Vijaya Diagnostic Centre - IPO Note

Healthcare Services - Diagnostic

Vijaya Diagnostic Centre - IPO Note

Healthcare Services - Diagnostic

Price range
Rs. 522-531
Issue Period:
Sep 01, 2021
Sep 03, 2021
September 02, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 1895 cr.
Public Issue
3.57 cr. shares
Market cap post IPO
5414 cr.
Equity Pre - IPO
10.2 cr.
Equity Post - IPO
10.2 cr.
Issue type

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Uncertain growth outlook

Largest and one of the fastest-growing diagnostic chain in Southern India.
VDC is the largest integrated diagnostic chain, by operating revenue, and also one of the fastest-growing diagnostic chains in Southern India. They have built an extensive operational network consisting of 81 diagnostic centres including a flagship centre located at Hyderabad, and 11 co-located reference laboratories, including a national reference laboratory at its flagship diagnostic centre, across 13 cities and towns in the states of Telangana and Andhra Pradesh and in National Capital Region and Kolkata, as of June 30, 2021. VDC also intends to grow inorganically by acquiring standalone diagnostic centers and laboratories.

One-stop solution diagnostics service provider
VDC offers a comprehensive range of approximately 1,610 pathology tests, which are organized into approximately 740 routine tests and 870 specialized tests, as well as approximately 220 basic and 320 advanced radiology tests that cover a range of specialties and disciplines. Their test menu includes (i) pathology tests ranging from basic biochemistry and clinical pathology to cytogenetics and high-end molecular diagnostic tests, including protein chemistry, cellular immunology, flow cytometry, genetics, cytogenetics, immunohistochemistry and advanced microbiology tests, and (ii) radiology tests ranging from basic echocardiograms, X-rays and ultrasounds to advanced radiology tests such as MRI, HRCT, SPECT and PET CT. The company also offers RT-PCR testing and/or CT scan for COVID-19 diagnosis across 33 diagnostic centres in 11 cities and towns.

Strong technical capabilities & cutting-edge diagnostic testing technology
Vijaya Diagnostic Centre’s strong technical capability and ability to adopt latest technologies in the diagnostic industry allows them to provide high quality and reliable diagnostic services to their customers. As of June 30, 2021, their radiology testing operations are supported by radiology equipment including 15 CT machines, 18 MRI machines and five PET CT/Gamma machines, which they believe represent the leading technology used in the field, and a team of 105 radiologists across diagnostic centres.

High brand recall driving business
A substantial majority of the company’s customers are individual customers, with over 92.09% of the revenue from operations for FY21 directly attributed to individual consumer business, as a result of their trusted and quality diagnostic services built over decades of experience. They focus on a customer centric approach to deliver best services that leads to high customer satisfaction and increasing customer stickiness.


Future growth challenges:
The entire issue is offer for sale due to which the company will not receive any proceeds. VDC is targeting inorganic growth by acquiring standalone diagnostic centres. If VDC is unable to generate enough cash flows, growth will get hampered.

Related party transactions:
In FY17, one of VDC’s subsidiaries, Medinova Diagnostic Services LTD (MDSL), defaulted on certain equipment loans availed from its lenders. Also, VDC had written-off trade receivables worth ~Rs 2 cr from MDSL and made investments and loans to other loss making subsidiaries as well. Such transactions in future can have an adverse effect on VDC’s business and financial condition.

Inability to maintain the brand image:
Since VDC primarily derives almost all of its revenues from walk-in customers, VDC brand and reputation are critical for the success of business and operations. Ability to maintain and improve the brand name and brand image is dependent on factors such as quality, accuracy and efficiency of diagnostic tests, turnaround time and patient satisfaction and services. Any delays or inaccuracies in the test results may induce negative publicity and cause harm to the brand which may affect the business.

Geographically concentrated business operations:
Although the company has presence across 13 cities and towns in India, 96% of revenues in FY21 were contributed by operations in just two states of Telangana and Andhra Pradesh. Any negative event in these states could affect business operations of VDC.

Highly competitive space with low entry barriers:
The diagnostics industry in India is highly competitive with the presence of diagnostic healthcare service providers, hospital-based laboratories, independent clinical laboratories, other smaller-scale providers of diagnostic services. Increase in the number of comparable diagnostic healthcare facilities may exert pricing pressure on some or all of VDC’s services. The manufacturers of laboratory equipment and test kits may also enter the diagnostic industry by marketing point-of-care laboratory equipment to physicians and by selling self-test kits, which may be more convenient to the patients and cheaper than the company services. Further, the lack of regulations allows a multitude of organized and unorganized players to compete in the market.

Company Description

Vijaya Diagnostic Centre (VDC) is India’s largest comprehensive diagnostic network with over 80 state-of-the-art centres spread across 13 cities. Vijaya Diagnostic Centre has a qualified team of over 2200 professionals consisting of some of the country’s top radiologists, pathologists and healthcare professionals. It is one of the fastest-growing diagnostic chains in Southern India. The company offers a one-stop solution for pathology and radiology testing services. The company offers around 740 routine tests, 870 specialized pathology tests, 220 basic tests, and 320 advanced radiology tests. The company also offers a broad spectrum of customized health and wellness packages to its customers.


The diagnostic market in India is under-penetrated relative to its potential demand. VDC intends to strengthen its presence in regions in which they operate by (i) expanding service network by opening additional diagnostic centres; (ii) enhancing laboratory capacity and test menu by adding latest technologies; (iii) increasing business from individual customers by offering a portfolio of additional services. However, at the upper price band of Rs 531, the IPO is valued at ~63x FY21 earnings which is in line with its peers such as Thyrocare & Metropolis. However, since the entire issue is OFS, no proceeds will come to the company & the operations are majorly limited to only 2 states. We do not expect any significant growth opportunities for the company. Hence, we recommend investors to avoid subscribing to the IPO.

Peer comparison (Rs crore) FY19 FY20 FY21
Company Revenues EPS ROE (%) Revenues EPS ROE (%) Revenues EPS ROE (%) P/E
Vijaya Diagnostic 293 5 22% 339 6 23% 377 8 24% 63
Metropolis Healthcare 761 24 26% 856 25 24% 998 36 32% 78
Thyrocare Technologies 370 18 21% 401 15 19% 474 23 29% 57

Key Information

Use of Proceeds:
The total issue size of Rs. 1,895 crore is fully an OFS constituting offer for sale of up to 3.57 crore equity shares by promoters & investors. Company will not get any capital from this issue. All proceeds will go to such selling investors.

Book running lead managers:
ICICI Securities, Edelweiss Financial, Kotak Mahindra Capital

The company was founded and promoted by Dr. S. Surendranath Reddy, the executive Chairman, who is a first generation entrepreneur and has more than 4 decades of experience in integrated diagnostics business and is a radiologist. Their CEO, Sura Suprita Reddy, and executive director, Sunil Chandra Kondapally, have been involved in their business and operations since 2003 and 2002, respectively.

Financial Statement

Profit & Loss Statement:- (Consolidated)

Yr End March (Rs Cr) FY19 FY20 FY21
Net Sales 293.00 339.00 377.00
Material Cost 40.00 44.00 58.00
Employee Cost 54.00 62.00 57.00
Other Expenses 90.00 100.00 96.00
EBITDA 109.00 133.00 166.00
EBITDA Margin 37.00% 39.00% 44.00%
Depreciation & Amortization 40.00 49.00 51.00
EBIT 69.00 84.00 115.00
Other Income 10.00 15.00 12.00
Interest & Finance Charges 14.00 15.00 15.00
Profit Before Tax - Before Exceptional 65.00 84.00 112.00
Tax Expense 19.00 21.00 27.00
Effective Tax rate 29.00% 25.00% 24.00%
Net Profit 46.00 63.00 85.00
Net Profit Margin 16.00% 19.00% 23.00%