Leading diagnostics chain Metropolis Healthcare Ltd is looking to raise at least $500 million to finance acquisitions in the healthcare and diagnostics lab space, two people familiar with the matter said.
The company’s promoters have also dropped a plan to find a buyer and may bring in a strategic partner instead.
Metropolis may raise the amount through preferential share allotments and secondary share sales over the next few months, the people said on condition of anonymity. The company has already begun talks with potential strategic players as well as large private equity investors, investment firms and sovereign funds, they said.
“Healthcare business is thriving. Metropolis’s true value is yet to be unlocked. Going by the company’s fast-growing revenues, there are a few players who can understand the company’s true value and pay an appropriate fair premium,” one of the two people cited above said on the condition of anonymity.
Metropolis shares have fallen by more than half from ₹3,457.45 on 3 January to ₹1,515 on Tuesday, implying a fall in market capitalization from around ₹18,000 crore in January to ₹7,753 crore now. However, the company hopes to turn the tide with its expansion plan. “In a fresh strategy, Metropolis is likely to rope in a strategic partner who could pick up a part stake in the company, bring in more expertise to expand in key markets, and also provide long-term growth capital to Metropolis either directly or through a clutch of large investors. For this, Metropolis may form a joint venture with a strategic player and retain ownership, albeit in the form of co-promoters,” the first person said.
“Metropolis will focus on safeguarding margins arising out of increased competition and through the acquisition front,” the second person added.
Metropolis is among India’s leading diagnostics chains with close to 4,000 centres. Sushil Shah, Ameera Shah, their family members and associate firms own 49.79% of the company and are designated as promoters.
With the covid pandemic receding, demand for lab tests has petered out, and profit margins have slumped at diagnostics firms.
However, companies are expected to reduce manpower and infrastructure built at the pandemic’s peak, easing pressure on margins.
Metropolis’s FY22 financials indicate it has a sustainable non-covid business. Its net sales grew 4.9% to ₹305.90 crore in the quarter ended 31 March from ₹291.73 crore a year earlier. In FY22, the company recorded a 17% rise in net profit to ₹214.18 crore, on a 23% surge in net sales to ₹1,228.34 crore. In fact, the stock slipped after the company reported a 35% fall in consolidated net profit to ₹40 crore in the March quarter from ₹61.35 crore in the year earlier. The decline was mainly because of an 18.3% rise in expenditure to ₹231.05 crore.
Its non-covid 19 revenue grew 35% to ₹1,036 crore in the March quarter.
“This is how the core business of Metropolis is growing sequentially. And, that’s an indication that with certain cost controls and appropriate acquisitions of high-growth potential healthcare businesses, Metropolis can create new earning channels and significantly augment its revenues,” the second person added.
Patient visits during the March quarter rose 37% to 13.4 million, while the number of tests surged 35% to 25.7 million. Non-covid home visits revenue grew 23% to ₹98 crore in the March quarter from a year earlier.
According to media reports, Walmart Inc.-owned retailer Flipkart and listed healthcare chain Apollo Hospitals Enterprise Ltd were among potential strategic investors that had signed non-disclosure agreements with Metropolis, while Amazon.com Inc., too, held preliminary discussions with the Mumbai-based healthcare service provider major.
Metropolis Healthcare aims to start 1,800 new collection centres and 90 processing labs across the country in the next three years, according to a Business Standard April report, citing Metropolis managing director Ameera Shah.
“Out of the 1,800 centres, around 80% will be through franchises, while processing labs will be Metropolis’ own ventures. Each processing lab may see an investment of around ₹50 lakh to ₹1 crore,” Shah had said, adding that the majority of the 600 centres that it had planned for the current financial year would be coming during the first quarter.
Metropolis completed the acquisition of Chennai-based Hitech Diagnostic Centre (Hitech), along with its subsidiary Centralab Healthcare Services (Centralab), in October 2021 for a cash consideration of ₹636 crore.
The company is planning to add around 40 more Hitech centres during the current financial year.
