Birla Pacific Medspa Limited
Birla Pacific Medspa is comingout with a 100% book building; initial public offering (IPO) of -- equityshares of Rs 10 each in a price band Rs 10-11 per equity share.
Up to 50% of the issue will beallocated to Qualified Institutional Buyers (QIBs), including 5% to the mutualfunds. Further, 15% would be available for the non-institutional bidders andthe remaining 35% for the retail investors.
The issue will open on June 20,2011 and will close on June 23, 2011.
The shares will be listed on BSE only.
The face value of the share is Rs10 and is priced 1time of its face value on the lower side and 1.10 times onthe higher side.
Book running lead managers to theissue is Arihant Capital Markets.
Compliance Officer for the issueis Khyati Mashru.
Profile of the company
Birla Pacific Medspa wasincorporated pursuant to a Joint Venture Agreement between Birla Wellness &Healthcare, Pacific Healthcare Holdings and Abhijit Desai. Birla Wellness &Healthcare is part of the Yash Birla Group which is a leading industrialconglomerate in India. Pacific Healthcare Holdings, (PHH) is a companyincorporated on January 26, 2001 under the laws of Singapore and through itsaffiliates, related companies and subsidiaries has a network of clinics andspecialist centers offering a wide range of healthcare services, which includespecialist medical and dental services, wellness and day surgery centres andnursing home facilities.
Abhijit Desai is a dermatologistand a Director and shareholder in PacHealth Medical Services, a company jointlypromoted by PHH and its associate Desai in Mumbai for carrying on the businessof medical spa for providing a holistic system of healthcare.
Accordingly, the company wasincorporated on July 15, 2008 to carry on in India and abroad the business ofbeauty and healthcare treatments, health and fitness resorts, dieticians, yogaashrams, saloons, hair and skin treatments, Sanatorium centers, and tomanufacture soaps consumables, oils, medicines, body sprays and scents, creams,powders, natural and artificial skin and hair conditioners. However presently the company is not carrying on the business of manufacturing soaps, oils etc.
At present, the company operates itsmed spa centres under the brand name “EVOLVE”. A med spa or medical spa is ahybrid between a medical clinic and a day spa and operates under thesupervision of medical doctor. Each of its med spa centres is doctor-led and isdesigned to offer scientific makeover solutions for enhancing one’s beauty. Thecompany has a panel of doctors who are qualified and experienced in theirrespective specialties. Using the state-of-the-art equipments at its centres, itprovides patient-centric solutions for safe treatments. All consultations andprocedures are carried out with utmost privacy and in pleasant, comfortable andspecially designed rooms.
IPO Grading
Brickworks Ratings India hasassigned the “BWR IPO Grade 2” to the proposed IPO of the company, indicating belowaverage fundamentals of the company.
Proceeds is being used for
To meet the capital expendituretowards establishing 55 outlets of Evolve Medspa across various cities andplaces
To meet expenses towards brandpromotion
To meet the working capitalrequirements for running the above centres
To meet Issue related expenses.
To enlist the Company’s Shares onBombay Stock Exchange Limited (BSE)
Industry Overview
The health industry has emergedas one of the most challenging sectors as well as one of the largest servicesector industries in India with estimated revenue of $35 billion; itconstitutes 5.2% of India’s GDP and employs 4 million people. The Indian healthindustry is expected to grow at 15% per annum to $78.6 billion, reaching 6.1%of GDP and employing 9 million people by 2012. The healthcare industry in thecountry, which comprises hospital and allied sectors, is projected to grow 23per cent per annum to touch $77 billion by 2012 from the current estimated sizeof $35 billion, according to a Yes Bank and an industry body report publishedin November 2009. According to the report, diagnostics would contribute $2.5billion to the healthcare industry by 2012.
The sector has registered agrowth of 9.3 per cent between 2000-2009, comparable to the sectoral growthrate of other emerging economies such as China, Brazil and Mexico. According tothe report, the growth in the sector would be driven by healthcare facilities,private and public sector, medical diagnostic and pathlabs and the medicalinsurance sector.
Wellness is closely linked to theoverall achievement of an individual’s needs. Wellness is driven by five mainneeds - Biological, Esteem, Aesthetic, Cognitive and Self-Actualization. Theseindividual needs are being influenced by changing and evolving lifestyletrends. Wellness as an offering has been prevalent since the ancient times inIndia. The pioneering work of the ancestors in the areas of ayurveda andtraditional medicine stand as leading lights for many users and practitionersto this date. What has changed since then has been the dedication that entrepreneurs,practitioners and regulators in this space have shown to kick-start theorganized industry in India.
The Indian Wellness Servicemarket is expected to be buoyant and has the potential to sustain a compoundedannual growth rate (CAGR) of approximately 30-35% for the next 5 years, saysthe FICCI-E&Y study report. This growth is also evident by robustperformance of Indian companies. The growth is aided by large and growingaddressable retail consumer base. The attractiveness is also due to high presenceof unorganized players leading to the need for corporate and organized brands.Across segments, on an average more than 50% of the market is unorganized andhighly segmented with several small and regional players.
Pros and strengths
In-house panel of qualified and specialist doctors to facilitate the doctor-led approach for treatment- Value leadership over costleadership is the driving force of Evolve which has helped build both marketshare and mind share. The company an in-house panel of well qualified andspecialist doctors. Cross referral opportunities from over 12 specialistdoctors spread across the city of Mumbai who are in the company’s panel enablesreference and cross selling of its services. Yash Birla Group, as anestablished industrial group in India, will enable the company in gaining trustof the Indian customers.
Wide range of specialized treatments in cosmetic surgery- Thecompany is setting up a chain of medical wellness centres throughout Indiafocusing on cosmetic surgery, cosmetic dermatology and dentistry which willoperate under the brand name of EVOLVE. Its centres in Mumbai at Walkeshwar,Andheri, Bandra, Worli and Borivali are already operational. In addition toabove company-operated centres, The Company intends to discontinue the practiceof opening Franchisee Centres. However the two Franchisee centres operating atThane and Chennai. The company has franchisee centres at Chennai and Thane,Maharashtra which will continue to operate till the date of conclusion of theiragreement. i.e January 31, 2014 and 1st June, 2012 respectively, as the Companyintends to discontinue the practice of opening Franchisee Centres.
Association of Pacific Healthcare - The company’s erstwhile joint venture (JV) partner, Pacific Healthcareare one of the leading healthcare companies of Singapore and one of East Asia’sleading healthcare providers, with facilities in Singapore, Hong Kong andChina. Their experience and expertise will be available to the company indeveloping and growing the business in India. In the Indian Medspa market,there are several small and medium sized players offering services in thecosmetic and beauty treatments. But most of them, often managed by one or twodoctors, specialize in any one particular service say cosmetic dermatology orcosmetic dentistry or any other activity such as slimming/weight loss and othercosmetic surgeries. When a customer approaches these small/ medium sizedplayers, very often it leads to vicious circle of referrals. In case of Evolve,it’s a completely doctor led approach starting from counseling to postevaluation. It offer the latest medical related beauty treatments in the areasof cosmetic surgery, cosmetic dermatology and dentistry under the supervisionof medical professionals and doctors from the respective field-offeringeverything under one roof. Despite being doctor led and expertise derived from its erstwhile JV partner, its services are offered at very competitive pricescompared to its peers.
Risks and concerns
Limited operating history- The company has short operating historyfrom which one cannot evaluate its business, future prospects and viability. Itcurrently has limited revenue generating operations. Presently, the companycentres are incurring losses. The company has incurred net loss of Rs 457 lakhfor the period ended September 30, 2009, Rs 328 lakh for the six-month periodended March 31, 2010 and Rs 368 lakh for the nine months ended December 31,2010. There can be no guarantee that the company will make profits in thefuture. As a result, it cannot give any assurance about its future performanceor that its business strategy will be successful.
No contractual arrangement with the panel of doctors- At present,the company has 12 specialist doctors from various fields of beauty andcosmetic industry such as dental, dermatology and cosmetology. The arrangement between the company and the panel of doctors has been entered into by exchangeof letters whereby the panel of doctors has agreed to provide their services tothe company’s centres on a mutually agreed basis. Firm contracts have not beenentered into keeping in mind the nature of business of the company and itscurrent development stage as firm contracts would mandate minimum payments to doctorsirrespective of revenue generated. Since, the company has not entered into anyfirm contractual agreement with the panel of doctors it cannot assure that theservices of these doctors would be continuously available to the company infuture. Also, the success of the company’s plans of expansion of the centreswould depend on the ability to have firm arrangements with a number of specialistdoctors at various centers.
Stiff competition- The company faces competition from other wellness and beauty outlets, including independent Doctors and unorganizedbeauty and cosmetic salons. Any inability to compete with them could adverselyimpact the business and financial operations. The presence of Indian andInternational players in the marketplace has created tremendous competition inthe wellness industry and the dynamics of industry are also changing,consequent to such structural changes. Also the company competes from the local/ unorganized beauty and cosmetic saloons. If the company is unable to competesuccessfully, it would lose its customers, which would negatively impact thecompany’s sales and financial performance.
Outlook
Birla Pacific Medspa operates specialistcenters offering a wide range of healthcare services, which include specialistmedical and dental services, wellness and day surgery centres and nursing homefacilities. The company operates its med spa centres under the brand name“EVOLVE”. The company has In-house panel of qualified and specialist doctorsand has wide range of specialized treatments in cosmetic surgery. Above all thecompany’s association of Pacific Healthcare is the biggest boon.
On the concern side the companyis relatively new with little history of revenue generating operations. Though thecompany presently has 12 specialist doctors from various fields of beauty andcosmetic industry but is not having no contractual arrangement with the panelof doctors. The company is in the business where it has to face competitionfrom other wellness and beauty outlets, including independent Doctors andunorganized beauty and cosmetic salons.
The shares of the company arebeing offered in a price band of Rs 10.11. The company expects to raise aboutRs 65 crore from the issue. Of the total proceeds, Rs 49.5 crore would be usedto set up 55 centres across the country, Rs 6 crore for brand promotion, Rs 6.5crore for issue expenses and Rs 3 crore for general corporate purposes. Thecompany has been making losses since beginning and while there is no comparablelisted company in the cosmetic & medical services of the wellness &healthcare sector it becomes more difficult to gauge the revenue from itsoperations. Though the company is having a competitive pricing with costleadership and at present, some of thecompany’s centres are equipped with in-house operation theatres with cuttingedge technologies and in-house recovery rooms of international standards. Theexpansion plan that the company has unfolding, also envisages such facilitiesin some of the centres. These attributes of the company will make the company anintegrated wellness outfit with competitive pricing. Though the business andits model are tested in other countries, it is still early days in India, withthe company planning on setting up shops in Tier-I and Tier-II Indian cities.The company’s past financial performance shows that in a competitiveenvironment turnaround will be difficult for the company in near terms , hence, we will advice an avoid for the issue.
