Krishna Institute of Medical Sciences Limited (KIMS) was incorporated as Jagjit Singh and Sons Private Limited on July 26, 1973. Until the year 2003, the company was owned, managed, and controlled by Jagjit Singh and certain of his family members, who together owned the entire shareholding of the company. On February 15, 2003, acting in pursuance of the takeover MoU (Memorandum of understanding), certain of their promoters, namely Dr. Bhaskara Rao Bollineni and BRMH (BollineniRamanaiah Memorial Hospitals) along with certain other individuals and entities, acquired the entire equity share capital of the company (then Jagjit Singh and Sons Private Limited).
The Promoters of the company are Dr. Bhaskara Rao Bollineni, Dr. AbhinayBollineni, AdwikBollineni, RajyasriBollineni and BollineniRamanaiah Memorial Hospitals.
KIMS is one of the largest corporate healthcare groups in Andhra Pradesh (AP) and Telangana in terms of number of patients treated and treatments offered. It provides multi-disciplinary integrated healthcare services, with a focus on primary, secondary & tertiary care in tier 2-3 cities and primary, secondary, tertiary, and quaternary healthcare in tier 1 cities.
The company operates 9 multi-specialty hospitals under the KIMS Hospitals brand, with an aggregate bed capacity of 3,064, including over 2,500 operational beds as of March 31, 2021, which is 2.2 times more beds than the second largest provider in AP and Telangana. It offers a comprehensive range of healthcare services across over 25 specialties and super specialties, including cardiac sciences, oncology, neurosciences, gastric sciences, orthopaedics, organ transplantation, renal sciences and mother & childcare.
KIMS current network consists of hospitals strategically located to serve the healthcare needs of AP and Telangana across urban tier 1 cities such as Secunderabad and Hyderabad and more rural tier 2-3 areas such as Vizag, Nellore, Rajahmundry,Srikakulam, Ongole, Anantapur and Kurnool. Their hospitals are also situated well to capture patient in-flow across AP and Telangana and from the neighboring states of Karnataka, Odisha, Tamil Nadu and parts of central India.
KIMS has grown from a single hospital to a chain of multi-specialty hospitals through organic growth and strategic acquisitions. Its first hospital in network was established in Nellore in 2000 and has a capacity of approximately 200 beds. KIMS flagship hospital at Secunderabad is one of the largest private hospitals in India at a single location (excluding medical colleges) with a capacity of 1,000 beds.
KIMS has significantly expanded hospital network in recent years through acquisitions of hospitals in Ongole in FY 2017, Vizag and Anantapur in FY2019 and Kurnool in FY2020. Approximately one-third of total 3,064 beds were launched in the last four years. It has added over 940 beds, in aggregate, in hospitals in Visakhapatnam (Vizag), Anantapur and Kurnool in between FY2019 and FY2021, and improved the overall bed occupancy rate in these hospitals from 71.83% to 78.6% in the same period.
KIMS strategically focus on the southern India healthcare market where it has a strong understanding of regional nuances, customer culture and the mind-set of medical professionals and where there is significant and growing need for quality and affordable healthcare services. Each hospital also has its own integrated diagnostic services and pharmacies that cater to patients.
In FY2021, nine hospitals of KIMS recorded ARPOB (average revenue per operating bed) of Rs 20609, a bed occupancy rate of 78.6%, and an ALOS (average of length of stay) of 5.53 days, on an aggregate basis. In FY21, ARPOB for hospitals situated in tier 1 cities was Rs 39,571 and ARPOB for hospitals situated in tier 2-3 cities was Rs 11,187.
KIMS also conduct medical education programs through its affiliations with state medical boards and universities, for various broad and super specialties at its hospitals at Secunderabad and Kondapur, including for DNB (Diplomate of National Board) and post-doctoral fellowship programs. As of March 31, 2021, there were 230 students enrolled in its DNB and post-doctoral fellowship programs. It also offers post-graduate, undergraduate and diploma programs that are affiliated with Kaloji Narayana Rao University of Health Sciences and the Telangana Para Medical Board.
The Offer and the Objects
The offer comprises a fresh issue of 2424242 equity shares at upper price band of Rs 825 and 2453988 equity shares at lower price band of Rs 815 aggregating up to Rs 200 crore by the company and an offer for sale by selling shareholders (collectively, Dr Bhaskara Rao Bollineni, RajyasriBollineni, Bollineniramanaiah Memorial Hospital, SeenaiahBollineni, Bollineni Aishwarya, General Atlantic Singapore KH Pte Ltd, Other Investor Selling Shareholder) of up to 2.36 crore equity shares aggregating to Rs 1944 crore at the upper price band of Rs 825 and Rs 1920 crore at the lower price band of Rs 815.
The company will not receive any proceeds of the offer for sale by the selling shareholders. Dr Bhaskara Rao Bollineni pre-issue shareholding was 27.6%, which shall decrease to 26.3% at the upper price band of Rs 825, while Rajyasri Bollineni shareholding will decrease from 2.8% to 1.7%, Bollineni ramanaiah Memorial Hospital from 6.7% to 6%, Seenaiah Bollineni from 5.9% to 4.3%, Bollineni Aishwarya from 3.5% to 0.2% and General Atlantic Singapore from 40.9% to 19.7%
The company proposes to utilize the net proceeds of the fresh issue towards repayment/pre-payment, in full or part, of certain borrowings availed by the company and by subsidiaries viz KHKPL (KIMS Hospital Kurnool), SIMSPL (Saveera Institute of Medical Science) and KHEPL (KIMS Hospital Enterprises) amounting Rs 150 crore and balance towards general corporate purposes.
Total borrowing at the end of March 31, 2020, was Rs 220.164 crore.
Strengths
The Indian healthcare delivery industry is expected to post a healthy 17-18% CAGR between FYs 2021 and 2024 and reach Rs 7.07 trillion in fiscal 2024, driven by strong fundamentals, increasing affordability and ayushman bharat yojana.
The company has retained over 80% of its doctors since inception
KIMS hospitals are situated well to capture patient in-flow across AP and Telangana and from the neighboring states of Karnataka, Odisha, Tamil Nadu and parts of central India.
In FY20, KIMS capital expenditure per bed was Rs 63.5 lakh for hospitals in tier 1 cities and Rs 22.1 lakh for hospitals in tier 2-3 cities, compared to the industry average of Rs 50-80 lakh in tier 1 cities and Rs10-50 lakh in tier 2-3 cities. In FY21, capital expenditure per bed was Rs 69.1 lakh for hospitals in tier 1 cities and Rs 22.1 lakh for hospitals in tier 2-3 cities.
KIMS revenue is diversified across specialties. In FY21, total income mix was 17.82% from cardiac sciences, 12.55% from neurosciences, 9.3% from renal sciences, 4.64% from orthopaedics, 5.25% from gastric sciences, 5.71% from oncology, 6.11% from mother & childcare, 1.86% from organ transplant, 35.28% from others, and 1.48% from other income.
Certain hospitals of KIMS, including its flagship hospital at Secunderabad, have been accredited by the NABH (National Accreditation Board for Hospitals and Healthcare Providers), achieve NABH standards for emergency care and are green operating theatre by Bureau VERITAS. As on January 30, 2021. KIMS Secunderabad is the only hospital in AP and Telangana to have an emergency department complying with NABH standards
KIMS hospitals are equipped with high-quality medical equipment and employ practices and policies which help it provide quality healthcare services to patients. KIMS Secunderabad was the second hospital in Hyderabad to install the 4-Arm HD da Vinci robotic surgical system, which facilitates complex surgeries that are virtually scarless. KIMS Vizag was one of the first hospitals in AP to have an endoscopic ultrasound system with radial & linear scopes, a 2T scope to perform high end endoscopy procedures such as ESG & therapeutic procedures and a power spiral endoscopy for performing end to end enteroscope through motorized scope. KIMS continue to invest in improving technological capabilities, training its doctors and other healthcare professionals, increasing day-to-day operational efficiencies, and finding new ways to engage and retain patients.
Weaknesses
In FY2021, top 10 doctors contributed 21.8% of total income and the top 25 doctors contributed 36.1% of total income. The company is highly dependent on healthcare professionals, and business and financial results could be impacted if it is not able to attract and retain such healthcare professionals.
KIMS Secunderabad and KIMS Kondapur contributes to around 62.98% and 64.09% of total revenues in FY2020 and FY2021.
The company currently does not own the trademark to its corporate logo and its word mark. KIMS is used by various institutions including two other hospitals in the states of Kerala and Karnataka. Certain of these institutions have also initiated opposition applications against its trademark applications.
The company operates in a competitive environment. In most markets, it competes with hospitals, clinics, diagnostic chains and dispensaries of varying sizes with different specialties.
The company in the past has shut down certain facilities. In FY2015, it ceased operations at one facility at Vijayawada, AP due to non-renewal of the lease. It closed subsidiary, KIMS Sahariah Healthcare, in 2019 and is in the process of closing its subsidiary, KIMS Cuddles. These and similar actions may require it to record write-offs, which may adversely impact result of operations and business prospects
The company operates in a highly regulated industry, and compliance with applicable safety, health, environmental and other governmental regulations and any violations of existing regulations may adversely affect its business, results of operations and cash flows. Also, failure to obtain or renew approvals and licenses from governmental and regulatory authorities in a timely manner would render its operations non-compliant with applicable lawsand may subject it to penalties by relevant authorities.
KIMS Kondapur, taken on lease, does not possess the requisite occupancy certificate from the relevant municipal authority and fire NoC from Telangana state disaster response and Fire services department
Conflicts of interest may arise out of common business objects shared by company, its group companies, and promoters, which may affect business, results of operations and financial conditions.
The company has incurred net losses in the past. The company incurred net losses of Rs 47.35 crore, and Rs 47.66 crore in FY2018 and FY2019, respectively. However, it generated net profit of Rs 119.18 crore and Rs 201.22 crore in FY2020 and FY2021.
Promoters, Dr. Bhaskara Rao Bollineni and Dr. AbhinayBollineni, have provided personal guarantees in relation to certain loan facilities, which if revoked may require alternative guarantees, repayment of amounts due or termination of the facilities and may adversely impact cash flow, business, and result of operations.
Dr. Bhaskara Rao Bollineni had pledged 6,628,528 equity shares held by him in in favour of YES Bank as security for the facility granted by YES Bank pursuant to a term loan agreement dated October 5, 2018,entered into between Dr. Bhaskara Rao Bollineni, Aditya Educational Society and IDBI Trusteeship Services. The pledge on 6,628,528 equity shares created in favour of YES Bank has been released on May 24, 2021, and shall be repledged immediately upon creation of lock-in on the equity shares upon allotment and in no instance later than the date of listing of the equity shares on the stock exchanges pursuant to the offer
Valuation
For FY 2021, consolidated sales were up by 18% to Rs 1329.94 crore. OPM rose 610 bps to 27.9% which led to 51% increase in operating profit to Rs 370.88 crore. Other income increased 67% to 10.17 crore while interest cost fell 19% to Rs 32.5 crore and depreciation decreased 2% to Rs 69.54 crore. PBT increased 99% to Rs 279.02 crore. Tax expenses was up 168% to Rs 74.54 crore in FY21. Net profit rose 69% to Rs 201.22 crore.
At the higher price band of Rs 825, the offer is made at around EV/Sales of 4.8 times and EV/bed of 2.1 times for the period ended March 31, 2021, on a post-issue equity share capital of Rs 80.02 crore of face value of Rs 10 each. Listed industry peers of the company are Apollo Hospitals Enterprise, Fortis Healthcare, Narayana Hrudayalaya, Max Healthcare Institute, HealthCare Global Enterprises, Shalby, Kovai Medical Center and Hospital. EV is calculated on post issue equity, while adjusting Rs 150 crore to be utilized for debt reduction from net proceeds of IPO offer.
Apollo Hospitals Enterprise trades at 4.8 times its TTM EV/Sales, while Fortis Healthcare trades at 4.7 times, Narayana Hrudayalaya at 4.2 times, Max Healthcare Institute at 10.3 times, HealthCare Global Enterprises at 4 times, Shalby at 4 times, Kovai Medical Center and Hospital at 2.9 times.
In terms of EV per bed Apollo Hospitals Enterprise trades at 5 times, while Fortis Healthcare trades at 5.1 times, Narayana Hrudayalaya at 2 times, Max Healthcare Institute at 7.7 times, HealthCare Global Enterprises at 1.9 times, Shalby at 0.9 times, Kovai Medical Center and Hospital at 1.4 times
| Krishna Institute of Medical Sciences: Issue Highlights |
| Fresh issue (in Rs crore) | 200 |
| Offer for sale (in number of shares- crore) | 2.36 |
| Offer for sale (in Rs crore) | |
| - in Upper price band | 1944 |
| - in Lower price band | 1920 |
| |
| Price Band (Rs) | 815-825 |
| For Fresh Issue Offer size (in no of shares ) | |
| - in Upper price band | 2424242 |
| - in Lower price band | 2453988 |
| Pre issued capital (Rs crore) | 77.59 |
| Post issue capital (Rs crore) | |
| - in Upper price band | 80.02 |
| - in Lower price band | 80.05 |
| Pre issue promoter and Promoter Group shareholding (%) | 46.81 |
| Post issue Promoter and Promoter Group shareholding | |
| -On higher price band (%) | 38.85 |
| -On lower price band (%) | 38.83 |
| Bid Size (in No. of shares) | 18 |
| Issue open date | 16/06/2021 |
| Issue closed date | 18/06/2021 |
| Listing | BSE, NSE |
| Rating | 44/100 |
| Krishna Institute of Medical Sciences: Consolidated Financials |
| Particulars | 1803 (12) | 1903 (12) | 2003 (12) | 2103 (12) |
| Total Income | 663.67 | 918.01 | 1122.65 | 1329.94 |
| OPM | 9.9 | 8.8 | 21.8 | 27.9 |
| Operating Profits | 65.50 | 80.96 | 245.00 | 370.88 |
| Other Income | 36.38 | 5.86 | 6.08 | 10.17 |
| PBIDT | 101.88 | 86.82 | 251.08 | 381.05 |
| Interest | 83.16 | 45.75 | 39.94 | 32.50 |
| PBDT | 18.72 | 41.07 | 211.14 | 348.55 |
| Depreciation | 40.07 | 56.12 | 70.61 | 69.54 |
| PBT | -21.34 | -15.04 | 140.53 | 279.02 |
| Share of Profit/loss of JV | 0.89 | 0.00 | 0.00 | 0.00 |
| PBT Before EO | -20.45 | -15.04 | 140.53 | 279.02 |
| EO | 0.00 | 0.00 | 0.00 | 0.00 |
| PBT after EO | -20.45 | -15.04 | 140.53 | 279.015 |
| Provision for Tax | 25.40 | 33.33 | 27.82 | 74.54 |
| Profit after Tax | -45.85 | -48.37 | 112.71 | 204.48 |
| PPA | 0.34 | 0.22 | -2.37 | -1.00 |
| Net profit after PPA | -46.19 | -48.59 | 115.07 | 205.48 |
| MI | 1.17 | -0.93 | -4.11 | 4.26 |
| Net profit after MI | -47.35 | -47.66 | 119.18 | 201.22 |
| EPS (Rs)* | | | 14.9 | 25.2 |
*EPS annualized on post issue equity capital of Rs 80.02 crore of face value of Rs 10 each
Figures in Rs crore
Source: Capitaline Corporate Database |
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