Is Suraksha Diagnostic Ltd IPO worth subscribing to?

In this analysis, we take a closer look at Suraksha Diagnostic Ltd and present you with the exclusive IPO details.

About the issue  

Suraksha Diagnostic Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details. 

Objects of the Issue  

Considering that the issue is exclusively an offer for sale, it is crucial to note that the company will not profit from the offer proceeds. Instead, all offer proceeds will flow to the selling shareholders, distributed in accordance with the number of offered shares they sell as part of the offer.

Promoter holding  

Dr Somnath Chatterjee, Ritu Mittal and Satish Kumar Verma are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 44.02 per cent in the company.

Company profile  

The company provides a comprehensive, one-stop solution for pathology and radiology testing, along with medical consultation services. Its diagnostic offerings include:

Pathology tests: 788 routine tests, ranging from basic biochemistry and haematology to 664 specialized tests like advanced biochemistry, histopathology, and molecular pathology.

Radiology tests: 766 basic and intermediate tests, such as X-rays, ultrasonography (USG), and CT scans, as well as 119 advanced tests like MRI and specialized CT scans.

The company operates an extensive network comprising a flagship central reference laboratory, 8 satellite laboratories, and 215 customer touchpoints, including 49 diagnostic centres and 166 sample collection centres (primarily franchised). As of June 30, 2024, this network spans West Bengal, Bihar, Assam, and Meghalaya.

In the quarter ending June 2024, the company conducted approximately 1.58 million tests, serving 0.28 million patients. Notably, 95 per cent of its operational revenue came from its core geography, Kolkata, and other parts of West Bengal.

Financials 

The company, which delivered notable topline and bottom-line figures in FY22, struggled to sustain its growth momentum. In FY23, revenue declined by 14 per cent, while net profit dropped significantly by more than 70 per cent.

The revenue figures never returned to previous levels thereafter. Based on annualized figures from the June quarter, considerable growth appears possible, but sustaining the current pace remains uncertain.

The company has significantly reduced its total borrowings from Rs 19 crore in FY22 to Rs 7.57 crore as of June 2024; however, it continues to incur substantial finance costs and depreciation expenses, impacting profitability.

Valuation and Outlook

*RoE: Based on FY24 data

The issue is priced with a P/BV ratio of 12.57 times, calculated using its Net Asset Value (NAV) of Rs 35.09 as of June 30, 2024. Based on the company's annualized FY25 earnings and fully diluted equity capital, its price-to-earnings (P/E) ratio is 74x.

The issue appears to be aggressively priced, with the company reporting a 14 per cent return on equity for FY24. However, with other stocks available at much better valuations and offering higher returns, Suraksha Diagnostic Ltd falls short in competing with its listed peers.

Another concerning aspect is the promoters’ limited stake, currently at just 44 per cent, which is further being reduced through an offer for sale. Over 95 per cent of the company’s revenue is derived from a single state, West Bengal, posing a significant concentration risk.

Given the company's inconsistent financial performance, high valuations, and the risks associated with prevailing market uncertainties, we advise investors to avoid this IPO.