Clinitech Laboratory coming with IPO to raise Rs 5.78 crore

Clinitech Laboratory 

• Clinitech Laboratory is coming out with an initial public offering (IPO) of 602400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 96 per equity share. 
• The issue will open for subscription on July 25, 2024 and will close on July 29, 2024.
• The shares will be listed on the SME Platform of BSE.
• The share is priced at 9.60 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Inventure Merchant Banker Services.
• Compliance Officer for the issue is Bharat Kumar Bohra. 

Profile of the company

The company is a provider of diagnostic and healthcare tests and services through chain of 8 diagnostic centers in and around Thane and Navi Mumbai. Its Promoters have 30 plus years of experience in diagnostic business. It conducts more than 3 lakh tests per year in its NABL (National Accreditation Board for Testing and Calibration Laboratories) accredited labs equipped with modern technology and high-end equipment. It conducts more than 150 tests at its centres which are classified under various heads as under: Biochemistry tests; Immunology tests; Hematology tests; Molecular Biology tests; Serology tests; Microbiology tests; and Histopathology tests.  

Proceed is being used for:

• Expansion of Diagnostic Centres.
• General Corporate Purposes.

Industry Overview

The diagnostic industry has emerged as an attractive play in India's growing healthcare sector and is one of the fastest growing services in the country. The market share is categorized as: unorganized (47%), hospital-based lab (37%) while the remaining (~16%) is with the organized players. Doctor referrals constitute a large part of this business. This includes commission payments to doctors in lieu of referring a diagnostic lab. Further, currently, the illness diagnosis segment is more prevalent than wellness segment in India. The domestic diagnostic industry is estimated at $9 billion (around Rs 675 billion) and is expected to grow at a compounded annual growth rate (CAGR) of around 10% over the next 5 years. Growth will be primarily driven by change in demographics, increase in lifestyle diseases, and higher income levels across all strata of society, rise in preventive testing, deeper penetration with asset-light expansion, and spread of healthcare services and insurance. The diagnostic segment is a critical component of the healthcare sector. Globally, around 80% of physician diagnoses are a result of laboratory tests. There are mainly 3 types of tests: Routine, clinical lab and specialty tests.

The Indian diagnostic industry is highly fragmented and under-penetrated despite the presence of over 1 lakh labs. Diagnostic chains command around 16% market share. The 4 major players – Dr Lal PathLabs (DLPL), Metropolis Healthcare (METROHL), SRL Diagnostics (SRL) and Thyrocare Technologies – have a share of around 6%. So, there is a huge opportunity for national players to consolidate and for organic expansion. The growth of these diagnostics would be majorly volume-driven, given the high level of competition and government-imposed regulations. Attracted by historically high growth rates (20-25%) lucrative returns, and low entry barriers, most players compete on pricing to garner volumes quickly and move up the cost curve, supported by PE investors. To capture the increasingly important shift towards the consumer, industry leaders have started to implement initiatives such as retailer partnering, offering home testing, and enhancing engagement with patients through digital presence, in addition to maintaining their basic testing services as a safety net. A faster shift of unorganized business to organized players, potential consolidation, likely increase in preventive check-ups and sizeable scale would benefit large organized players with strong balance sheets.

Pros and strengths

Chain of Diagnostic Centers: The company provides diagnostic and healthcare tests and services through chain of 8 diagnostic centers in and around Thane, Raigad and Navi Mumbai. Its 30+ years of experience has created a trust amongst its customers. Its Promoters inspirational leadership has led Clinitech to be recognised as one of the trusted pathology lab in its region.

Strong and long-standing customer relationships: The company’s three-decade long experience and client relationships help it to get repeat business from its customers. Its client relationships also help it to cross sell its other products and services to them. Further it has been mutually value creating, stable and long-term association with its customers through products & services offered by it. This has helped it maintain a long-term relationship with its customers and improve its customer retention strategy. Through these efforts, it aims to become the ‘first choice service provider’ for all its customers for the services it offers.

NABL Accreditation: The company has been awarded Certificate of Accreditation by NABL (National Accreditation Board for Testing and Calibration Laboratories) in accordance with ISO 15189:2012 for its facilities in the medical testing at Airoli, Navi Mumbai. The certificate enables it to maintain quality of services and it reposes confidence of its customers in it.

Risks and concerns

Do not have long-term contracts with customers: The company generates sales generally by its continuing relationships with its customers as well as walk-in customers. Its walk-in customers, contributed to 79.67%, 68.84% and 66.07% of its revenue from operations for last three financial years, respectively. It does not enter in any long- term contract with any of its customers. It offers range of diagnostic tests which are being offered by its diagnostic centres operating at various locations. It has not entered into any agreements with any of its customers and loss of any significant customers would have a material effect on its financial results. It cannot assure that the customers would continue to give new business or it would be able maintain the historical levels of business from these customers or that it will be able to replace these customers in case it loses any of them. While it is constantly striving to increase its customer base and reduce dependence on any particular customer, there is no assurance that it will be able to broaden its customer base in any future periods or that its business or results of operations will not be adversely affected by a reduction in demand or cessation of its relationship with any of its major customers. 

Operates in highly competitive industry: The segments of the industry in which it operates are subject to intense competition. Its principal competitors are other service providers of the similar services, including other major well-established and recognized brands. It also competes against smaller, independent and local diagnostic labs. If it is unable to compete successfully, its revenues or profits may decline or its ability to maintain or increase its market share may be diminished. It competes primarily on brand name recognition and reputation, customer trust & satisfaction, quality of service etc. Some of its competitors are larger than it is in terms of size of operations and nation-wide presence and its competitors may also have greater financial and marketing resources than it does, which could allow them to improve their properties and expand and improve their marketing efforts in ways that could affect its ability to compete effectively. In addition, industry consolidation may exacerbate these risks. In all these conditions where it fails to compete effectively with its competitors, its business and in turn its financial performance will be impacted. 

Depend on third-parties: The company depends on third-party vendors and suppliers to procure its testing equipment and reagents. Certain of these suppliers require it to purchase minimum quantity or value of purchases. It cannot assure that it will be able to continue to obtain adequate supplies of equipment, reagents and test kits, in a timely manner and without any defects, in the future. Any disruption in its business may also result in it not meeting its minimum purchase obligations, leading to potential disruption to its supply of equipment or reagents. Any such reductions or interruptions in the supply of equipment or reagents, defects in reagent and test kits and any inability on its part to find alternate sources for the procurement of such items, may have an adverse effect on its ability to provide its services in a timely or cost-effective manner. Further, the procurement cost of testing equipment and reagents produced outside India may increase due to depreciation of Indian Rupee, and the suppliers may therefore demand to re-negotiate the supply contracts with it. 

Outlook

Clinitech Laboratory (CLL) is a provider of diagnostic and healthcare tests and services through chain of 8 diagnostic centers in and around Thane and Navi Mumbai. It conducts more than 3 lakh tests per year in its NABL (National Accreditation Board for Testing and Calibration Laboratories) accredited labs equipped with modern technology and high-end equipment. CLL conducts more than 150 tests at its centres which are classified under various heads such as: Biochemistry tests, Immunology tests, Hematology tests, Molecular Biology tests, Serology tests, Microbiology tests, Histopathology tests, etc.  On the concern side, the company’s operations are subject to risks inherent in the use of complex medical equipment. It has experienced routine breakdowns and may experience breakdowns and failures or there could be injury to its employees or others either because of defects, faulty maintenance or repair, or improper use or lack of timely servicing of its equipment. 

The company is coming out with an IPO of 602400 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 96 per equity share to mobilize Rs 5.78 crore. On performance front, the revenue from operations for the FY 2024 was Rs 640.30 lakh as compared to Rs 634.75 lakh during the FY 2023 showing a increase of 0.87%. Profit after Tax (PAT) after Extra-ordinary item reduced from Rs 61.31 lakh for the FY 2023 to Rs 37.12 lakhs in FY 2024. Meanwhile, the company intends to explore acquisition of businesses, entering into joint ventures in new geographies / verticals where considerable business opportunities would be available to grow its business. Strategic acquisitions/ joint ventures targeted to increase product / services portfolio and penetrate newer markets will be the focus of the company going forward.