Suraksha Diagnostic IPO opens today: Should you subscribe or avoid the issue?

The initial public offering (IPO) of Suraksha Diagnostic opens for bidding on Friday November 29. The company is offering its shares in the price band of Rs 420-441 apiece, which can be subscribed for a minimum of 34 equity shares and its multiples thereafter. Investors can apply for the issue until Tuesday, December 3.

Incorporated in 2005, Suraksha Diagnostic offers pathology, radiology testing and medical consultancy services. The Kolkata-based company has 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.

The Rs 846.25 crore IPO of Suraksha Diagnostic is entirely an offer-for-sale (OFS) of up to 1,91,89,330 equity shares by its promoters and existing shareholders. The company will not receive any proceeds from the issue and the selling shareholders will take off all the proceeds after deducting the issue expense.

Ahead of its IPO, Suraksha Diagnostic raised Rs 253.87 crore from 16 institutional investors as it allocated 57,56,797 equity shares at Rs 441 apiece. Its anchor book included Carnelian Bharat Amritkaal Fund, Societe Generale, Integrated Core Strategies (Asia), Troo Capital, Tusk Investments and mutual funds like Aditya Birla Sunlife, Bandhan, JM Financial, Kotak, Mirae Asset, Nippon and Quant MF.

Suraksha Diagnostic offers online and offline medical consultation services under one roof via 44 diagnostic centres, which house 120 polyclinics with more than 750 doctors. The operation of the diagnostic centres is supported by the technology platforms and systems that the company uses to streamline.

The company offers vaccination services and customized testing packages for disease prediction/early detection. The company uses digital pathology and artificial intelligence to generate blood tests. All radiology reporting is done through a digital platform that allows cases to be reported from all diagnostic centres, significantly reducing turnaround time.

The company has reserved 50 per cent of the shares for the qualified institutional bidders (QIBs), while non-institutional investors (NIIs) will have 15 per cent of the equity shares reserved for them. Retail investors will get 35 per cent of the allocation in the issue.

For the quarter ended on June 30, 2024, Suraksha Diagnostic reported a net profit of Rs 7.67 crore with a revenue of Rs 61.85 crore. The company's bottomline stood at Rs 23.13 crore with a revenue of Rs 222.26 crore in the financial year ended on March 31, 2024.

ICICI Securities, Nuvama Wealth Management and SBI Capital Markets are the book running lead managers of the Suraksha Diagnostic IPO, while Kfin Technologies is the registrar for the issue. Shares of the company shall be listed on both BSE and NSE on Friday, December 6. Here's what analysts said for the IPO of Suraksha Diagnostic:

Anand Rathi Wealth Rating: Avoid Suraksha Diagnostic aims to enhance its presence in its operating regions, with a particular focus on Kolkata. Most diagnostic centers are situated in urban areas of Kolkata. In addition to focusing on their core geography, the company plans to expand and strengthen its presence in neighboring regions of eastern and northeastern India, said Anand Rathi Research.

"The company is valuing at 99.3 times its FY24 earnings. Following the issuance of equity shares, the company's market capitalization stands at Rs 2,296.76 crore. The diagnostic sector in which the company operates is highly competitive. Its operations are confined to the eastern part of India, where the issue is richly priced," it added with an 'avoid' rating for the  IPO.

Canara Bank Rating: Subscribe with caution Suraksha Diagnostic operates in a competitive market dominated by larger players such as Lal PathLabs and Metropolis, who are geographically diversified and may pose challenges to Suraksha’s expansion beyond East India. Dependency on freelancer doctors under a revenue-sharing agreement may lead to fluctuating operations and limited control over quality and consistency, said Canara Bank Securities.

"Based on financials for FY24, P/E stands at 99 times, the IPO appears fully priced, factoring in the near-term positive developments. While the company has promising growth potential in a rapidly expanding sector, its high valuation could pose risks in the short term. Clients with a high risk-taking appetite may 'subscribe' to the issue for long term gains," it said.

Swastika Investmart Rating: Avoid Suraksha Diagnostic provides pathology and radiology testing services, with revenue largely concentrated in West Bengal. The company's financial performance has been inconsistent, with a setback in FY23 but showing signs of recovery recently, said Swastika Investment.

"The IPO is a complete offer for sale, with valuation appearing aggressively high. Investors exploring this sector may find better opportunities among other listed players, making it advisable to avoid this IPO for now," the brokerage added.

AUM Capital Rating: Subscribe for long-term Suraksha Diagnostics is one of the major players in the medical diagnostic industry in Eastern India. Demand for quality health diagnosis coupled with the facility of home collections for the aged and sick make companies like SDL a preferred choice amongst the patients, said AUM Capital.

"A well-built medical infrastructure coupled with qualified health professionals earns the faith and trust of its customers due to which a significant portion forms a part of its repeat customer list. We would recommend a 'subscribe' to the issue for the long term," it added.

StoxBox Rating: Avoid Suraksha Diagnostic provides pathology and radiology testing services, with revenue primarily concentrated in West Bengal. Its financial performance has been inconsistent, with a setback in FY23, but it has recently shown signs of recovery. The company provides comprehensive and high-quality diagnostic services in India through the operational network, said StoxBox.

"At the upper price band, it is valued at FY24 P/E multiple of 96.1 times, which is highly valued compared to its peers. Therefore, we currently recommend an 'avoid' rating for the issue and will reassess our rating in future following sustained business performance in upcoming quarters," it said.

Sushil Finance Rating: Subscribe for long-term Suraksha Diagnostic has built a strong reputation in the diagnostic sector in Eastern India and is scaling up with new centers opening. Looking at all the factors, risks, opportunities and valuation, investors with a long term horizon and investors seeking exposure to the healthcare sector can invest in the issue, said Sushil Finance.