Brief overview: Healthium Medtech is the largest independent medical device company in India. It is a leading player in the surgical consumables market in India and urology collection devices market in the UK. It operates in four focus areas, namely, advanced surgery, urology, arthroscopy and wound care across three key markets, namely, India, UK and rest of the world (RoW). One in five surgeries conducted globally uses a Healthium product as of March 31, 2021.
Healthium is owned and controlled by Apax partners with >99% shareholding who is now looking to offload ~40% of its stake in the IPO via OFS at $1bn valuation.
3 key questions:
- Do you believe the $1bn pre-money valuation is justified? PE investors have made decent returns - would enough be left for public investors?
Few data points:
a. Apax partners bought out the company from existing shareholders, including TPG Growth, CX Partners, and founding shareholders in CY18 for ~$350mn. During FY18, it reported revenue of Rs5.5bn (~$75mn), EBITDA/ PAT margin of ~22%/13.5%. This implies transaction value at ~4.7x FY18 revenue (feels expensive?). At rumored $1bn valuation, Apax partners would make ~2x return on its investment in ~4 yrs. During FY21, it reported revenue of Rs7.1bn (~$95mn) i.e. ~30% increase vs FY18, EBITDA/ PAT margin of ~20%/12%.
b. TPG Growth invested in Healthium (formerly Sutures India) first in 2013 by acquiring a 23% stake from CX Partners and the company’s promoters for ~Rs1.5bn. Over time, TPG raised its stake and before stake sale to Apax partners, it held ~73% stake in Sutures India. Assuming deal value at $350mn, it would have received ~$255mn for its shares against which it made an investment of ~$100mn over the years (excl. sale of stake in Quality needles) implying return of ~1.6x or >20% IRR over the period.
c. Media reports suggest CX Partners exited Sutures India with overall return of 2.2x.
- How would you think of the long term growth in topline and build margins over the coming years?
Few data points:
a. Considering acquisition of Vital care, AbGel and CareNow during FY22 – it could comfortably post a topline of Rs11bn during FY22 (~100% increase vs FY18) whilst EBITDA/ PAT margin is likely to be in line at pre-acquisition levels.
b. Government initiatives for promoting domestic manufacturing could help it gain via import substitution (given ~70% of medical devices are imported) - Are any of the products eligible under the PLI scheme?; Thrust on increasing exports could be a tailwind for the company too - Could this be the next Pharma opportunity? Any good reading material/ content/ discussion/ case studies on the emergence of the Indian Pharma industry and Pharma players during early 2000s; Increasing regulatory interventions - Medical device regulations, 2017 and EU MDR 2021 could drive market share gains.
c. Increasing emphasis on affordable healthcare along with it being subject to pricing regulations in India (Drug Price Control order) and UK (NHS, UK Drug Tariff) - could likely cap the margins; what levers would company have then to improve its margins?
- What P/E multiples do you think markets would be ready to assign such a company for FY23/24E? and which companies could be considered comparable? (even globally)
Few data points:
a. Poly Medicure is also a leading player in the medical devices industry in India with focus on consumables segment like Healthium. Although, it derives >70% of its revenue from Infusion therapy products like IV Cannula, Catheters etc. Whilst it had comparable revenues of Rs7.9bn during FY21, it had significantly better margin profile with EBITDA/ PAT margin at 28%/17%. It trades at ~50-60x TTM EPS. Healthium would have to trade at similar multiples to justify the $1bn valuation. Possible? Finding answer to “What makes poly medicure trade at such premium multiples?” could possibly help.
Lastly, appreciate any channel partner connects along with any surgeons on the ValuePickr platform who use/ recommend their product. Look forward to your views.