Virinchi... A bet not to be missed


(Nolan) #133

I noticed in their current balance sheet that Virinchi has reserves of 180.1 cr. and borrowings of 158.5 cr. (source: Screener). Despite healthy growth in reserves over last many years, company is financing expansion through debt. They either are getting debt cheap or they are using leverage to improve ROE. Also, the tax liability would reduce as they continue to employ debt instead of reserves. Debt to equity ratio is reasonable and they have an interest coverage of 2.65 which sounds healthy. Hence, as far as they are confident of future growth and they keep repeating/maintaining current quarter performance, even a little additional debt from current level should not have any adverse impact. On the other hand, I am more curious on how the company wishes to use its burgeoning reserves - distributing some of it as dividend would be a good way to boost investor confidence I feel.

Disc - Invested


(Janarthanan Natarajan) #134

@Nolan

I think there is some confusion. The ‘reserve’ entry in balance sheet is an accounting entry which shows ‘share premium’ and ‘accumulated profits’ over the years. It does not mean ‘cash on hand’.

The above funds(along with equity) and borrowed funds are locked up in assets(tangible + intangible) and working capital. So there is no question of distributing dividends from these reserves.

Please correct me if I have misunderstood what you meant.

To add, their operating cash flows are healthy and if they continue this trend it would augur well for the company. Also understand that this is more of a hospital play now rather than IT. But I have not yet understood their IT business well enough and I am working on it.

Disc: Not invested. Yet to understand their IT business and their various subsidiaries. Work in progress.


(Nolan) #135

I agree with you @jana_n. What I mean however is that since the company’s reserves are healthy & have shown substantial growth lately, and also since they seem to be comfortable in using financial leverage, they can consider directing a proportion of future profits towards distributing dividends.

I can share from my understanding that their IT services division is basically a custom application outsourcing unit which has established clients mainly in US mortgage industry. However they do not see potential in this business going forward due to uncertainties in US regulations in outsourcing to India. Instead they have employed a very smart move to fund their healthcare business with cashflows generated from the cash-cow IT business. Going forward, they wish to give new direction to their IT services business by focusing on bringing customized solutions in healthcare and fin-tech domain.They will provide customized products and product-based services in several geographies (incl.India) to mitigate the risk of focusing entirely on US lending industry. In healthcare space, they want to scale up to 5000 beds in five years which is quite an audacious goal considering the current capacity. Also, their IT solutions in healthcare would act as a primary resource to the value chain in the service delivery of healthcare division. Hence we can expect them to combine synergies between IT and healthcare divisions to deliver some innovative solutions in future which may re-write some rules in healthcare-delivery model. Hope it helps!


(J2EE Professional) #136

any update from their AGM?


(bala) #137

I have attended the AGM, there is not much information shared by the mgmt. during the AGM. In fact Mr Viswanath K didn’t give any business update. The CS read out the resolutions and some Q&A, the meeting is closed.

However I caught hold of CS after the meeting he gave some updates.

They are adding 150 more beds to cater to Arogyasree patients in another block. this will take the total beds to 700 by end of this year.

Last month they clocked 5 cr sales, highest ever. need 8 cr to break even. currently running at 10-15% utilization

Its a big call to go for 5k beds by 2020. very very unlikely , they would watch how this hospital stabilizes.

Overall I didn’t get a good feel after the AGM and the discussions with CS was even more uncomfortable.

I sold my tracking qty after the meeting


(J2EE Professional) #138

can you provide any information on what exactly made you “not feel good” about the discussion. I am not sure, i understood the reason behind your judgement.

Also, 5k beds is not the target by 2020, its in next five years.

Thanks for your input though.


(bala) #139

You need to be present there to understand the things, I go to AGMs to gauge the management body language and willingness to discuss the business with the minority share holders. Somehow I felt the AGM was rushed and there were more employees than investors and there is another AGM in the same hall right after this

CS was trying to sell the story, he even hinted they may sell the healthcare business if they cant scale it. He talked about a famous kerala based ‘investor’ buying some qty etc. He told the management has put everything (all their wealth) in this business so its important for them to succeed. I don’t like such ‘all or none’ approach by management, its a gamble and that too in a area they don’t have expertize (health care)

I may be biased (Hyd IT) but there are better options in my view


(Vivek Mashrani, CFA) #140

Bala,

The management has run BCH hospital for 5 years, so they have ample experience to run the business. When owner has skin in the game, its generally good for minority shareholders in my view. Rather than increasing holding, many promoters resort to money syphoning and hurt minority (atleast chances of that happening reduces when promoter is increasing stake in listed company).


(bala) #141

Vivek, BCH is very small hospital. Skin in the game is fine but pledging shares, investing in the same business again is risky.

anyway it takes a while to break even the banjara hills hospital.


(Mahesh C) #142

Bala, I truly appreciate you attending AGM and your effort to understand the management and business. Its a valuable feed, whether we like it or not. And some of theses mental models are based upon experiences and wisdom and are personal. Sharing them here in an appropriate fashion is I think very welcome.
After I started looking at this business after going through this thread,
so far , my understanding is, the promoters have been all over the places, IT, healthcare, pharma, food etc. Inspite of starting the software business 20 yearss back, they havnt been able to scale it up. And if you read their media statments, reports, presentation , they over state some the facts which I personally dislike. They are technocrats , IIT/IIM graduates. This company needs more scrutiny, I think. I havnt decided to buy.


(Nolan) #143

Appreciate your input. However, look and feel of the management are subjective premises to evaluate a business and may differ from one individual to another. Despite firsthand experience, if you are finding it so hard to explain it, then its probably not concrete enough to think much or act on it. Company has so far followed healthy corporate governance practices. And as long as they deliver on results, there is little evidence to think otherwise. Indeed, if as you say, the ambiguity gets reflected in future decisions or performance, it would be prudent to reconsider positions.

On another note it would be better if you could make necessary disclosures.


(kv) #144

Just trying to understand couple of transactions reported under SAST: On 12th October there is a sale reported in the BSE announcements by Green Field Meadows Infra Pvt Ltd.:

They were holding 4.29% on Oct 10 and sold down to 2.21%. Similar transaction was done by Agrade exim Pvt limited; who were holding 3.73% and sold down to 1.69% on 1 Nov.

Both were share holders on Sep 30; holding 2.6 and 1.7%

Any ideas on why they bought and sold out in 10 days to a month / what these actions are for? There does not seem to be any relations between the Virinchi, and these two companies.


(Sameer_srj) #145

Company looking to raise funds by “preferential issue of convertible equity warrants and Equity Shares to the promoter and Strategic Investors.”

The price at which shares are issued will tell a great deal about the management’s confidence in the company’s future prospects.

http://www.bseindia.com/xml-data/corpfiling/AttachLive/4ac69625-f12f-4fcf-8458-4cc47544a397.pdf

Disclosure: Invested


(J2EE Professional) #146

i think, it would be interesting to see the kind of amount they raise, and who are these strategic investors…


(Shivam) #147

Virinchi-NABH-Accredition.PDF (552.7 KB)
NABH accreditation received for both the hospitals now.


(J2EE Professional) #148

warrants issued to promoters and some non-promoters.


(Nolan) #149

www.uniindia.com/virinchi-hospitals-partners-with-medgenome-to-offer-molecular-diagnostics/states/news/1053637.html

http://www.businesstoday.in/magazine/features/genomics-and-future-of-medicine/story/243003.html


(naruto) #150

When would we get to know the price at which the preferential shares & warrants would be issued?

Newbie here. Sorry for the lame question.


(rahulshares) #151

This is a very valid question. Its quite strange the company did not decide the price of preferential allotment in the BM. It raises doubts on corporate governance IMHO.
Further, no update on Q2 results too and we are already approaching December.
Other members pls give your opinion on this


(J2EE Professional) #152

hopefully soon enough…I would also look out for the object of the issue…