
24.6
96.5
66.9
30.6
30.8
35.5
68.6
48.2
21.7
22.0
23.4
73.0
37.9
17.9
17.8
15.0
51.9
35.1
16.1
16.0
11.6
53.9
33.3
13.1
13.1
8.7
0.7
0.4
12.4
11.5
0.5
0.2
26.1
24.7
0.4
0.2
7.2
5.8
0.4
0.1
4.3
3.3
0.0
0.0
3.6
2.6
Source: Company, ICICIdirect.com Research; * Consolidated financials
Page 18
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ICICI Securities Ltd | Retail Equity Research
Page 19
ANALYST CERTIFICATION
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in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:
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ICICI Securities Ltd | Retail Equity Research
Page 20
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