Homegrown private equity firm Kedaara Capital is looking to sell the bulk of its stake in Hyderabad-based diagnostics company Vijaya Diagnostic Centre Ltd through its proposed initial public offering (IPO).
Vijaya Diagnostic, which is promoted by Dr. S Surendranath Reddy, filed its draft prospectus with the Securities and Exchange Board of India (SEBI) for an IPO that is entirely a secondary market sale.
The IPO comprises a sale of 35.68 million shares by the promoter and Kedaara. The public offering would result in a 35% stake dilution on a post-issue basis, as per the draft prospectus.
The IPO size is pegged at Rs 1,000 crore ($137 million), two people aware of the matter told The Capital Quest.
Kedaara, which invested about Rs 405 crore in the company via multiple tranches starting December 2016, is selling 30.58 million shares. This is around three-fourths of its 40% stake.
It will fetch an estimated Rs 850 crore from the stake sale. This means Kedaara would pull out about 2.8-2.9 times its blended cost of investment across tranches and an annualised return of 24-26% in rupee terms excluding dividend income, as per The Capital Quest’s estimates.
PE and venture capital firms typically chase about 20-30% returns in local currency terms.
Kedaara would continue to own about 10% stake after the IPO that would see Vijaya Diagnostic join listed peers Dr. Lal PathLabs Ltd, Metropolis Healthcare Ltd, and Thyrocare Technologies Ltd.
Last month, Pune-based diagnostics company Krsnaa Diagnostics Pvt. Ltd — backed by Somerset Indus Capital Partners, Phi Capital Management and Kitara Capital — also filed its draft proposal for an IPO.
An email query sent to Kedaara Capital seeking its comment on the returns estimate from Vijaya Diagnostic’s proposed IPO did not yield a response till the time of publishing this article.
ICICI Securities, Edelweiss Financial Services, and Kotak Mahindra Capital Co are merchant bankers arranging and managing the proposed share sale.
Vijaya Diagnostic was incorporated in June 2002. It is now the largest preventive healthcare chain in south India by revenue. It offers pathology and radiology testing services through a network of 80 diagnostic centres and 11 reference laboratories across 13 cities in Telangana, Andhra Pradesh, the National Capital Region and Kolkata.
The company gets 96% of its revenue from its core markets of Hyderabad and rest of Telangana and Andhra Pradesh. It reported a consolidated net profit of Rs 84.91 crore for the year ended March 2021 on revenue from operations of Rs 376.74 crore. It reported a net profit of Rs 62.51 crore on revenue of Rs 338.82 crore for 2019-20.