1. NSSPL RESEARCH
Thyrocare Technologies Limited
NATVERLAL RESEARCH
Regd. Of f . : Fairy Manor, 5th Floor, 13 Rustom Sidhwa Marg, Fort, Mumbai - 400 001.
Tel. Board: 91-22-4213 4444 Dealing Rm: 91-22-4213 4400, 2265 1121 Fax : 91-22-4213 4440 Email : reasearch@natv erlal.com
Offer for sale (No of shares) 10,744,708
Issue type Offer for sale promoters & investors
% of shares being offered of total 20.00%
Price band ` 420-446
Funds raised by company 0
Funds raised by investors ` mn 4512-4792
Issue period 27-april,2016 to 29-april,2016
Overview:Thyrocare Technologies Limited(Thyrocare) isone of the leadingdiagnosticchains companies that conduct an array
of medical diagnostictestsandprofilesof testswhichfocusonearlydetectionandmanagementof disordersand diseases. The
companywas incorporatedinthe year 2000 inMumbai. It operateswith a Centralized Processing Laboratory (CPL) in Mumbai
and Regional Processing Laboratory (RPL) in major metro cities of India. Through its subsidiary Nueclear Healthcare Limited
(NHL), it operates a network of molecular imaging centers in New Delhi, Navi Mumbai and Hyderabad focused on early and
effective cancer monitoring. Thyrocare processed more than 9 million samples in FY15 as compared to 7 million samples in
FY14, a jump of almost 30%. For FY 2015, the consolidated revenues were approximately `1bn and a profitability of `0.4bn.
Competitive advantage:
Portfolioofspecializedtests with anemphasison preventive healthcare: Itoffersa wide range of biochemistryand preventive
healthcare relatedtestswhich enables it to cater to the differing needs of patients. In the early years of business, it focused
mainly testsspecifictothyroidtestingbutgraduallyitexpandeditsofferingto include 198 tests and 59 profiles of tests. In the
recentyearsthe focushas beenon the developmentof wide range of testsandprofilesinthe fastgrowingsegmentof wellness
and preventive healthcare. As per CRISIL research report this segment is expected to grow at a CAGR of 25% over the next
three years. As of FY15, Thyrocare receives 51% of revenues from wellness and preventive diagnostic services.
Multi-labmodel driving volumegrowthand economiesof scale: The multi-lab model comprises of a fully automated Central
Processing Laboratory (CPL) supported by network of Regional Processing Laboratories (RPL) that conduct routine tests
conducive tohighvolume testing.Since the opening of RPL in FY15, the company has seen increase in the volume of samples
processed. It processed 30% more samples in FY15 when compared to FY14 mainly on account of RPL network. With the
emergence of RPLthe companyexpectstoachieve economiesof scale andoptimizethe costof samplesandtests. The average
numberof testsconductedper day for the eleven months end February, 2016 stands at 160,549. It operates through network
of authorized service providers. As of February, 2016 it has a network of 1041 authorized service providers.
Affordable PET-CT scanning through NHL: The company is developing molecular imaging centers (radiology) for cancer
diagnosisthroughNueclearHealthcare Limited(NHL) forcancerdiagnosis.PET-CTscanningisincreasinglybecoming relevantin
Indiaas instancesof cancerhave grown overthe lastfew years. The number of scans conducted by NHL has grown by close to
376% fromFY14 to FY15 whichisstill at a very nascent stage and hence growth rates are high. Thyrocare aims to offer PET-CT
scan at affordable rates to capture market share and generate volumes in future.
Capital efficiency in diagnostic testing business: The equipment and instruments used in the Central Processing Laboratory
are leased from vendors in exchange for a commitment to purchase reagents and consumables from these vendors for a
specific period of time. The company benefits from this model as it minimizes the capital cost associated with diagnostic
equipment.
Growth of network of Regional Processing Laboratories (RPL) and authorized service providers: Thyrocare intends to
strengthenandgrowitscoverage of regionsacrossIndiathroughnetworkof RPLs and authorizedserviceproviders. It believe s
the additionof RPLswill make animportantcontributiontothe volume growth of samples and tests. It also wants to increase
the number of authorized service providers to bolster brand visibility and accessibility of services.

2. NSSPL RESEARCH Thyrocare Technologies Limited
NATVERLAL RESEARCH
2
Financials: It has consolidated revenue of `1759mn and an operating profit of `716mn for December ended FY16. Operating
profitmarginis almost 41% while EBITDA margin stands at 43%. It reported a net profit of `400mn and has a net profit margin
of around 23%. On the returns front, it has ROCE of almost 25% and ROE of approximately 11% for FY16 Dec end. On the
valuations part, it has a P/B of 6.5x, EV/EBITDA of 24x and P/E of 45x for its annualized FY16E at the higher end of the price
band.
Concern: There are 1 major concerns we have with the company, the first is the valuation given to its subsidiary NHL which
carries out cancer testing where the company seems to have paid a massive premium to take over shares from the private
equityfundaswell asfromthe promoterswhichhasledthe investments to look extremely bloated and we can see that with
the rise ingoodwill.The company at present is loss making and scaling up of operations will take time and hence we believe
valuations given seem expensive on that front even though growth is expected to be good.
Recommendations:
If we lookat valuationswhichwe discussedearliertheyseemratherexpensive atthe issue price.Howeveritslistedcompetitor
istradingat muchhighervaluationssowe believe the issue will get subscribed at the higher end of the price band. Even post
listingif theywere totrade at similarlevelsof valuationsasits listed peer there would be some upside to the stock. How ever
these valuationsoveralongertermare not sustainable.Growth at present looks good given the small base and if we were to
look at history as the base gets bigger and growth rates decline so will the valuation multiples. Hence although we are
uncomfortable withvaluationswe recommendasubscribe tothe issue since there willbe listinggainshoweverthe upside post
the listinggainsmightbe difficulttocome byand hence basedonvaluations multiples we would advice to take profits on the
stock at higher levels.
Disclaimer
The information providedin the documentis from publicly available data andother sources, which webelieveare reliable. It also includes analysis and views expressed
by our research team.
The report is purely for information purposes and does notconstrueto beinvestmentrecommendation/advice. Investors should not solely rely on the information
containedin this document and must makeinvestmentdecisions based on their own investmentobjectives,risk profileand fina ncial position. Efforts are made to try
and ensureaccuracy of data however, Natverlal & Sons Stockbrokers PvtLtd. And / or any ofits affiliates and / or employees shallnotbe liablefor loss or damage that
may arise fromany error inthis document. Natverlal &Sons Stockbrokers PvtLtdand/ or anyofits affiliates and / or employees may or may nothold positions in any of
the securities mentioned in the document.
This document is not for public distribution and should not be reproduced or redistributed without prior permission.
Natverlal & Sons Stockbrokers Pvt Ltd. Fairy Manor, 13 Rustom Sidhwa Marg Fort Mumbai 400001 Tel 91-22-42134444 Email research@natverlal.com