After receiving capital market regulator Sebi’s go-ahead Nureca Ltd’s initial public offer (IPO) is set to open for subscription next week on February 15, 2021 (open for subscription on Groww!). The company is looking to raise Rs 100 crore through public issue to fund it’s incremental working capital and other corporate endeavors. If you are wondering whether to go for this IPO or not, here is a detailed analysis of the IPO to help you decide. All details mentioned in the blog can be found in Nureca Limited’s Red Herring Prospectus. Read on!
P.S : You can invest in this IPO on Groww via UPI in just a few simple steps. Go to IPO and select Nureca Limited IPO to proceed. You can invest in this IPO from February 15 onwards.
Nureca Limited was founded in 2016 with a mission to offer high-quality, durable, and innovative tools to help monitor chronic diseases and improve the quality of their lives. Currently, the company offers various products under three brands namely, Dr. Trust, Dr. Physio, and Trumom.
Nureca is the country’s first digital healthcare and wellness company to sell its products through its website and a network of online partners. It has tied up with India’s first omnichannel electronics retailer, Croma from Tata to sell its healthcare and wellness products through their stores across the country.
Last year, the company also signed up the cricketer ,Rohit Sharma, as the brand ambassador of its most popular brand, Dr. Trust. From the financial year 2018 to 2020, the company has experienced a growth in revenue from operations at a CAGR of 122.68%.
Financials of Nureca Limited
Here is a quick look at the financial performance of Nureca Limited over the last three years:
|Profit After Tax
All amounts in INR Crore
A quick glance at the financial performance of Nureca over the last three years highlights the fact that there has been significant growth in revenue. During this period, the total income of the company showed growth at a CAGR of 70.51%. The assets of the company grew at a CAGR of 69%.
Also, if you look at the profitability of the company, Nureca has steadily increased its profits with a CAGR of 27.20%.
Nureca expects the following factors to boost its growth in the coming years:
- Increase in geriatric population and chronic diseases in India and its neighboring countries.
- Rising healthcare costs for the patients.
- Rising awareness and healthcare consumerism.
- Increasing income levels leading to a middle-class bulge.
- The COVID-19 pandemic and focus on reducing hospital induced infections.
- Cost optimization pressures on healthcare providers.
- Advances in home health technology.
Source : Nureca Limited-Red Herring Prospectus
Strengths of Nureca Limited
- Nureca Limited has a strong portfolio of products and a consistent focus on quality and innovation.
- The company focuses on creating competitive products using an asset-light business model.
- It combines the technical expertise of its employees with an understanding of the Indian home healthcare market developed through market feedback and extensive interaction with its vendors, to create innovative products and develop new demands.
- Nureca, under the guidance of its experienced promoter, Mr. Saurabh Goyal, and a strong senior management team with domain knowledge, has an edge over its competitors with respect to an in-depth understanding of its target markets.
Weaknesses of Nureca Limited
- Since the company relies heavily on innovative products helping it create new demands in the market, its competitors can develop similar products and sell them at lower prices impacting its revenue.
- Innovative products are not time-tested. Hence, even if one product experiences a failure, its entire business can get impacted since it is known for its innovation.
- While there has been a surge in income due to the increased focus on health and wellness due to the COVID-19 pandemic, markets are expected to normalize and the company might not be able to sustain current growth levels.
- The health product devices industry is highly competitive and global players entering the market can reduce Nureca’s market share
Valuation of the IPO
Since there are no peers to compare the valuation of the IPO with the peer benchmark, investors will need to look at the intrinsic value of the company and compare it with its proposed share price.
We will use the intrinsic value formula provided by the founder of value investing – Benjamin Graham.
Intrinsic Value = Current Earnings x (8.5 + [2 x expected annual growth rate])
In FY 2020, Nureca booked profits of Rs.6.4 crores. Also, the estimated annual growth rate is 11%. Therefore,
Intrinsic Value of Nureca = 6.40 x (8.5 + [2 x 11]) = Rs.195.20 crores
Even if we deduct a margin of safety of 10%, the intrinsic value of Nureca = Rs.175.68 crores
As per the IPO structure, the company has a market cap of Rs.279.69 crores.
- Nureca depends on third-parties to manufacture its products. If these organizations are unable or unwilling to manufacture them, or if these organizations fail to comply with FDA or other applicable regulations or otherwise fail to meet Nureca’s requirements, its business will be harmed.
- The company also depends heavily on its channel partners such as third-party e-commerce players, distributors, and retailers. Any failure to manage the distribution network efficiently will adversely affect its performance.
- Nureca is dependent on the maintenance of existing product lines and service relationships, market acceptance of new products, and service introductions and innovations for revenue and earnings growth.
- If the company is unable to obtain, maintain and enforce intellectual property protection for its technology and solutions, others may be able to develop and commercialize similar technology and solutions, and its ability to successfully commercialize its technology and solutions may be compromised.
- Nureca’s products and services are highly sophisticated and specialized, and a major product failure or similar event could adversely affect its business, reputation, financial position, and results of operations.
- If the company is unable to maintain and enhance its brand or fails to cost-effectively develop widespread brand awareness and maintain its reputation, or if it fails to achieve and maintain market acceptance for its healthcare services or any negative publicity, its business could suffer.
- The availability of look-alikes, counterfeit healthcare devices, primarily in its domestic market, manufactured by other companies and passed off as its products, could adversely affect its goodwill and results of operations.
- Nureca faces intense competition and may not be able to keep pace with the rapid technological changes in the health product devices industry.
- The company’s business is subject to stringent domestic and foreign applicable regulations and any adverse regulatory action may materially, adversely affect its financial condition and business operations.
- Significant challenges or delays in its innovation and development of new products, technologies and indications could have an adverse impact on its long-term success.
- Nureca has significant working capital requirements for continuing growth. Its inability to meet its working capital requirements may adversely affect its results of operations.
- The company’s inability to obtain, renew or maintain its statutory and regulatory permits and approvals required to operate its business may have a material adverse effect on its business, financial condition, and results of operations.
Objects of the Offer
Nureca Limited proposes to utilize around Rs.75 crores of the net proceeds from the fresh issue towards funding its incremental working capital requirements and the rest towards general corporate purposes.
Promoters of Nureca Limited IPO
- Saurabh Goyal
Things to Keep in Mind Before Investing in Nureca IPO
Here are some things that you need to keep in mind before investing Nureca IPO:
- Nureca is currently alone in its segment. However, as competitors gain market share, the company might face challenges in maintaining its growth rates.
- The company has a limited operating and financial history, which makes it difficult to accurately assess its future growth prospects.
- While the current financials look promising, the surge in business is primarily due to people preferring to self-monitor and avoid going to the hospital in the current state of events. However, sustaining this can be a challenge for the company as vaccines will help restore normalcy in the country.
Hope this is helpful!