Metropolis Healthcare IPO Trading Update - Trading at Par with Dr Lal, Despite Its Smaller Size

Metropolis Labs: A New Leader Is in the Making

Value investor- India mid & small caps

Bhaskar Chakraborty

Equity Capital Markets

Metropolis Healthcare Limited / Equity Capital Markets

Metropolis Healthcare Limited (METROHL IN)

<p>We like <a href="https://www.smartkarma.com/entities/27829" target="_blank" data-smartkarma-citation="entities:27829:1">Metropolis Health Services Limited (MHL IN)</a> ’ track record of growing revenue/patient despite competition, premium pricing and strong margin defence. Margins have however, come under some pressure in 9MFY19. Its patient growth lags that of <a href="https://www.smartkarma.com/entities/26927" target="_blank" data-smartkarma-citation="entities:26927:1">Dr Lal Pathlabs (DLPL IN)</a>’s despite rapid network expansion. It is also at the highest risk from any government instituted pricing cap on pathology tests owing to (1) high share of institutional business and (2) premium pricing. Also, 51.6% of promoter stake will be pledged with lenders after the IPO. At the upper end of its price band, Metropolis is valued at 20.9x FY20F EV/EBITDA and 33.3x FY20F PE- at ~15% discount to Dr Lal. We see EPS compounding at 12% Cagr over FY18-21, lower than the 16% EPS Cagr of Dr Lal's. We feel valuation leaves limited upside.</p>

We like Metropolis Health Services Limited (MHL IN) ’ track record of growing revenue/patient despite competition, premium pricing and strong margin defence. Margins have however, come under some pressure in 9MFY19. Its patient growth lags that of Dr Lal Pathlabs (DLPL IN)’s despite rapid network expansion. It is also at the highest risk from any government instituted pricing cap on pathology tests owing to (1) high share of institutional business and (2) premium pricing. Also, 51.6% of promoter stake will be pledged with lenders after the IPO. At the upper end of its price band, Metropolis is valued at 20.9x FY20F EV/EBITDA and 33.3x FY20F PE- at ~15% discount to Dr Lal. We see EPS compounding at 12% Cagr over FY18-21, lower than the 16% EPS Cagr of Dr Lal's. We feel valuation leaves limited upside.

Metropolis IPO: Priced to Leave Limited Upside