Suraksha Diagnostic offers one-stop integrated solution for pathology, radiology testing and medical consultancy services. Provides a comprehensive range of 2,300+ tests that cover a range of specialties and disciplines, as of June 30, 2024.

The diagnostic test menu includes (a) 788 routine pathology tests, covering basic biochemistry and hematology to 664 specialized tests like advanced biochemistry, histopathology, and molecular pathology, and (b) 766 basic/intermediate radiology tests, including x-rays, ultrasonography (USG), and CT scans, along with 119 advanced radiology tests like MRI scans and specialized CT scans. Radiology equipment consists of 24 CT and 13 MRI machines.

Provides its customers online and offline medical consultation services under one roof, which house 120 polyclinics with more than 750 doctors.In addition, offers vaccination services and customized testing packages for disease prediction/early detection.

In Q1 FY25 and FY2024, approximately 1.58 million and 5.98 million tests were conducted, respectively, serving about 0.28 million and 1.14 million patients, respectively.

Extensive operational network, consist of a central reference laboratory with 8 satellite laboratories and 215 customer touchpoints, including 49 diagnostic centres and 166 sample collection centres as of June 30, 2024, across West Bengal, Bihar, Assam, and Meghalaya.

Central laboratory acts as the hub that receives and processes samples and smaller satellite locations (spokes) collect and send the samples to the central facility for analysis. As of June 30, 2024, the diagnostic center network includes: (i) 13 hub centers, which handle all pathology sample collections and basic and advanced radiology tests; and (ii) spoke centers, consisting of 11 medium centers, 23 small centers, and 2 PPP-operated centers, which conduct pathology sample collections and some basic radiology tests, supported by 166 sample collection centers (mainly franchised).

In Q1 FY2025, Radiology contributed 46.52% to revenue, Pathology contributed 49.75%, Doctor Consultation contributed 3.7%, and Covid tests contributed 0.03%.

In Q1 FY2025 and FY2024, 95.34% and 95.48% of revenue, respectively, were derived from its core geography of Kolkata and the rest of West Bengal.

Its market share in the diagnostics services market in Eastern India was 1.15%- 1.30% in FY 2024.

The majority of revenue is derived from the B2C segment (individual patients), contributing 93.83% to revenue for Fiscal 2024 and 93.48% for the three-month period ended June 30, 2024. The B2B segment contributed 6.17% to revenue for Fiscal 2024 and 6.52% for the three-month period.

In Q1 FY25, the average revenue per patient stood at Rs 2,146, and the average revenue per centre was Rs 1.23 crore. The contribution from repeat customers accounted for 46.54% of the revenue.

Intends to further strengthen its position in the suburban regions of Kolkata, including Greater Kolkata. Additionally, it plans to expand its presence across the rest of West Bengal, particularly in the northern and southern regions of the state.

Aims to expand beyond core market in adjacent geographies of eastern and north-eastern India.

Offer and its objects

The IPO comprises an offer for sale of 1,91,89,330 equity shares, aggregating up to Rs 846.25 crore, by the selling shareholders, namely Dr. Somnath Chatterjee, Ritu Mittal, Satish Kumar Verma, Munna Lal Kejriwal, and Santosh Kumar Kejriwal.

The price band for the IPO is Rs 420 to Rs 441 per equity share of face value Rs 2 each.

No proceeds from the offer will be received directly, and all funds will go to the selling shareholders, in proportion to the shares they sell.

The promoters are Dr. Somnath Chatterjee, Ritu Mittal and Satish Kumar Verma. The promoters and promoter group hold an aggregate of 3,18,02,034 equity shares, aggregating to 61.07% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 48.78%.

The issue, through the book-building process, will open on 29 November 2024 and will close on 3 December 2024.

Strengths

Long operating history in Kolkata, extensive network and reputation for providing quality diagnostic services positions it well to continue to grow business in east and northeast Indian markets.

Follows hub and spoke model, which provides greater economies of scale, enables increased consistency in testing procedures, and enhances brand penetration by serving more customers in remote areas.

Technologically advanced clinical infrastructure. Testing operations are supported by 500+ medical equipment offering a test menu of 2,300+ tests with a capacity to handle over 30,000 pathology samples and over 5,000 scans a day.

The ability to offer comprehensive diagnostic solutions in one place helps attract and retain customers, as evidenced by a high repeat rate of over 52.23% in Q1 FY25.

Enjoys long-standing relationships with several medical technology vendors, including HORIBA, Schiller Healthcare India, Beckman Coulter, ITDOSE, Boston Ivy, Siemens Healthineers, Wipro GE Healthcare, bioMérieux, Biorad, BPL Medical Technologies Limited, Phillips India, Carestream Health India, Roche Diagnostics India, Samsung India Electronics, Qiagen India, Becton Dickinson India, and R.A. Enterprises.

Omni-channel medical consultation services, available through both online and offline modes, enhance patient convenience and provide the first opportunity to access a patient’s prescription, creating greater potential for cross selling.

Well-positioned to capitalize on the growth of the healthcare sector in India, driven by rising government expenditure, an increase in lifestyle diseases, a greater focus on preventive healthcare, and higher income levels.

Extensive experience of promoters and senior management personnel.

Weaknesses

A significant portion of its revenue is generated from West Bengal, and any loss of business in this region could adversely affect the business. In Q1 FY25, West Bengal contributed 95.34% to revenue.

With numerous diagnostic companies in the market, the diagnostics industry in India is highly competitive, posing a challenge in terms of increasing market share and profitability.

The audit reports for the standalone and consolidated financial statements for fiscal years 2023 and 2024 included certain audit qualifications and emphases of matter.

Failed to comply with certain provisions of the Companies Act, 2013 in the past. Future non-compliances may result in penalties.

Some promoters, directors, subsidiaries, and group companies are involved in similar businesses, which could lead to potential conflicts of interest.

Promoters and some members of the Promoter Group have pledged a portion of their Equity Shares to Vistra ITCL (India). If this pledge is invoked, it could reduce the total shareholding of the Promoters, potentially leading to a change in control.

CRISIL Ratings has downgraded credit ratings in the past. Any future downgrade of the credit rating could adversely affect the business.

The brand name "Suraksha" is not owned, as it is registered under Suraksha Diagnostic & Eye Centre. Although an assignment deed has been signed with Suraksha Diagnostic & Eye Centre, the trademarks have not yet been registered under its name.

There have been instances of delays in the payment of statutory dues in the past. Any future delays in payment of statutory dues may result in penalties.

Valuation

Net sales increased 15% to Rs 218.71 crore in FY 2024 as compared with FY 2023. The OPM improved 894 bps to 32.04%, leading to 60% increase in OP to Rs 70.07 crore. The OI remains flat at Rs 3.55 crore. Interest cost fell 3% to Rs 8.79 crore. Depreciation cost went up 3% to Rs 32.6 crore. PBT surged 378% to Rs 32.23 crore. Tax expenses were Rs 8.33 crore as compared with Rs 0.68 crore. Minority interest was negative Rs 0.5 crore as compared with negative Rs 0.45 crore. Net profit soared 263% to Rs 23.63 crore.

The FY2024 EPS on post-issue equity works out to Rs 4.65. At the upper price band of Rs 441, P/E is 95.

Listed peers such as Dr Lal PathLabs traded at a TTM P/E of 63, Metropolis Healthcare trades at a TTM P/E of 75, Vijaya Diagnostic trades at a TTM P/E of 89, and Thyrocare trades at a TTM P/E of 63 as of 27 November 2024. The OPM and ROE stood at 32.04% and 14.09% respectively, in FY 2024. These were 27.36% and 19.34% for Dr Lal PathLabs, 23.4% and 11.66% for Metropolis Healthcare, 40.32% and 17.54% for Vijaya Diagnostic and 24.03% and 13.43% for Thyrocare, respectively.

Although the outlook for the diagnostic industry in India is positive, fueled by growing healthcare awareness, higher disposable incomes, and increasing demand for diagnostic services, the current valuation seems inflated when compared to its listed peers. Furthermore, reliance on the West Bengal market limits geographic reach, and there is considerable competition from both established players and new entrants in the sector.