Virinchi... A bet not to be missed


(Akash Padhiyar) #1

Virinchi CMP:88.00

FY2017

EPS 9.80
P/E 8.98
Revenue 280.00
Profit 17.80

**Rational: **

** 1. Virinchy is lead by high pedigree of professional management (mostly IIT & IIMs) team in both IT and HealthCare, Vish Kompella founder is itself IIT Madras **

**2. As for HealthCare from existing 800+ bed it intends to scale it up to 5000 beds by 2020 through public-privare partnership. **

**3. In Health care services(HCS), it plans whole ecosystem including hospitals, doctors, medical equipment, pharmacists and patients on a robust IT backbone. **

**4. VConnect (HCS) is venture where already 10 providers is onboard, 5000 rolled out & it plan to scale upto 60000 providers cum healthcare partner pan india by 2020 **

**5. On Product Arm, due to surge in US economy and cater demand it plan to rollout new data center in california this apart from existing one Atlanta US… **

**6. 150 Cr MCAP, growing through IP lead approach and with expected revenue about 490 Cr in FY18 and CAGR growth of 40%…

7. It won Emerging hospital of year by Times Health Care 2017, Below Financial does not include upside from HCS (companys big bet) and Virinchy learning vertical

**## Product Arm :

**With 15% CAGR,FY17=90 Cr, FY18=103,FY19=120 with blended 7% NPM ****
**IT Service:With 20% CAGR,FY17=135 Cr, FY18=162,FY19=195. with blended 7% NPM **
****HealthCare:Average Bed per day as per standard is about (Tier 1 City) 25000/Day,90 lac/Annum.**Virinchy will have for FY17=40 Cr, for FY18 will have 350+200=450 bed having around 400 Cr/Annum revenue.Since its 1st year we take 50% utilization **
hence revene to be 225 Cr, taking 10% EBITA,and 4% NPM, Net profit to be 9 Cr.In FY19 with 800 Bed with 75% Occupancy, revenue to be 540 Cr, with better utilization NPM to improve by 100 bps to 5%, hence 27 Cr.
Virinchi Limited, founded in 1990, is an IT Products & Services with has a headcount of over 365 resources working out of three Offshore Development Centers ODCs.IT clientele spread across globally in North America, Europe, Middle East, and Asia Pacific
Product Arm: 40% of revenue, 30% of EBIT contribution. With new 40 Cr order (Qfund on Cloud mode) for 3 years…this vertical to grow 15% CAGR for coming years…With revival in US Alternate finance will further enhance demand of Qfund and other related product…

QFund

, a 100% subsidiary of Virinchi Limited, is the Number One IT Vendor for deferred presentment industry in North America.It provides short-term loan related solutions like Payday Loan, Title Loan, Installment Loan, and Check Cashing for loan companies
~5% of all Short Term US Lending is through Qfund, loan processed at peak was about 230 $ million dollar/Month, It process $ 5 bn new loans p.a. And has 20,000 lender stores, incl. multi-billion listed companies
There are more Payday Outlets than McDonalds stores in the US.12 mn borrowers growing @ 7%. Since it is Heavily Regulated Industry lead, its is sticky business with good entry barrier.

PayEz

is an innovative Point of Sale Credit Service IT Platform to provide lead sourcing, loan generation, machine learning underwriting, lender aggregation and integrated loan servicing for consumer loans

Vmod

Instant mobile overdraft set-up and point-of-sale credit marketed as Downloadable Credit Card for US and India market
Ksoft IT services Arm:50% of revenue, 65% of EBIT , is fastest growing vertical with focus on cloud, analytic and other emerging tech. This vertical to grow 20% CAGR ahead, grown 6X in past 24 month.
KSoft arm of Virinchy provides IT solution in Financial Services, Healthcare and Life Sciences verticals and develop. Its key focus is Social, Analytic, Cloud, Mobility, package product service like SAP, Oracle etc…
IT Services revenue has grow 6 times in past 24 months, Competency built around High Quality Onshore and Offshore Personnel
Health Care Services…20% of revenue, last quarter it showed EBIT positive result with amalgation of Bristcone 200 bed hospital…
An 100% subsidiary, is in the process of setting up a 600 bed Greenfield super specialty hospital, spread over a total area of 350,000 Sq. Ft in up market of Hyderabad…
Phase I: 350 beds already commissioned ,Phase II: 150 beds to be commissioned by Q2 2017-18,Phase III : 100 beds with oncology to be commissioned by April 2018
11 Ots,62 OPDs across Eight Clusters,140 ICU beds also it has 3T functional MRI (best in class for Neuro imaging) and dual-energy, single-beat CT scan (best in class for cardiac imaging)
It is also merged with Bristlecone Hospitals Pvt. Ltd., a chain of hospitals with an aggregate bed capacity of 200 beds operating at two locations in Hyderabad. It has 80% average occupancy
Through Government and Private Partnerships it plans to add 100 -250 bed hospitals in district Headquarters and by 2020 it aims to have 5000 beds under its belt…

Virinchi Learning: its emerging vertical

NSDC funded project to upskill healthcare workers offering course like OT Technician, Anaesthesia Technician, Dialysis Technician, Diabetes Educator
Its State of Art Learning Management Solution for self learning and monitor performance and catering demand of Over 80,000 hospital staff to be trained and up skilled over next 10 years, Over 1000 staff in the next 12 months.

Virinchi Combinatorics and Systems Biology:

Its emerging vertical would be major contributor in margin for its high end analytics work in medical science…
A Multi-dimensional Time Based Patient data Analysis drive Evidence Based Medication, where it aims High Quality data for Clinical research, Integrated analytics delivery on Sophisticated Mobility Environment
Patient Cohort identification and monitoring, Phenotypes for targeted medication etc. This venture was establish last year in 2016 and company is betting big on this futuristic venture.

Financial

Its latest reserves stand at 114 Cr, Debt at 99 Cr (Includes 70 Cr debt raise for Virinchy Hospital last year), last 2 year OCF> PAT i.e. 34 Cr> 24 Cr respectively. In latest quarter it clocked highest EBITA margin of 21% in last 4 years…
To break even in Hospital is requires just 30% occupancy where as now Bristcone with 200 Beds is about 80% and 300 beds in started 2 month back in Banaras Hill company is getting good response…
Post amalgation with Bristcone promoter stake in Virinchy will increase to 49% …

Cons: Promoters integrity is not known and it is not giving dividend too…
Disclaimer: I am invested so my views may be biased


Candidates for 25% quality-growth for next 2-3 years
(Sandeep) #2

Good write up. Do you have any idea about this unrelated diversification into hospital business?


(dineshsanthanam) #3

Promoter holding seems to be lesser than 30% …


(Akash Padhiyar) #4

Promoters are planning their two private hospital to merge with this…after amalgamation promoter holding will be increased​ to 49 percent…and if virinchy crosses market cap of 200 cr, it will be on radar of mutual funds…keep your fingers crossed,


(Akash Padhiyar) #5

Porinju has also recommend it several times, and his fund has also invested in virinchy which may boost investor confidence


(Tolaha) #6

A financial IT product company (Virinchi Ltd) gets into catering business (Tyohar foods), buys another company in IT healthcare sector (Asclepius Consulting), gets into healthcare services (Virinchi Hospitals). Life in the fast lane!

References:

http://www.thehindubusinessline.com/info-tech/virinchi-tech-buys-asclepius-consulting/article5093597.ece


(manish) #7

i came across Virinchi , found it interesting and started investing in small amounts but the main thing I did not like was low promoter holding coupled with recent merger announcement of healthcare business with related party. Generally these are the tools promoters use to enhance their holding in the business without incurring any costs.
My concern is , in all likelihood the hospitals to be merged could be valued at a much higher value shortchanging the virinchi shareholders.

Disc : invested


(Alphin) #8

You can read the valuation report for the merged hospital and Virinchi and the swap ratio determined. The bristle cone hospital with 180 operating beds is valued at 54 crores and Virinchi was at 113 Cr. I think both very undervalued. Need an expert opinion from accountants on this.

Special thanks is to the initiator of this thread as been following this company for long.

Disc: invested.


(Alphin) #9

Valuation_report (1).pdf (1.4 MB)


(Alphin) #10

While researching for the company the thing that struck me most was the competency of the team managing the company. Almost all top leaders have IIT IIM background, including poeple merged from acselpius consulting. The company seems to be run by a group of “Intelligent Fanatics”. Even persons roped in for setting up the hospitals seem to be the best in the industry. And they seem to plan for the long term.

The acquisition of Bristlecone seems strategic as it allows for direct acquisition of established doctors, and staff with hospital expirenece and also patients who can be cross referred to the new hospital.

Surely a very good bet considering all these factors.


(Varun) #11

The company is currently not operating 800 beds but around 550 beds, 350 at Banjara hills hospital and 200 from acquisition. The planned expansion to 800 beds will complete by april 2018.

I can’t imagine how the hospital business is going to go from 800 beds in 2018 to 5000 beds in 2020. Is their any roadmap provided which I missed???


(J2EE Professional) #12

I would stick to simple calculations here. given that the current valuation in PE circles is around 3.2-3.5cr/bed for a good hospital in top 10 indian city, the valuation ball-park for a 500 beds comes close to around 1500cr (taking a modest 3cr/bed valuation). For the current 160cr market cap, there appears to be a good upside to the current valuations. And let’s not forget other operating businesses like software products, which is also doing fairly well.

Disc- Invested for quite some time now


(sagararya) #13

Management from IIT or IIM does not justify an investment in the company in my opinion. It is important to gauge how shareholder friendly the management is. Has anyone met them?

Also why are the tax payments so low and also seems like the company is leveraging its balance sheet for capex. Can be very risky


(Akash Padhiyar) #14

Ya, if anyone can put some light on management, it will be a great input


(Akash Padhiyar) #15

They are going to grow up via tie ups…


(sushildarveshi) #16

Regarding amalgamation shared in pdf by Alpin (below nos based out of pdf)
MCAP of Virinchi = 113.38 cr
MCAP of BCH = 54.02 cr
=> MCAP of Virinchi = 2.098 MCAP of BCH
=> n1P1 = 2.098 n2P2
=> n1 = 1.7986 million shares and n2 = 1.5 million shares
=> P1 = P2*(2.0981.5/1.7986)
=> P1 = 1.75
P2
As per pdf, P2 = 5.71*P1
Am I doing something wrong in my calculation ? or the valuation in pdf is wrong ?


(Alphin) #17

It’s 17.9 MN shares for Virinchi.


(Alphin) #18

I too agree that IIT/IIM tag itself does not justifies the investment. It’s the idea that management has given up cushy jobs and have put their career on the line with the success of such a small cap company.


(Akash Padhiyar) #19

Well at this valuation of around 8 PE of 2017 and around 1.5 P/B value, how do you say it’s risky?
I think leveraging factor already considered in valuation and company ha no plan for high debt in near future for growth when it is compared to earnings…
I may be wrong but it will be better if you can elaborate…


(Akash Padhiyar) #20

As per my information, Porinju’s equity fund has invested in this company…and as far as I know, they invest only after detailed parameters like management’s integrity and commitment towards shareholders…
Presently that is only clue to satisfy oneself with this point as lack of information…
It will be great if anyone may approach to management and give some inputs…