Nothing good in Goodwill Hospital IPO – Avoid for Traders, Investors

January 3, 2012   ·   2 Comments

Goodwill Hospital And Research Centre is entering the capital market on 30th December with an issue size of Rs. 62 crores, in the band of Rs. 175 to Rs. 185 per share. This may see an issue size of 33.51 lakh to 35.43 lakh equity shares of Rs. 10 each. Check out the Financials, Comparison with Peers, Valuations, subscriptions, Allotment, Listing & Recommendations for the Goodwill IPO

 FINANCIALS

In the fiscal year 2011, the company’s total income was 53.6 crore, 134% higher than the previous year. And its earnings in the fiscal 2011 were 22.94 crore, 312% more than the previous year. This growth had come with an infusion of equity through debt and equity. As on June 30, 2011, the debt on the company’s book is around 104.2 crore and its debt to equity was 2.8. And the increased debt has weighed heavy on the company’s profitability. In the first quarter of the current fiscal, the company’s net profit before tax margin was 36% as compared to 43% in FY11. However the operating margin has remained nearly the same. In the first quarter of FY12, its earnings before interest, depreciation and tax margin was 67%. For its Faridabad project, which will cost roughly 220 crore, the company again intends to fund it through debt, which means the company’s debt to equity will continue to remain high.

Comparison with Peers:

Fortis Malar Hospital, a listed company, having posted total income of Rs. 46 crores for six months ending 30-09-11, with PAT at Rs. 3.62 crores, resulting in an EPS of Rs. 1.95 is ruling at a PE of 7 times, inspite, this company being debt free.

 Also, BRLM of this IPO is SPA Merchant Bankers Ltd., which went public on 22-9-2010 with issue price at Rs.135, while now it is ruling at 15. This is wealth destruction of 89% in about 15 months. This company also seems to have resorted to same gimmick of presenting rosy picture for FY 10 and FY 11. Hence, financials of the company cannot be taken on face of it and needs scrutiny and investigations by SEBI.

 VALUATION

The average price of promoters each share worked out around Rs. 14.69.  The book value is Rs. 36.49 and the offer price is Rs. 175 to 185

CARE has awarded 3/5 rating to this IPO

At the upper price band of 185, the company is demanding a price to earning multiple of 9.5 on its estimated FY12 earnings. This is in line with the industry average. But the share comes with a warrant, which will be converted at a later stage to 20% below the trading price, leading to equity dilution. And considering the leveraged balance sheet and not-so-cheap valuations, can skip this IPO.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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  • Srinath R

    Hello Mate. Very good analysis. Debt to equity is very important factor when rating IPO’s. In general IPO’s have not performed well at all during 2011. 2012 will be no different. But it might be a good buy if it comes below Rs 130. What do you reckon?

    Feel free to visit my blog http://smartinvestments-srinath.blogspot.com/ for multi-bagger recommendations.

  • Anonymous

    Srinath, Better to buy Apollo Hospital or Fortis Malar even at the price of 130 as fundamental wise those stocks are much better placed than Goodwill Hospital….

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