Ash

ika

Stoc

k B

roki

ng L

imit

edAshika Research - Equities

1

IPO Note: Shalby Ltd.

Issue SnapshotCompany Name

Shalby Ltd.

Issue Opens December 05, 2017 to December 07, 2017

Price Band Rs. 245 to Rs. 248

Bid Lot 60 Equity Shares and in multiples thereof.

The Offer

Public issue of 20,354,839 Equity shares of Face value Rs.

10 each, (Comprising of fresh issue of 19,354,839 Equity

Shares* (Rs. 480 cr) and Offer for Sale of 1,000,000 Equity

Shares (Rs. 24.8 cr*) by Selling Shareholder).

Issue Size Rs. 504.5 – 504.8 Crore

IPO Process 100% Book Building

Face Value Rs. 10.00

Exchanges NSE & BSE

BRLM Edelweiss Financial Services Limited, IDFC Bank Limited

and IIFL Holdings Limited

Registrar Karvy Computershare Private Limited

Industry: Healthcare Date: December 05, 2017

1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Company Highlights

Shalby Limited (“Shalby”) is one of the leading Multi-Specialty Chain of Hospitals in India (Source: F&S Report). Their

hospitals are tertiary care hospitals, few of which also offer quaternary healthcare services to patients in various areas of

specialisation such as Orthopaedics, Complex Joint Replacements, Cardiology, Neurology, Oncology, and Renal

Transplantations. Currently, Shalby provides inpatient and outpatient healthcare services through 11 operational hospitals

with an aggregate bed capacity of 2,012 beds. As on June 30, 2017, they had 9 operational hospitals with an aggregate

operational bed count of 841 beds. Shalby has a 15% market share of all joint replacement surgeries conducted by private

corporate hospitals in India in 2016 (Source: F&S Report). Shalby also provides outpatient services through 47 Outpatient

Clinics and have 10 shared surgery centres within third party hospitals, which they call “Shalby Arthroplasty Centre of

Excellence” (“SACE”), where they offers orthopaedic healthcare services including surgeries. Since March 2007, they had

conducted an aggregate of 92,100 surgeries, and provided healthcare services to an aggregate of 1,025,533 patients,

consisting 133,652 inpatients and 891,881 outpatients.

Headquartered in Ahmedabad, India, Shalby has a domestic and overseas outreach through a network of hospitals in India,

and Outpatient Clinics and SACE located in India, Africa, and the Middle East. Having strong presence in western and central

India and focus on Tier – I and Tier – II cities, their hospitals operate across 6 states, their Outpatient Clinics operate across

37 cities in 12 states in India, and the SACE are present in 7 cities in 6 states in India. Their international footprint consist of

6 Outpatient Clinics and 1 SACE in Africa, and 2 SACE in the UAE. They are expanding their footprint in western and central

India with hospitals being set up in Nashik and Vadodara.

Objects of the Offer

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by

the Selling Shareholder. (up to 1,000,000 equity shares by Dr. Vikram

Shah).

Issue Break up

Issue Size Allocation Equity Shares*

QIB ex Anchor 20% 4,046,768

Anchor Investor 30% 6,070,152

HNI 15% 3,035,076

RII 35% 7,081,844

Total Public 100% 20,233,839

Employee 121,000

Total 20,354,839

Equity Share Pre Issue (Nos. Cr.) 8.9

Fresh Share (Nos. Cr.) 1.9

OFS Share (Nos. Cr.) 0.1

Equity Share Post Issue (Nos. Cr.) 10.8

Market Cap (Rs. Cr.)* 2,678.6

Dilution 18.8%

Fresh 18%

OFS 0.9%

* Based on Higher Price Band @ 248

Fresh Issue

Repayment or prepayment in full or in part of certain loans availed by the company (Rs. 300.00 cr.)

Purchase of medical equipment for existing, recently set up, and upcoming hospitals (Rs. 63.58 cr.)

Purchase of interiors, furniture, and allied infrastructure for upcoming hospitals (Rs. 11.18 cr.); and

General corporate purposes

Ash

ika

Stoc

k B

roki

ng L

imit

edAshika Research - Equities

21008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Shalby hospitals are tertiary care hospitals, few of which also offer quaternary healthcare services to patients in various

areas of specialisation such as orthopaedics, complex joint replacements, cardiology, neurology, oncology and renal

transplantations. The existing revenue mix between orthopaedics and other specialisation is at ~68:32 (as on June 30,

2017). The total bed capacity was at 2012 with operational beds at 841. The company employs 2049 employees and

engaged 319 professional consultants, consisting of 294 doctors who are full-time consultants and 25 doctors who are

parttime consultants. The staff strength also comprises 699 nurses and 1350 paramedical, corporate and support staff and

pharmacists. The company achieved a blended ARPOB of Rs. 36730 crore and an occupancy of 3.9 days (as on June 30,

2017).

Shalby operate and expand their business through a combination of the following models:

Owning and operating Multi-Specialty Hospitals;

Operating and managing Hospitals on a Revenue Sharing Basis, by adopting an asset-light model;

Associating with Third-Party Hospitals on a Revenue Sharing and/or professional fee basis to offer orthopaedic

healthcare services under SACE; and

Providing Orthopaedic Healthcare Services through Outpatient Clinics that are either independently operated by

Shalby, or operated by them within third party premises on a revenue sharing basis.

View

Incorporated on August 30, 2004, Shalby is one of the leading Multi-Specialty Chain of Hospitals in India offering

quaternary healthcare services to patients in various areas of specialisation such as Orthopaedics, Complex Joint

Replacements, Cardiology, Neurology, Oncology, and Renal Transplantations. Headquartered in Ahmedabad, Shalby has a

domestic and overseas outreach through a network of hospitals in India, Outpatient Clinics and Shalby Arthroplasty Centre

of Excellence (SACE) located in India, Africa, and the Middle East. Shalby’s business model comprises of both owning and

operating Multi-Specialty Hospitals while adopting an asset light approach in operating and maintaining hospitals on a

revenue sharing basis. While Shalby has a strong presence in Gujarat as the hospitals operated in the state accounted for

80% of the revenues in FY17. However, Shalby is spreading to cities such as Indore, Jaipur, and Mumbai. Shalby has strong

expertise in othopaedics services and contributed to 68% of the total revenues in FY17. Moreover, Shalby has a 15%

market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016. Owing to strong

focus and expertise in this niche segment, Shalby focuses on Tier – I and Tier – II cities. Based, on the operating parameters

while Shalby’s Bed Occupancy Rate is lower at 34.5% as of FY17, compared to other private players like Apollo Hospitals,

Fortis Health, Healthcare Global and Narayana Hrudaya, its Average Revenue Per Occupied Bed (ARPOB) per day is higher

than most at Rs 33,032 as of FY17. Besides, Shalby has significantly reduced Average Length of Stay (ALOS) in the last two

years thus increasing inpatient turnover rate, thereby ensuring a growth in financial performance. Over the period 2013-

2017, Shalby’s revenues, EBITDA and PAT grew at a CAGR of 9.65%, 14.9%, 38.3% respectively. The growth has come on

growing demand for quality healthcare as well as expansion of network through new hospitals in Jaipur, Naroda and Surat

becoming operational. Shalby is also in the process of setting up hospitals for a total bed capacity of 263 beds in Nashik

and Vadodara. Shalby’s operating margins at 22% (as of FY17) are also at par or higher than its peers thus enabling it to

earn higher profitability. Post issue, Shalby plans to repay majority of its debt and thus will help to earn higher bottomline

as well as improve its ROE from 8.3% (FY17 post issue). The healthcare industry is expected to grow at a CAGR of 15-16%

during 2015-20 and expected to reach Rs. 17.2 trillion in 2020. Besides, there are plentiful drivers of growth for the

private players like Shalby. However, geographical concentration of 80% together with the ceiling on the price on

orthopaedic knee implants by The National Pharmaceuticals Pricing Authority, are major challenges. At the higher price

band of Rs 248, the issue is available at a P/E of 42.8x FY17 EPS (post dilution) and EV/EBITDA of 37.1x FY17 EBITDA. While

based on P/E, it is at par or lower than other listed players - Apollo Hospitals and Narayana Hrudayalaya, it is aggressively

priced on EV/EBITDA as against average EV/EBITDA of 20x of other four private players. However considering the financials

and operational parameters in the backdrop of steeper valuation and growing government intervention, we assign a

“Neutral” view on the issue.

Ash

ika

Stoc

k B

roki

ng L

imit

edAshika Research - Equities

31008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

(In Rs. Cr) FY13 FY14 FY15 FY16 FY17 Q1FY18

Cash flow from Operations Activities 95.4 5.1 123.2 4.6 69.2 49.7

Cash flow from Investing Activities (8.8) (26.0) (62.3) (98.0) (156.2) (56.2)

Cash flow from Financing Activities (86.2) 24.1 (39.0) 74.9 89.9 4.6

Net increase/(decrease) in cash and cash equivalents 0.3 3.2 21.9 (18.5) 2.8 (1.9)

Cash and cash equivalents at the beginning of the year 2.0 2.4 5.5 27.5 8.9 11.7

Cash and cash equivalents at the end of the year 2.4 5.5 27.5 8.9 11.7 9.8

Source: RHP

Comparison with listed industry peers

Financial Statement

Cash Flow Statement

(In Rs. Cr) FY13 FY14 FY15 FY16 FY17 Q1FY18

Share Capital 35.4 35.4 35.4 87.9 87.4 88.7

Net Worth 105.7 143.4 170.8 205.4 275.5 298.3

Long Term Borrowings 0.4 22.8 73.7 201.1 285.4 251.9

Other Long Term Liabilities 9.7 10.2 16.5 5.7 26.4 26.8

Short-term borrowings 2.7 7.7 7.5 9.3 26.1 59.0

Other Current Liabilities 33.5 32.7 82.9 82.4 104.8 141.7

Fixed Assets 118.7 135.4 265.8 401.5 543.0 594.9

Non Current Assets 6.4 18.3 22.9 38.3 87.5 90.9

Current Assets 27.0 63.2 62.6 64.2 87.7 91.9

Total Assets 152.1 216.8 351.3 503.9 718.2 777.7

Revenue from Operations 225.1 258.9 275.4 290.4 325.4 89.2

Revenue Growth (%) 15.0 6.4 5.4 12.0

EBITDA 41.5 62.6 67.5 55.5 72.4 25.7

EBITDA Margin (%) 18.4 24.2 24.5 19.1 22.2 28.9

Net Profit 17.1 39.0 25.7 37.6 62.6 14.4

Net Profit Margin (%) 7.6 15.1 9.3 12.9 19.2 16.1

Earnings Per Share (Rs.) 2.0 4.5 2.9 4.3 7.2 1.6

Return on Networth (%) 16.7 27.7 15.3 18.3 23.5 5.0

Net Asset Value per Share (Rs.) 11.6 16.1 19.2 23.4 30.4 32.6

Source: RHP, Ashika Research

Name of the companyOPM(%)

RONW(%)

P/E(x)

P/BV(x)

EV/EBITDA(x)

Market Cap(Rs. Cr.)

Shalby 22.2 8.3* 42.8* 3.5* 37.1* 2678.6*

Apollo Hospitals 10.4 3.7 61.7 3.9 23.8 15974.5

Fortis Health. 21.9 5.4 15.6 2.0 11.0 7447.1

Narayana Hrudaya 12.6 7.5 72.6 5.6 27.1 6032.7

Health.Global 16.4 4.0 114.1 4.2 20.2 2525.1

Source: RHP, Ashika ResearchNote: Shalby fig. are calculated based on post issue diluted and higher price band. All Fig. are of FY17

Metric Shalby Ltd Apollo Hospitals Fortis Healthcare Narayana Health Other Regional Players

ARPOB per day (Rs.)* 34,034 28,036 37,534 17,534 20000-28000

EBITDA Margin (%) 19% 21% - 12% 12-18%

EBITDA Growth (2010-15) 20% 20% - 26% 12-15%

ALOS 4.1 Days 4.2 Days 3.6 Days 4.3 Days 4-5 Days

Source: RHP *Figures for 2015-16

Ash

ika

Stoc

k B

roki

ng L

imit

edAshika Research - Equities

41008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Comparison of Shalby Limited and other key private hospitals in Gujarat

The key highlights of the Financial and Operating Metrics

The key highlights and operational and financial metrics of the operational hospitals for Q2FY18

(In Rs. Cr) FY13 FY14 FY15 FY16 FY17 Q1FY18

Total Bed Capacity 674 674 907 1,295 2,012 2,012

No. of Operational Beds 373 455 593 823 781 841

Revenue (Rs. Cr) 229.83 261.68 277.63 292.56 332.86 90.6

EBIDTA Margin (%) 18.45% 24.20% 24.50% 19.10% 2.22% 2.89%

Bed Occupancy Rate (%) 49.03% 39.62% 40.95% 31.75% 34.48% 33.76%

Average Revenue Per Occupied Bed ("ARPOB")

40,272 38,662 39,706 34,034 33,032 36,720

Average Length of Stay ("ALOS") 4.1 3.96 4.03 4.14 3.99 3.88

Average ROCE (%) 24.75% 35.33% 21.15% 13.12% 11.12% 3.66%

Inpatient Volume 15,348 16,609 17,147 20,528 24,704 6,258

Outpatient Volume 110,919 125,981 128,821 152,921 166,519 47,956

Source: RHP

HospitalEstablished year

in GujaratNo. of Hospitals in

GujaratBed Capacity Type of Services

Shalby Limited 1994 6 1,104 Multispecialty

Sterling Hospitals 2001 4 862 Multispecialty

Apollo Hospitals 2003 1 234 Multispecialty

Care Instituted of Medical Science (CIMS) 2009 1 300 Multispecialty

Narayana Multispecialty Hospital 2012 1 300 Multispecialty

Zydus Hospitals 2012 2 710 Multispecialty

Source: RHP

ParticularsSG

ShalbyKrishna Shalby

ShalbyJabalpur

ShalbyIndore

ShalbyVapi

ShalbyMohali

Vijay Shalby

ShalbyJaipur

Location Ahmedabad Ahmedabad Jabalpur Indore Vapi Mohali Ahmedabad Jaipur

Commencement of operations Mar’2007 Oct’2012 Mar’2015 Aug’2015 Apr’2012 Sep’2015 Mar’1994 Apr’2017

Bed capacity 201 220 233 243 146 145 27 237

Number of operational beds 174 150 138 155 70 24 20 60

Bed occupancy rate (%)* 50.31% 36.84% 30.78% 26.82% 26.45% 36.64% 15.10% 16.40%

Inpatient volume 1,970 1,036 1,126 1,130 545 142 66 243

Outpatient volume 16,428 2,948 7,386 7,824 6,099 899 421 1,722

ALOS ( in Days) 4.04 4.85 3.43 3.35 3.09 5.64 4.16 3.69

In-patient income (in Cr) 381.95 173.11 65.75 88.51 14.86 9.74 7.77 38.12

Out-patient income (in Cr) 3.5 0.57 1.02 2.03 0.39 0.07 0.09 0.19

ARPOB (in Rs.) 53,643 36,180 20,769 29,421 12,382 13,399 32,352 46,131

Revenue (in Cr) 42.73 18.19 8.03 11.13 2.09 1.07 0.89 4.13

EBITDA (in Cr ) 18.02 7.97 -0.06 0.8 -0.38 0.02 0.22 1.44

Source: RHP

Ash

ika

Stoc

k B

roki

ng L

imit

edAshika Research - Equities

51008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Ashika Stock Broking Limited (“ASBL”) or Research Entity has started its journey in the year 1994 and is engaged in the business of broking services,

depository services, distributor of financial products (Mutual fund, IPO & Bonds). This research report has been prepared and distributed by ASBL in the

sole capacity of a Research Analyst (Reg No. INH000000206) of SEBI (Research Analyst) Regulations 2014. ASBL is a wholly owned subsidiary of Ashika

Global Securities (P) Ltd., a RBI registered non-deposit taking NBFC Company. Ashika group (details is enumerated on our website

www.ashikagroup.com) is an integrated financial service provider inter alia engaged in the business of Investment Banking, Corporate Lending,

Commodity Broking, Debt Syndication & Other Advisory Services.

There were no significant and material disciplinary actions against ASBL taken by any regulatory authority during last three years.

Disclosure

ASBL or its associates, its Research Analysts (including their relatives) may have financial interest in the subject company(ies). However, the said

financial interest is not limited to having an open stock market position in /acting as advisor to /having a loan transaction with the subject company(ies)

apart from registration as clients.

1) ASBL or its Research Analysts (including their relatives) do not have any actual / beneficial ownership of 1% or more of securities of the subject

company(ies) at the end of the month immediately preceding the date of publication of this report or date of the public appearance. However

ASBL's associates may have actual / beneficial ownership of 1% or more of securities of the subject company(ies).

2) ASBL or their Research Analysts (including their relatives) do not have any other material conflict of interest at the time of publication of this

research report or date of the public appearance. However ASBL's associates might have an actual / potential conflict of interest (other than

ownership).

3) ASBL or its associates may have received compensation for investment banking, merchant banking, and brokerage services and for other products

and services from the subject companies during the preceding 12 months. However, ASBL or its associates or its Research analysts (forming part

of Research Desk) have not received any compensation or other benefits from the subject companies or third parties in connection with the

research report. Moreover, Research Analysts have not received any compensation from the companies mentioned herein in the past twelve

months.

4) ASBL or their Research Analysts have not managed or co–managed public offering of securities for the subject company(ies) in the past twelve

months. However ASBL's associates may have managed or co–managed public offering of securities for the subject company(ies) in the past

twelve months.

5) Research Analysts have not served as an officer, director or employee of the companies mentioned in the report.

6) Neither ASBL nor its Research Analysts have been engaged in market making activity for the companies mentioned in the report.

Disclaimer

The research recommendation and information herein are solely for the personal information of the authorized recipient and does not construe to be

an offer documents or any investment, legal or taxation advice or solicitation of any action based upon it. This report is not for public distribution or use

by any person or entity, where such distribution, publication, availability or use would be contrary to law, regulation or subject to any registration or

licensing requirement. We will not treat recipients as customer by virtue of their receiving this report. The report is based upon the information

obtained from public sources that we consider reliable, but we do not guarantee its accuracy or completeness. ASBL shall not be in anyways responsible

for any loss or damage that may arise to any such person from any inadvertent error in the information contained in this report. The recipients of this

report should rely on their own investigations.

Name Designation Email ID Contact No.

Paras Bothra President Equity Research paras@ashikagroup.com +91 22 6611 1704

Krishna Kumar Agarwal Equity Research Analyst krishna.a@ashikagroup.com +91 33 4036 0646

Partha Mazumder Equity Research Analyst partha.m@ashikagroup.com +91 33 4036 0647

Arijit Malakar Equity Research Analyst amalakar@ashikagroup.com +91 33 4036 0644

Kapil Jagasia Equity Research Analyst kapil.j@ashikagroup.com +91 22 6611 1715

Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645

Research Team