Metropolis Healthcare Files Offer Document for an IPO

Metropolis Healthcare Limited (“Metropolis” or the “Company”), one of the leading diagnostics companies in India, by revenue, as of March 31, 2018), has filed an offer document (“Draft Red Herring Prospectus” or “DRHP”) with the Securities Exchange Board of India (SEBI) thereby proposing (subject to applicable statutory and regulatory requirements, receipt of requisite approvals, market conditions and other considerations) an Initial Public Offering (IPO) of its Equity Shares.

Under the leadership of Ameera Shah (Managing Director), Metropolis has developed a widespread presence across 18 states in India, as of March 31, 2018, with leadership position in west and south India. Through its widespread operational network, it offers a comprehensive range of clinical laboratory tests and profiles, which are used for prediction, early detection, diagnostic screening, confirmation and/or monitoring of the disease. It also offers analytical and support services to clinical research organizations for their clinical research projects. During the financial year 2018, it conducted approximately 16.0 million tests from approximately 7.7 million patient visits.

The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the Offer for Sale. The Company’s Initial Public Offering comprises up to 15,269,684 equity shares of Face Value of Rs. 2 each (the “Equity Shares”) for cash at a Price per Equity Share; consisting of an Offer for Sale of up to 5,017,868 Equity Shares by Dr. Sushil Kanubhai Shah (the “Promoter Selling Shareholder”) and up to 10,251,816 Equity Shares by CA Lotus Investments (the “Investor Selling Shareholder”). The Offer Includes a reservation of up to 300,000 Equity Shares for Subscription by Eligible Employees (The “Employee Reservation Portion”). The Offer less The Employee Reservation Portion is hereinafter referred to as The “Net Offer” and such Net Offer aggregates up to 14,969,684 Equity Shares.

According to Frost & Sullivan, the Indian diagnostics market was valued at approximately ? 596 billion in the financial year 2018, and is projected to grow to approximately Rs 802 billion by financial year 2020, driven by favorable changes in demographics, improvements in health awareness, increased spend on preventive care and wellness, increase in medical tourists, increase in lifestyle-related ailments and rising penetration of insurance in India.

The Company conducts operations through laboratory and service network. It has implemented a ‘hub and spoke’ model for quick and efficient delivery of services through a widespread laboratory and service network, which covers 173 cities in India, as of March 31, 2018. As of March 31, 2018, its laboratory network consists of 106 clinical laboratories, comprising (i) a global reference laboratory (“GRL”) located in Mumbai, which is the main ‘hub’ and equipped to conduct majority of the tests offered by the Company; (ii) 12 regional reference laboratories (“RRLs”) (out of which two are located outside India), which are equipped to conduct routine, semi-specialized and few specialized tests; (iii) 50 satellite laboratories (out of which four are located outside India), which are equipped to conduct routine and semi-specialized tests; and (iv) 43 express laboratories (out of which 11 are located outside India), which are equipped to conduct routine tests. The service network caters to individual patients as well as institutional customers.

It services individual patients through 1,130 patient touch points (out of which 28 are located outside India), as of March 31, 2018, including 251 patient service centers owned by the Company (“Owned PSCs”) and 879 third party patient service centers (“Third Party PSCs”). It services institutional customers through approximately 9,020 institutional touch points, as of March 31, 2018, including (i) approximately 8,500 pick-up points; and (ii) 520 assisted referral centers (“ARCs”) (out of which seven are located outside India), which are exclusive third party referral centers.

The Company’s revenue from international operations accounted for 8.06% of the revenue from operations for the financial year 2018. Outside India, it has laboratory operations in Ghana, Kenya, Zambia, Mauritius and Sri Lanka. In addition, it has also entered into agreements with third parties for collection and processing of specimens in Nepal, Nigeria, UAE and Oman. As of March 31, 2018, we have an operational network of 17 clinical laboratories, 28 patient touch points and seven ARCs, outside India.

The Book Running Lead Managers (“BRLMs) are JM Financial Limited, Credit Suisse Securities (India) Private Limited, Goldman Sachs (India) Securities Private Limited, HDFC Bank Limited and Kotak Mahindra Capital Company Limited. The Equity Shares offered through the Red Herring Prospectus are proposed to be listed on BSE and NSE.

The Company offers a broad range of approximately 3,480 clinical laboratory tests and 524 profiles, as of March 31, 2018. The profile comprises of a variety of test combinations which are specific to a disease or disorder as well as wellness profiles that are used for health and fitness screening. It classifies tests into
(i) ‘routine’ tests such as blood chemistry analyses, blood cell counts and urine examination;
(ii) ‘semi-specialized’ tests such as thyroid function tests, viral and bacterial cultures, histology, cytology and infectious disease tests; and (iii) ‘specialized’ tests such as tests for coagulation studies, autoimmunity tests, cytogenetics and molecular diagnostics. It is focused on providing reliable test results as well as value-added services such as home collection of specimens and online access to test reports. It also offers customized wellness packages to our institutional customers as per their requirement. Its patient centric approach is a critical differentiator and results in several individuals and healthcare providers choosing the Company as their diagnostic healthcare service provider.
From financial year 2016 to financial year 2018, (i) the Company’s revenue from operations grew from ? 4,754.69 million to ? 6,435.67 million, representing a CAGR of 16.3%; (ii) Adjusted EBITDA grew from ? 1,297.96 million to ? 1,773.83 million, representing a CAGR of 16.9%; and (iii) profit for the year grew from ? 819.55 million to ? 1,097.47 million, representing a CAGR of 15.7%. Adjusted EBITDA is a supplemental measure of performance and is not prepared under or required by Ind-AS.

The Company has been awarded the tender by the National Aids Control Organization (“NACO”) to collect specimens from 525 Government-owned antiretroviral therapy (ART) centers and conduct HIV- 1-Viral load tests. It also offers analytical services and support services such as logistics and electronic data interchange (“EDI”) to contract research organizations for their clinical research projects.

The Company has established a well-recognized brand by delivering quality diagnostic and related healthcare tests and services. It was recognized for “excellence in customer service and delivery” by Biotrains in 2018, and also received special jury mention for “service excellence (diagnostic center)” by FICCI at the Healthcare Excellence Awards 2018. In addition, its health campaign was recognized as “best in health and fitness” in the Digital Campaign Awards 2018 by LH Insights.

The following business strengths allow the Company to successfully compete in the industry:
1. One of the leading diagnostics companies in India which is well positioned to leverage the expected growth in the Indian diagnostics industry;
2. Widespread operational network, young patient touch point network and asset light growth of service network;
3. Comprehensive test menu with wide range of clinical laboratory tests and profiles;
4. Strong and established brand with a focus on quality and customer service;
5. Robust information technology infrastructure with focus on improving efficiency;
6. Established track record of successful acquisition and integration in India and overseas; and
7. Experienced senior management team and qualified operational personnel.


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