Suraksha Diagnostic IPO Listing: Stock lists at 1% discount over IPO price

Suraksha Diagnostic IPO Listing

Suraksha Diagnostic IPO Listing: Shares Decline After Discounted Entry, Experts Weigh In on Future Prospects

Suraksha Diagnostic, a prominent player in the diagnostic and healthcare services industry, made its debut in the stock market today after its ₹846.25 crore initial public offering (IPO) was open for subscription from November 29 to December 3, 2024.

The IPO, which attracted a mixed response from investors, was anticipated to be a significant event for the company as it sought to expand its footprint in the diagnostics sector.

However, the stock market debut did not go as expected, with shares listing at a discount to their issue price, and further decline during the trading day.

This raises concerns about the company’s future performance and the broader appeal of its IPO.

IPO Listing Details: Discounted Entry and Further Decline

Suraksha Diagnostic’s shares were issued at ₹441 per share as part of the IPO. On the day of listing, the company’s shares opened at ₹437 on the Bombay Stock Exchange (BSE) and ₹438 on the National Stock Exchange (NSE), representing a loss of approximately 1% for investors who had subscribed to the IPO.

This discount entry was a worrying sign for IPO investors, as it signaled that the stock might not be able to generate immediate gains for those who purchased shares at the issue price.

The stock price continued to decline after listing, falling to ₹414.80 on the BSE during the day. By the close of trading, Suraksha Diagnostic’s shares settled at ₹417.05, marking a significant 5.43% loss for IPO investors on the first day of trading.

This decline on listing day was a stark contrast to the expectations of many retail and institutional investors, who had hoped for a positive market reception.

Expert Opinions on the IPO Performance

Given the disappointing listing performance, several market experts have shared their views on the IPO and the company’s prospects going forward.

Prathamesh Masdekar, a research analyst at Stockbox, offered a critical assessment of the IPO’s valuation. According to Masdekar, the company’s valuation at the upper price band of ₹441 per share is relatively high when compared to its peers in the diagnostics sector.

While Suraksha Diagnostic has shown signs of recovery in recent quarters, he cautioned that its valuation may not be justified by its financial performance.

The company has faced significant fluctuations in its revenue and profit over the past few years, which could indicate instability in its business model.

Masdekar suggested that investors who have been allotted shares should hold onto their investments for now but closely monitor the company’s performance in the upcoming quarters.

He emphasized that the next few quarters would be crucial in determining whether Suraksha Diagnostic could stabilize its financial health and generate consistent growth, which would be necessary to justify its high valuation.

On the other hand, Narendra Solanki, Head of Fundamental Research at Anand Rathi Shares, raised concerns about the intense competition within the diagnostic sector. Solanki pointed out that the diagnostic industry is highly fragmented and competitive, with numerous players operating in the space.

Suraksha Diagnostic, despite its established presence in eastern India, faces stiff competition from both regional and pan-India diagnostic providers.

This competition could limit the company’s ability to scale its operations in a highly competitive market.

Additionally, Solanki noted that Suraksha Diagnostic operates mainly in the eastern states of India, including West Bengal, Bihar, Assam, and Meghalaya.

While the company has built a strong network in these regions, its limited geographical reach could pose a challenge as it seeks to expand its market share.

Unlike some of its competitors with a broader national presence, Suraksha Diagnostic’s regional focus might hinder its ability to capture a larger share of the growing Indian healthcare market.

Mixed Response to Suraksha Diagnostic IPO Subscription

The IPO received a mixed response from investors, which further highlights the concerns surrounding the company’s valuation and growth prospects.

The subscription details show that the overall IPO was subscribed 1.27 times, indicating moderate demand. However, the subscription figures varied significantly across different investor categories:

• The qualified institutional buyers (QIB) segment, which includes institutional investors such as mutual funds, insurance companies, and pension funds, subscribed 1.74 times.
• The non-institutional investors (NII) category, which typically includes high-net-worth individuals (HNIs) and family offices, subscribed 1.40 times.
• The retail investor portion, however, was only subscribed 0.94 times, meaning that not all the shares reserved for retail investors were taken up.

This lackluster demand from retail investors could be a sign of caution or uncertainty among individual investors, particularly given the company’s fluctuating financial performance and high valuation.

The IPO was an offer for sale (OFS), meaning that no new shares were issued by the company to raise capital.

Instead, the offer consisted of the sale of 19,189,330 shares by existing shareholders, each with a face value of ₹2.

This structure also means that the company will not receive any proceeds from the IPO, limiting the potential capital infusion that could have supported future growth initiatives.

Financial Performance and Recovery Signs

Suraksha Diagnostic, established in 2005, offers a range of diagnostic services, including pathology, radiology testing, and medical consultancy.

As of June 2024, the company operates 40 diagnostic centers and 166 sample collection centers across the eastern states of India. It also runs eight satellite laboratories and one central reference lab, serving a total of 215 customer touchpoints.

The company’s financial performance over the past few years has been somewhat volatile. In FY 2022, Suraksha Diagnostic reported a net profit of ₹20.82 crore, but this dropped significantly to ₹6.07 crore in FY 2023.

However, the company rebounded in FY 2024, posting a net profit of ₹23.13 crore, indicating a strong recovery.

Revenue figures have followed a similar pattern, with a decline from ₹225.77 crore in FY 2022 to ₹193.69 crore in FY 2023.

Nevertheless, revenues rebounded in FY 2024, reaching ₹222.26 crore, showing a positive recovery trajectory.

For the current financial year, FY 2024-25, Suraksha Diagnostic reported a net profit of ₹7.67 crore and revenue of ₹61.85 crore for the first quarter (April-June 2024).

While this represents a positive start, investors remain cautious about the company’s ability to sustain this momentum in the face of competition and the potential for further business fluctuations.

Final Remarks: Caution Advised

Suraksha Diagnostic’s debut on the stock market has raised concerns, with its shares listing at a discount and continuing to fall during the first trading day.

Experts have highlighted the company’s high valuation, intense competition in the diagnostic sector, and limited geographic reach as key factors that could pose challenges to future growth.

While the company has shown signs of recovery in its financial performance, investors are advised to take a cautious approach.

Those who were allotted shares in the IPO should consider holding onto their investments but should remain vigilant and closely track the company’s progress over the next few quarters.

The stock’s performance on listing day suggests that it may face challenges in achieving significant short-term gains, and its longer-term prospects remain uncertain.