IPO Review: Birla Pacific Medspa Ltd

 

 

Yash Birla Group company Birla Pacific Medspa is coming out with an initial public offer to raise around 65.18 crore. The fresh issue is equivalent to around 59% of the company's post-IPO equity and will lead to the promoter's holding falling to around 27%. Pacific Healthcare holding's stake will reduce to 5% post IPO.Other private investors will hold the remaining 9%. Of the total proceeds, 49.5 crore would be used to set up 55 centres across the country, 6 crore for brand promotion, 6.5 crore for issue expenses and 3 crore for general corporate purposes. Considering its weak financials, and nascent stage of the business, investors can give this IPO a miss.

BUSINESS

Incorporated in 2008, the company is in the business of beauty and healthcare treatment. The company had a 50:50 joint venture agreement with Pacific Healthcare Holdings (PHH), but now the shareholding of PHH has reduced to 12.44% and will reduce further to 5% post IPO. It currently operates med spa centres under the brand name 'EVOLVE'. A med spa is a hybrid between a medical clinic and a day spa, and operates under the supervision of a medical doctor to offer scientific makeover solutions for enhancing one's beauty. It provides treatment in the areas of cosmetic dermatology, cosmetic surgery and advanced dentistry. Birla Pacific Medspa has 7 operational centres, of which 5 are owned while two are under a franchise model.

FINANCIALS

For the nine months ended December 31, 2010, the company's net sales were 1.65 crore and it suffered a loss of 3.6 crore. The company has been making losses at operating levels since the beginning and there has been no significant growth in net sales either. The company's administration expenses, which include rental charges, are more than two times its sales. The company's debt to equity ratio as on December 31, 2010 was 0.1. Cash flows are negative as the company is still in the growth stage.

VALUATIONS

The company has negative earnings. Hence, valuing through price to earnings is difficult. Also, there are no other listed companies with similar businesses that can be compared. After annualising the net sales for nine months ended Dec 31, 2010, the company is demanding a price to sales ratio of 50 which is too high and its price to book value post IPO of one.