NEW DELHI (NewsRise) -- A spate of initial public offerings by Indian healthcare companies has drawn strong demand as investors bet rising incomes and government efforts to ramp up urbanization in the world's second most populous nation will boost demand for medical facilities.
Diagnostics and medical test company Dr. Lal PathLabs received bids for 33 times the shares on offer in its IPO, while drugmaker Alkem Laboratories' offering was oversubscribed by more than 44 times, reflecting robust investor appetite for their offerings even as secondary markets remain subdued. Bengaluru-based Narayana Hrudayalaya (NHL), which provides affordable healthcare, is also gearing up for its IPO next week. Founded by cardiac surgeon Devi Shetty, the company operates 5,442 beds across 31 hospitals and 24 primary care centres in 31 cities.
Analysts say these healthcare companies offer strong brands and an established presence in the local market, where demand for drugs and medical services are expected to pick up.
"As literacy rates and disposable incomes rise, households increasingly demand better healthcare facilities and quality of care," said ICICI Securities in a recent note. "This increase has also been boosted by the rise in urbanization and increase in lifestyle-related diseases."
The current year marks the best performance in five years for the IPO market, which had dried up since 2010 amid an economic downturn. Several Indian companies are seeking to raise funds via initial public offerings to fund their expansion, signaling a revival in investor confidence in Asia's third largest economy as Prime Minister Narendra Modi steps up efforts to attract overseas funds to drive growth.
Until November-end, 18 companies had already raised $1.71 billion via IPOs, including those of the owner of the nation's biggest cafe chain Coffee Day Enterprises and no. 1 airline owner InterGlobe Enterprises, according to data compiled by Prime Database. In 2014, five companies had raised $197.2 million, while a year earlier, just three companies listed on local stock exchanges. In 2010, as many as 64 companies raised $8.34 billion via IPOs.
Dr. Lal PathLabs and Alkem are among the best performing IPOs this year in terms of subscription demand. Only VRL Logistics, parcel delivery firm, attracted a stronger response than Alkem for its offering this year, receiving bids for more than 74 times the shares on offer. Power Mech Projects, which provides engineering services to the power sector, was also a top performer, with its offering oversubscribed by more than 38 times.
Drugmakers Biocon's contract research arm Syngene International also benefited earlier this year from strong investor appetite for its IPO, which was more than 32 times subscribed. In comparison, InterGlobe Aviation's highly anticipated $450 million IPO was more than 6 times subscribed, while Coffee Day received bids for 1.82 times the shares on offer.
Syngene International shares have surged 43% from their issue price, while InterGlobe Aviation has gained more than 35%, outperforming the S&P BSE Sensex.
Alkem, India's fifth largest pharmaceutical company, receives nearly three-fourths of its revenue from the domestic market, shielding it from the pressures faced by other local drugmakers, which primarily cater to the United States where the health regulator has stepped up scrutiny on manufacturing operations in recent years. The company's profit rose 6% to 4.61 billion rupees in the previous financial year. During the first half of this year, the company has posted a profit of 4.5 billion rupees.
Alkem, which is seeking to raise as much as 13.5 billion rupees ($202 million) - the second largest IPO this year after InterGlobe Aviation, plans to use the offering proceeds to step up international expansion in countries such as the U.S. and Australia. The company, known for its Clavam and Taxim anti-infective brands, leads Indian drugmakers in the therapeutic market, with an 11.2% market share.
"With established presence in various therapeutic areas with well-known brands and a number of filings in the U.S. market, the company is in the sweet spot," Way2Wealth said in a research note. "Assuming the company is able to sustain this growth momentum attained in the first half of the year in the coming years, the current valuations look attractive."
Established in 1973, Alkem now has 14 local manufacturing facilities and two plants in the United States. A total of five of their facilities are approved by U.S. health regulators. In July 2010, Alkem acquired The Pharmanetwork LLC in the United States, the holding company of Ascend, providing the company a commercial platform to sell their portfolio of products in the world's biggest pharmaceutical market.
Reliance Securities termed its India business a "steady cash cow" and said the company's expansion into chronic therapies from acute ones was the "right fit for the management."
Dr. Lal PathLabs' strong presence in a niche diagnostics market makes it an attractive bet, analysts say. Crisil expects healthcare delivery services to grow at 16-17% annually $9.6 billion by 2018 from $6 billion in 2015.
"With its pan-India presence and reputation for providing quality diagnostic healthcare services, the company is well positioned to take advantage of the growth of the Indian diagnostic healthcare services industry," ICICI Securities said, recommending investors to "subscribe" to the issue.
Dr. Lal PathLabs, which plans to raise as much as 6.4 billion rupees via the IPO, is one of the largest diagnostic chains in India with 172 clinical laboratories, 1,554 patient service centers and more than 7,059 pickup points as of September 30, 2015. From financial year ending March 2013 to the year ending March 2015, the company's total revenues grew 21% 6.6 billion rupees, while profit surged 31% to 949 million rupees.