Vijaya Diagnostic IPO ⁠— analysts say ‘subscribe’ but the grey market premium isn’t exciting

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Vijaya Diagnostic IPO ⁠— analysts say ‘subscribe’ but the grey market premium isn’t exciting
  • Vijaya Diagnostic IPO will open for subscription on September 1 and close on September 3.
  • Analysts advise investors to subscribe to the IPO because of the company’s strong footing in south India and that it is cash rich and does not require any further capital for growth.
  • The diagnostics lab chain is looking to raise ₹1,895 crore through an entire offer for sale (OFS) from existing promoters with 3.56 crore equity shares.
Diagnostics lab chain Vijaya Diagnostic will open its ₹1,895 crore initial public offering (IPO) for subscription from tomorrow, September 1, and will close on September 3.

Analysts advise investors to subscribe to the IPO given the chain’s strong footing in south India. “The company is cash rich and does not require any further capital for growth,” said Ventura Securities while recommending to ‘subscribe’ to the IPO for long-term investing with a price target of ₹672, indicating an upside of 27% over the next 24 months. However, the grey market premium for Vijaya Diagnostic IPO is not very exciting.

The firm has ₹250 crore cash on its books, Sunil Chandra Kondapally, executive director at Vijaya Diagnostic, told Business Insider.

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Here are some of the important details of the Vijaya Diagnostic IPO:

Price band₹522-₹531
IPO open dateSeptember 1
IPO close dateSeptember 3
Allotment dateSeptember 8
Initiation of refundsSeptember 9
Credit of shares to demat accountSeptember 13
IPO listing dateSeptember 14
Minimum lot28

Meanwhile, analysts at Angel Broking believe that all the short term positives are priced in and indicate a not-so-big listing for Vijaya Organics IPO.

“The company has fixed the IPO price at [a] price to earning [sic] of 35.5 times of FY2021 earning, we believe that all the short-term positives have been priced in...Currently, the grey market premium for the IPO is at ₹50 which is 8.2% of IPO price, so the grey market is not suggesting any big listing...We have a neutral outlook for Vijaya organics IPO,” said Yash Gupta, equity research analyst at Angel Broking.
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Analysts at Ventura Securities expects the company’s revenue to grow at a compound annual growth rate (CAGR) of 16.7% to ₹600 crore by FY24 driven by its deepening footprints in core markets of Telangana and Andhra Pradesh, opening additional diagnostic centres and expanding adjacent geographies.

Analysts at Kotak Securities highlight the firm’s long track record of delivering consistent profitable growth, with strong cash generation and return metrics.

More about the company
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The company offers a “one-stop solution” for pathology and radiology testing services through its 80 diagnostic centres and 11 reference laboratories i.e. labs that perform routine and speciality tests in high volume, across 13 cities and towns in the states of Telangana and Andhra Pradesh. The company claims it has a 7% market share in the two states with an estimated market size of ₹5,100 crore.

Vijaya Diagnostic IPO ⁠— analysts say ‘subscribe’ but the grey market premium isn’t exciting
Flourish chart/RHP data

Aside from the two states, it also has centres National Capital Region and Kolkata. It has a strong presence in south Indian states. However, 96% of its revenue comes from the city of Hyderabad alone, as per the draft red herring prospectus (DRHP).

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Existing promoters, including private equity investor Kedaara Capital, are selling 3.56 crore equity shares via IPO.

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