Wockhardt Hospitals withdraws IPO due to poor response

Wockhardt Hospitals withdraws its IPO due to poor response, reports CNBC-TV18. It plans to refund the IPO money in 15 days.

Over the past few days, CNBC-TV18 has been telling you how the Wockhardt Hospital IPO has been on a sick bed. Tonight , it seems there is little left to breath life into it. Sources tell CNBC TV18 that the company has pulled the plug on the issue.

This is just the thing that you do not want hear, if you are an investor. Poor market conditions are being sighted as the reason for the IPO pullout, which has gone on for a period of eight days. That has left a very sour taste in the mouth of investors and that too from a high quality management. The reason cited doesn't hold much weight as other IPOs going through the same market conditions, like IRB, have been subscribed over four times.

We made the same point yesterday, when Emaar MGF actually asked for an extension late Wednesday evening for its IPO. There are concerns on valuations and people are seeing that. If you take a look at the NSE website, all subscription applications are coming at the bottom end of the revised issue price. That is a telling statement in itself. Why has IRB gone through and why have these not gone through?

At present, Wockhardt is saying they are going to repay the money over 15-days. The issue has gone on for eight-days, add another 15-days and that is 23-days. Investors, who have put in their hard-earned money, have probably taken out the money from the secondary markets and put it into this IPO. They probably invested in the first couple of days and that money is going to come back to them in the next 14-15 days. If global markets hold out and equity markets rally, they have lost out on making money in other asset classes, perhaps even in other equities that they may have found appetizing enough for their own cause.

The subscription figures are 0.006 times HNIs, 0.06 times QIBs, 0.3 times retail, and overall 0.2 times. Eight days after an issue opened and that too with the management bandwidth that Wockhardt commands. It is going to be very hard because at the top end of the original price band, Wockhardt was talking about raising Rs 700 crore. The fact of the matter is, if that capital is needed, where is it going to come from now? With what face is the Wockhardt management going to approach investors after having pulled out of the issue? You will see their reactions no doubt in the listed Wockhardt stock itself, regardless of how the market reacts because this sort of news is not taken positively by the markets at all.

It was a point well taken that they wanted to revise their issue price but even if you compare it with Apollo Hospitals, it is going at about 24-25x one-year forward. Wockhardt Hospitals is going at 78-79x one-year forward. It is more expensive than what Fortis was, Fortis being in that same line of business has hardly made any money for its investors. So this is a telling statement. It would be very interesting to see what the next step is in terms of fund raising from Wockhardt but this is just the kind of thing that happened with Emaar yesterday and now it has happened with Wockhardt today and people are going to walk away very disappointed, especially investors who have put in their bids in the initial couple of days.

Source: Moneycontrol.com

Avoid Wockhardt Hospitals IPO

SPA Securities has come out with research report on Wockhardt Hospitals IPO. It has advised to ignore the issue.

Wockhardt Hospitals (WHL), one of the largest private healthcare services companies in India based on the number of hospital beds, is entering capital market with an initial public offering (IPO) of 25,087,097 equity shares of Rs 10 each for cash at a price determined through a 100% book building process.

The price band has been fixed between Rs 280 and Rs 310 per equity share. The issue will open on January 31 and close on February 5, 2008.

SPA Securities report on Wockhardt Hospitals IPO

Company Highlights

* WHL is a private healthcare service company. WHL has a super specialty focus on areas such as cardiology & cardiac surgery, orthopedics, neurology & neurosurgery, urology & nephrology & critical care and they specialize in minimally invasive surgery.
* WHL has shown a CAGR of 35% in the topline; 35% in EBITDA and 245% in the bottomline from FY 2005 to FY 2007.
* Investment Rationale: The company has special focus on tertiary care clinical areas like cardiology & cardiac surgery, etc; Only private hospital group in India associated with Harvard Medical School; Pan India presence; Ability to retain & educate skilled personnel’s.
* Concerns are: Though the company has a national presence, nearly 71% of the revenues are generated by the hospitals in Mumbai & Bangalore; High debt – equity ratio; The company operates brownfield hospitals where the commission earned by WHL is very low; Low margins for the figures recorded in Dec – 07;
* Fitch has assigned an IPO Grade “4/5” to this issue.
* Healthcare spending in India is expected to rise by 12% per annum through 2005-09 and this figure is expected to reach 5.5%, or approximately USD 60.9 billion by 2012, according to IBEF-E&Y. CRISINFAC expects the total healthcare delivery market in India to grow from Rs 1,253 bn in 2006 to Rs.3,642 bn by 2016.

Valuation

The stock is currently available at a P/E of 300x to 332x on the lower & upper price bands respectively of its FY 08E EPS of Re.0.93. The industry P/E is at 25x which shows that this issue is highly priced. The EV/Bed of WHL is at 23x & 26x on the lower & upper price EV bands respectively where as that of Apollo & Fortis is at 4x & 15x respectively, which again shows that the issue is expensive.

The significant revenues of the company will start from 2010 when all the expansion plans of the company will be over & it will start giving higher returns to investors.

Currently, the issue price looks to be on the expensive side. The industry is poised to have an upward trend in the near future and it’s better to invest in peer group companies like Apollo which is available at a cheaper P/E and whose EV/Bed is also relatively cheaper. Hence, we recommend Ignore to the issue.

Source: Moneycontrol.com