idirect thyrocare iporeview - nse / bse share & stock market...

April 25, 2016

IPO Review

ICICI Securities Ltd | Retail Equity Research

Thyrocare Technologies (Thyrocare) is one of the leading pan-India diagnostic chains. The company currently offers 198 tests and 59 profiles of tests to detect a number of disorders. Thyrocare also offers patients and corporations a suite of wellness and preventive healthcare tests under the brand Aarogyam. The company has a pan-India network of 1041 authorised service providers across 466 cities and 24 states & union territories. In addition, through its subsidiary, Nueclear Healthcare (NHL), Thyrocare has set up a network of molecular imaging centres in New Delhi, Navi Mumbai and Hyderabad focusing on early and effective cancer monitoring.

Key Strengths Emphasis on wellness and preventive care in diagnostic industry The need for preventive and wellness healthcare test offerings has been rising steadily in India given the rising middle class population, growing awareness on lifestyle diseases and benefits of preventive healthcare. An early entrant in cancer diagnosis, Thyrocare is also developing a network of molecular imaging centres for cancer diagnosis and has five operating PET-CT scanners. With offerings in preventive & diagnostic services and radiology procedure, Thyrocare is well placed in a high growth and under-penetrated market. Portfolio of specialised tests The company offers a portfolio of 198 tests and 59 profiles of tests to diagnose a number of disorders, including thyroid, metabolism, autoimmunity, diabetes, anaemia, cancer, cardiovascular, infertility and various infectious diseases. In addition, it also offers patients and corporations a suite of wellness and preventive health care tests under brand Aarogyam. The company has also recently commenced testing services for water samples under the brand Whaters. Further, through the brand Sugar Scan, the company also offers a sugar scan blood glucose monitor, which is one of the simplest ways for patients to instantly determine their blood glucose levels at an affordable cost. Pan-India network of collection centres In FY15, the company processed more than 9 million samples and conducted more than 47 million tests. Thyrocare collects these samples through a pan-India network of authorised service providers, which operate under franchise agreements. It has a network of 1041 authorised service providers spread across 466 cities and 24 states & union territories. The wide network of authorised service providers is complemented by a fully automated central processing lab (CPL) in Navi Mumbai and recently opened regional processing labs (RPLs).

Key concern

• Dependence on authorised service providers • High revenue dependence on functioning of CPL and RPL • Competition risk • Vendor risk • Extensive regulatory compliance

Priced at 51-54x on FY15 EPS of | 8.3

At the IPO price band of | 420-446, the stock is available at 51-54x on consolidated FY15 EPS of | 8.3.

Thyrocare Technologies LtdPrice band | 420-446

Rating matrix

Rating : Unrated Issue Details Issue DetailsIssue Opens 27-Apr-16Issue Closes 29-Apr-16Issue Size (| crore) 451-480Price Band (|) 420-446No. of Shares on Offer (crore) 1.1QIB (%) 50.0Non-Institutional (%) 15.0Retail (%) 35.0

Objects of the Issue

The offer for sale is essentially to enhance company's brand name and provide liquidity to the existing shareholders. The Company will not receive any proceeds from the Offer.

Shareholding Pattern Pre-Offer Post-Offer

Promoters & Promoters Group 65.0 64.0Others 35.0 36.0

Financial Summary (| crore) FY11 FY12 FY13 FY14 FY15*Total Revenues 77.9 109.1 134.3 150.0 183.0EBITDA 35.6 49.0 63.5 68.7 71.8EBITDA Margins 45.7 44.9 47.3 45.8 39.2PAT 24.8 34.9 32.8 46.2 44.4EPS 4.6 6.5 6.1 8.6 8.3

* Consolidated Financials Research Analyst

Siddhant Khandekar siddhant.khandekar@icicisecurities.com Mitesh Shah mitesh.sha@icicisecurities.com

Nandan Kamat nandan.kamat@icicisecurities.com

Exhibit 1: Key Financials (| crore) FY11 FY12 FY13 FY14 FY15* 9MFY16*Total Revenues 77.9 109.1 134.3 150.0 183.0 175.9EBITDA 35.6 49.0 63.5 68.7 71.8 76.2EBITDA Margins 45.7 44.9 47.3 45.8 39.2 43.3PAT 24.8 34.9 32.8 46.2 44.4 40.0EPS 4.6 6.5 6.1 8.6 8.3 7.4RoE 36.8 34.1 35.5 22.4 16.2 14.5RoCE 40.7 40.8 35.6 29.8 24.2 22.9

Source: RHP, ICICIdirect.com Research; * Consolidated financials

Indian Diagnostics Industry

In India’s healthcare industry, diagnostic services play the role of an information intermediary, providing useful information for the accurate diagnosis and treatment of patient’s diseases. During FY12-15, the Indian diagnostic industry grew at a CAGR of ~16% to ~| 37700 crore (US$6.2 billion). For the next three fiscal years, Crisil has estimated that the Indian diagnostic industry is likely to grow at a CAGR of ~16-18% to | 58500-61600 crore (US$9.3-9.8 billion) in FY18. Exhibit 2: Indian diagnostic industry (| crore)

58500-61600

FY12 FY15 FY18E

Indian Diagnostic Industry (| crore)

16% CAGR

16-18% CAGR

Source: RHP, ICICIdirect.com Research, CRISIL Report

Pathology testing vs. imaging diagnostic services The diagnostic industry in India can be classified into pathology testing services and imaging diagnostic services. Pathology testing or in-vitro diagnosis involves the collection of samples, in the form of blood, urine, stool, etc, and analysing them using laboratory equipment and technology to arrive at useful clinical information, to assist in treatment of diseases. The pathology testing segment includes biochemistry, immunology, haematology, urine analysis, molecular diagnosis and microbiology. Imaging diagnosis or radiology involves imaging procedures such as X-rays and ultrasounds, which help mark anatomical or physiological changes inside a patient’s body, to assist doctors to diagnose patient’s disease. The imaging diagnostic segment also includes more complex tests, such as CT scans and MRIs and highly specialised tests, such as PET-CT scans. Pathology testing is often the preferred first line of diagnosis for a majority of diseases and, thus, contributes to a major portion of the diagnostic industry. Given the high volumes of pathology testing conducted in India, pathology testing still accounts for more than half of the revenue of the Indian diagnostic industry, although the cost of imaging diagnostic services is often more expensive compared to pathology testing. The pathology business is highly scalable as blood samples can be shipped to a remote,

centralised location to achieve economies of scale. In contrast, imaging business operators have to install diagnostic equipment close to the patient. Imaging services cannot be centralised and, as a result, are difficult to scale up. Exhibit 3: Pathology and imaging diagnostic break-up

Imaging Diagnostics44%Pathology

Diagnostics56%

Source: RHP, ICICIdirect.com Research, CRISIL report

Pathology testing services Pathology tests can be classified into three broad categories based on methods used and types of diseases targeted for investigation. The three broad categories are clinical pathology, anatomical pathology and molecular pathology. Clinical pathology tests are aimed at diagnosing diseases through the study of chemical and biochemical mechanisms of the human body, such as detecting changes in electrolytes and enzymes in the blood and body fluids samples to analyse various diseases. Common clinical pathology tests include, among others, blood sugar level tests, lipid profiles, pregnancy tests, cholesterol tests and blood cell count tests. Anatomical tests are aimed at diagnosing diseases such as cancer, through microscopic study of organs and tissue samples. The tissue samples may consist of tissues obtained from any part of the human body using biopsy techniques, specimens of separated cells in fluids or tissue smears. Molecular tests analyse DNA and RNA to detect heritable or acquired disease-related genotypes, mutations, phenotypes or karyotypes. Molecular tests assist doctors to determine the severity of a disease, identify carriers and conduct clinical diagnoses or prognoses. Wellness and preventive diagnostic services Wellness and preventive diagnostic services are aimed at identifying pre-existing diseases or the likely risk of particular diseases before the onset of actual symptoms. It is expected that wellness and preventive diagnostic services will assist people to more accurately identify risks so that they can take corrective or precautionary measures before any chronic condition substantiates. According to a Crisil Research Report, a majority of these wellness and preventive tests consist of biochemistry tests to screen for an individual’s risk of chronic diseases, such as cardiovascular diseases, diabetes and cancers. Some diagnostics service providers also offer basic imaging services, such as X-rays and ultrasounds, in addition to pathology testing services.

Exhibit 4: Wellness and preventive (W&P) diagnostic services as percentage of total market

W&P market6-8%

Rest of the

market92-94%

W&P market7-9%

Rest of the

market91-93%

CAGR 23-25%

FY15 FY18E

Organised vs. unorganised category Historically, the diagnostic industry has been dominated by standalone diagnostic centres and hospital-based diagnostic services. Standalone diagnostic centres are diagnostic centres with a single laboratory/centre. Hospital-based diagnostic services include all diagnostic procedures carried out at hospital for patients who are either admitted as an in-patient or are treated as an out-patient of the hospital. Standalone centres usually carry out basic tests, which require minimal investments and physical space. In FY15, ~48% of the revenue generated by the diagnostic industry was contributed by standalone diagnostic centres. Since a large number of hospitals in India are unorganised, Crisil has categorised both hospital-based diagnostic laboratories (labs) and standalone centres as part of the unorganised diagnostic segment of the India diagnostic industry. Diagnostic chains, which constitute the organised market, have emerged in recent years. The Crisil Research Report defines the organised market as constituting diagnostic service providers that offer pathology and imaging services and operate out of more than one centre, with large chains that have a pan-India presence. These players adopt the hub-and-spoke model of business operations and utilise modern logistics and information management systems to operate their network. Exhibit 5: Revenue contribution of diagnostic centre models

FY15 FY18EDiagnostic chains 15% 16%

Hospital based Diagnostics 37% 37%

Standalone Diagnostic centers 48% 47%

Diagnostic chains can be further categorised into large pan-India chains and regional chains. Currently, there are approximately seven large diagnostic chains in India, based on their revenues (Source: publicly available revenue figures from companies). These chains had ~35-40% of the diagnostic chains market share in FY15. Regional chains are diagnostic chains with centres concentrated in a single city or state in India. Regional chains had ~60-65% of the market share of diagnostic chains in India in FY15. In FY18, it is expected that pan-India diagnostic chains will grow to ~37-42% of the diagnostic chains market share.

Exhibit 6: Pan-India diagnostic chains in India

Diagnostic chain Type of tests International Presence Domestic Presence AccreditationsEBITDA

Margins ROCE

Dr Lal PathlabsPathology and imaging

Oman, Saudi Arabia, Kuwait, Nepal, Malaysia, Bangladesh, Qatar Pan-India

NABL, ISO, CAP, CDC(USA) 28% NA

Metropolis Healthcare Pathology

UAE, Sri Lanka, South Africa, Kenya, Mauritius, Ghana Pan-India

NABL, ISO, CAP, CLIA (USA) 29% 26%

SRL DiagnosticsPathology and imaging

Dubai, Sri Lanka, Nepal, Africa, Middle-East, Hong Kong, Maldives and SAARC countries Pan-India

NABL, ISO, CAP, ICAL, APLAC 18% NA

Thyrocare Technologies

Pathology and nuclear imaging* Nepal, Bangladesh, Gulf

Pan-India coverage through 1,041 authorized service providers covering 466 cities and 24 states and one Union Territory ISO, CAP, NAGL 47% 33%

Source: RHP, ICICIdirect.com Research; *Nuclear imaging consists of highly-specialised tests, such as PET_CT scans

Hub-and-spoke model of chain diagnostics centres The components of a hub-and-spoke model typically include a reference lab, satellite labs and collection centres.

Exhibit 7: Hub-and-spoke model

National Reference Lab

Regional Reference Lab

Satellite Lab Satellite Lab

CC CC CC CC

Source: RHP, ICICIdirect.com Research; CC: Collection Centres

National reference lab: The national reference labs are located centrally, usually in a large metropolitan area and typically serve as the corporate headquarters of diagnostic chain companies. The national reference labs are equipped to conduct both routine and specialised pathology and imaging tests. They may be spread over an area of 2,000-3,000 square feet, usually divided into a work area, front office, back office and sample collection area. Regional reference lab: Regional reference labs are situated in large metropolitan cities and act as regional hubs, which accumulate samples from satellite labs and collection centres across the country. Like national reference labs, regional reference labs also offer comprehensive and specialised testing facilities.

Satellite Labs: Satellite labs offer a limited range of services. They mainly act as feeders for reference labs. Satellite labs may be either owned or franchised by a diagnostic chain company. Collection centres: Collection centres are located in hospitals, nursing homes, pathology labs, doctors’ clinics, prime commercial properties and retail spaces, among other places. Collection centres may be company-owned or franchised. A franchisee usually pays a franchise fee, around | 30,000-50,000, to get the license to operate a collection centre for a satellite lab. Typically, the collection centres are mainly involved in the collection and forwarding of patient samples to a satellite or reference lab. However, the collection centres of certain chains may also be equipped to conduct some basic tests. The centres usually have basic equipment in the form of a refrigerator and a centrifuge, and employ minimal staff, such as a receptionist, lab technician, attendants and delivery staff.

Company Background Thyrocare is one of the leading pan-India diagnostic chains and conducts an array of medical diagnostic tests and profiles of tests that focus on early detection and management of various disorders and diseases. The company primarily operates its testing services through a fully-automated CPL and recently expanded its operations to include a network of RPLs. It collects samples through a pan-India network of authorised service providers, which operate under franchise agreements. In addition, through its subsidiary, NHL, Thyrocare has set up a network of molecular imaging centres in New Delhi, Navi Mumbai and Hyderabad focusing on early and effective cancer monitoring. The company offers a profile of 198 tests and 59 profiles of tests to detect a number of disorders, including thyroid disorders, growth disorders, metabolism disorders, autoimmunity, diabetes, anaemia, cancer, cardiovascular disorders, infertility and various infectious diseases. In addition, it also offers patients and corporations a suite of wellness and preventive health care tests under brand Aarogyam. In July 2015, the company also commenced providing testing services for water samples under the brand Whaters. The tests that Whaters is currently conducting include physical and chemical testing, elements testing, microbiology testing, pesticide testing and volatile organic compounds testing. Further, through the brand Sugar Scan, the company also offers a sugar scan blood glucose monitor, which is one of the simplest ways for patients to instantly determine their blood glucose levels at an affordable cost. Exhibit 8: Locations of services and operations

Source: RHP, ICICIdirect.com Research

Product offering In the early years of inception, Thyrocare focused on offering tests specific to thyroid testing. However, over the years, the company expanded its offering to include 198 tests and 59 profiles of tests to detect a number of disorders, including growth disorders, metabolism disorders, auto-immunity, diabetes, anaemia, cancer, cardiovascular disorders, infertility and various infectious diseases. In addition, it also offers patients and corporations a suite of wellness and preventive health care tests under brand Aarogyam. The company expects to expand its diagnostics test

offerings through the testing of new technology and development of innovative testing. The table below provides an overview of the types of tests Thyrocare offers and the laboratory that performs these tests. Exhibit 9: Thyroid tests Types of Thyroid Tests Performed at CPL Performed at RPLThyroid Stimulating HormoneTotal TriiodothyronineTotal Thyroxine

Exhibit 10: Non-thyroid tests Non-Thyroid Tests Based on the TechnologiesEmployed by the CompanyCLIAELISAHPLCElectrophoresisFlow cytometryFluorescence FlowcytometryNephelometryPhotometryLiquid Chromatography Mass SpectrometryICP-MS

Performed at CPL Performed at RPL

Exhibit 11: Wellness and preventive tests Wellness and Preventative Tests Performed at CPL Performed at RPLAarogyam 1.1Liver, cholesterol, kidney, thyroid and iron deficiencyAarogyam 1.2All of Aarogyam 1.1 profiles and complete hemogram and diabetesAarogyam 1.3All of Aarogyam 1.2 profiles and vitamin and testosteroneAarogyam 1.4All of Aarogyam 1.3 profiles and Cardiac risk profile, pancreas, electrolyteAarogyam 1.5All of Aarogyam 1.4 profiles and Folic acid, Blood element analysis profile, testosterone and homocysteineAarogyam 1.6All of Aarogyam 1.4 profiles and arthritis, serum ferritin, folic acidAarogyam 1.7All of Aarogyam 1.6 profiles and a toxic elements profile

Thyroid Tests Thyroid profile is one of the key test offerings of the company and includes total Triiodothyronine, total Thyroxine and thyroid stimulating hormone tests (which are collectively referred to as thyroid tests). Thyroid tests comprised ~28% of the total samples that the company processed in FY15 and generated revenue of ~| 27.2 crore, which constituted 15% of its total standalone revenue for FY15. Exhibit 12: Thyroid tests Particulars FY13 FY14 FY15

Number of Thyroid tests 9200977 10604523 13618280

Approximate % of total tests 37 30 28

Wellness and preventive health test offering Thyrocare also offers a wide range of wellness and preventive health tests and or profiles to its customers under the Aarogyam brand. In December 2012, the company launched a ‘profile of profiles’ package termed Aarogyam 1.1. Under this package, it bundled together several profiles of tests including lipid profiles, liver profiles and thyroid profiles with the objective of improving its revenue per sample. Since December 2012, Thyrocare has launched several more ‘profile of profiles’ packages including Aarogyam 1.2, Aarogyam 1.3, Aarogyam 1.4, Aarogyam 1.5, Aarogyam 1.6, and Aarogyam 1.7.

Thyrocare has a multi-lab model, which encompasses a fully automated centralised processing laboratory (CPL), supported by four regional processing laboratories (RPLs). Thyrocare’s fully automated CPL, located in Navi Mumbai, is equipped with automation systems, diagnostic testing instruments and processes from leading international and Indian healthcare brands. The CPL is driven by a barcoded and bi-directionally-interfaced system and a laboratory information system (LIS). The CPL meets international standards of quality and has received global accreditations from the College of American Pathologists (CAP), the National Accreditation Board for Testing and Calibration Laboratories (NABL), and the International Organisation of Standardization (ISO). Exhibit 14: Samples and tests conducted at CPL

FY13 FY14 FY15 9MFY16Samples processed 6,278,439 7,012,669 8,990,196 5,937,842Average samples processed per day 17,201 19,213 24,631 21,671Tests conducted 25,027,132 34,897,640 47,420,906 32,503,132Average tests conducted per day 68,567 95,610 129,920 118,625

Thyrocare started setting up RPLs in 2015. Currently, it has four operational RPLs, one each in New Delhi, Coimbatore, Hyderabad and Kolkata, which process samples sourced from their respective regions. Since the opening of the RPLs in 2015, Thyrocare has seen an increase in the volume of tests that the company has conducted from a daily average of ~95,610 in FY14 to ~131,073 in FY15 and ~119622 in the 9MFY16. Exhibit 15: Samples and tests conducted at CPL and RPL combined

FY14 FY15 9MFY16Samples processed 7,012,669 9,093,828 8,427,020Tests conducted 34,897,640 47,841,710 43,661,898Average samples processed per day 19,213 24,915 23,088Average tests conducted per day 95,610 131,073 119,622

Pan-India network of collection centres and robust logistics Thyrocare collects samples through a pan-India network of authorised service providers comprising Thyrocare Aggregators (TAGs) and Thyrocare Service Providers (TSPs), which operate under franchise agreements. TSPs and TAGs are both responsible for procuring samples from local hospitals, laboratories, diagnostic centres, nursing homes, clinics and pathologists. TSPs are additionally authorised to draw samples from patients and retail

Exhibit 13: Share of company’s wellness and preventive health test increasing steadily Particulars (%) FY13 FY14 FY15 9MFY16Wellness and preventive healthcare tests 41.0 47.0 51.0 54.0Others 59.0 53.0 49.0 46.0

customers that are either procured by them or referred to them by the Company. As of November 30, 2015, Thyrocare had a network of 1,041 authorised service providers, including 354 TSPs and 687 TAGs across 466 cities and 24 states & union territories. Through these service providers, the company has developed a pan-India network and expanded the reach of the CPL and RPLs. Exhibit 16: Hub Locations of authorised service providers

The network of authorised service providers is further complemented by the recent addition of RPLs, which enable the authorised service providers to deliver samples to the closest RPL rather than only to the CPL. To optimise logistics cost, RPLs have been established in regions in close proximity to rail or road networks. All samples that require routine tests and that are drawn by the authorised service providers within a particular distance from the RPLs are transported to RPLs by means of railroad or road networks. If the location of the authorised service provider is such that it is unfeasible to send the samples to a RPL, or the sample requires non-routine tests, the authorised service providers send these tests to the CPL via airline, road and rail networks. RPLs have, therefore, assisted the company with the optimisation of logistics costs. Additionally, the time involved in transporting tests to RPLs is less than that required to transport tests to the CPL, thereby enabling the company to provide test results to its patients relatively faster. At present, the company has a minority equity interest in Thyrocare International Holding Company, which holds Thyrocare Gulf Laboratories WLL that conducts business in Bahrain. At present, the CPL receives samples requiring non-routine tests from Thyrocare Gulf Laboratories WLL. Thyrocare Gulf conducts its own routine tests on samples that it receives. The company has entered into a royalty agreement with Thyrocare Gulf and Thyrocare Bangladesh, pursuant to which the company and Thyrocare International Holding Company provide: (a) certain services, including technical and IT support, equipment and reagent and consumables procurement, operational support and training; (b) exclusive rights to use

the trademark, trade name, operating procedures and software for a period of 25 years (to be automatically renewed for 10 years unless cancelled), as specified, to Thyrocare Bangladesh in return for a royalty payment.

Nueclear Healthcare Thyrocare is developing a network of molecular imaging (radiology) centres for cancer patients through its wholly owned subsidiary NHL. The imaging centres each include Positron Emission Tomography-Computed Tomography (PET-CT) imaging scanners. PET-CT scanners provide molecular imaging to assist in cancer diagnosis, staging, monitoring of treatment efficacy and evaluation of disease recurrence. PET-CT scanners are also used for cardiology, neurology, infection, and inflammatory disease applications. As depicted in the map below, the company has five operating PET-CT scanners across three centres with two in Navi Mumbai, two in New Delhi and one in Hyderabad. NHL’s planned network also includes medical cyclotrons that produce radioactive bio-markers required for cancer imaging. Exhibit 17: Locations of services and operations

Exhibit 18: Key Events Year Particulars2000 The company was incorporated in the name of ‘Thyrocare Technologies’

2001 Commences commercial operations under the brand name Thyrocare pursuant to the acquisition of business of TDPL and TBPL (which were incorporated in 1996)

2005 Receives NABL accreditation

2007 Receives accreditation from the College of American Pathologists (CAP).

2010 Launches wellness packages under brand Aarogyam

2011 Migrates to ‘total laboratory automation system’ installed by Siemens for efficient handling increasing volumes

2012 NVP acquires certain equity shares aggregating to | 1,20 crore from certain entities

2013 NHL commences operations at the PET-CT centres at Navi Mumbai and conducts over 1,000 scans in the first year of operations.

2014 Installs India’s first and the world’s longest track automation system for seamless sample movements from Siemens

2014 Commissions operations in medical cyclotron facility in Navi Mumbai

2014 NHL commences operations at the PET-CT centres in New Delhi, Hyderabad and PET-CT centres at New Delhi conducted over 1,000 scans in the first year of operations.

2015 Opens RPLs in Delhi, Coimbatore, Hyderabad and Kolkata to expand its coverage and volume of tests and samples processed daily

2015 Acquires equipment for testing of water samples and commences operating the equipment under brand WHATERS. These tests, at present, include physical and chemical testing, elements testing, microbiology testing, pesticide testing and volatile organic compounds testing

2015 NHL completes over 10,000 scans at the PET-CT centres in New Delhi, over 10,000 scans at the PET-CT centres in Navi Mumbai and over 1,500 scans at the PET-CT centres in Hyderabad since inception

Key strengths Emphasis on wellness and preventive care in diagnostic industry The need for preventive and wellness healthcare test offerings has been rising steadily in India given the rising population of middle class, growing awareness about lifestyle diseases, and benefits of preventive healthcare. An early entrant in cancer diagnosis, Thyrocare is also developing a network of molecular imaging centres for cancer diagnosis, and has five operating PET-CT scanners. With offerings in preventive & diagnostic services and radiology procedure, Thyrocare is well placed in a high growth and under-penetrated market. Portfolio of specialised tests The company offers a portfolio of 198 tests, 59 profiles of tests to detect a number of disorders, including thyroid disorders, growth disorders, metabolism disorders, autoimmunity, diabetes, anaemia, cancer, cardiovascular disorders, infertility and various infectious diseases. Also, it offers patients, corporations a suite of wellness and preventive health care tests under brand Aarogyam. The company has also recently commenced testing services for water samples under the brand Whaters. Further, through the brand Sugar Scan, the company also offers a sugar scan blood glucose monitor, which is one of the simplest ways for patients to instantly determine their blood glucose levels at an affordable cost. In recent years, the company’s focus has been on the development of a wide range of tests and profiles in the fast growing segment of wellness and preventive healthcare. According to the Crisil Research Report, this segment is expected to grow at a CAGR of ~25% in the next three years. Pan-India network of collection centres In FY15, the company processed more than 9 million samples and conducted more than 47 million tests. Thyrocare collects these samples through a pan-India network of authorised service providers, which operate under franchise agreements. It has a network of 1,041 authorised service providers across 466 cities and 24 states and union territories. The wide network of authorised service providers is complemented by fully automated central processing lab (CPL) in Navi Mumbai and recently opened regional processing labs (RPLs). Multi-lab model driving volume growth, economies of scale Its multi-lab model comprises a fully automated CPL supported by network of RPLs that conduct routine tests conducive to high volume testing. Where logistically feasible, the authorised service providers direct samples requiring such tests to the RPLs. By routing these tests to RPLs, the resources of the CPL can be utilised to process and test the additional samples generated by pan-India network of authorised service providers that are not proximate to an RPL. Since opening of RPLs in 2015, the company has seen an increase in the volume of samples processed by the company. Its laboratories processed ~12% more samples in FY14 compared to FY13. With the opening of the RPLs, it processed ~30% more samples in FY15 compared to FY14. Expand product offerings The company intends to expand its diagnostics test offerings through acquisition of new technologies, including both instruments and processes. Thyrocare is currently focusing its efforts on new test offerings based on clinical application of mass spectrometry. In May 2015, Thyrocare commenced providing testing services for water samples through newly-acquired equipment which it operates under the brand Whaters. Whaters conducts physical and chemical testing, elements testing, microbiology testing, pesticide testing and volatile organic compounds testing for water samples.

Financials Exhibit 19: Revenues

134.3150.0

0.020.040.060.080.0

100.0120.0140.0160.0180.0200.0

FY11 FY12 FY13 FY14 FY15*

Total Revenues

Source: RHP, ICICIdirect.com Research; * Consolidated financials Exhibit 20: EBITDA & PAT margins trend

45.7 44.947.3 45.8

31.9 32.0

0.05.0

10.015.020.025.030.035.040.045.050.0

EBITDA Margins PAT Margins

Source: RHP, ICICIdirect.com Research; * Consolidated Exhibit 21: Net profit trend

34.9 32.8

46.2 44.4

0.05.0

10.015.020.025.030.035.040.045.050.0

urce: RHP, ICICIdirect.com Research; * Consolidated

Exhibit 22: Return ratios trend

36.834.1

20.5 22.416.2

55.750.8

24.233.6

RoE RoCE

Source: RHP, ICICIdirect.com Research; * Consolidated Exhibit 23: Free cash flows

28.9 31.2

Source: RHP, ICICIdirect.com Research; * Consolidated

Key concerns Dependence on authorised service providers Thyrocare has a network of 1,041 authorised service providers. The network helps the company serve local hospitals, laboratories, diagnostic centres, clinics, nursing homes, pathologists and patients referred by doctors. Further, Thyrocare provides services to end-customers and patients directly through offices of TSPs and through its system of home collection services. All this makes the company significantly dependent on its ability to attract and retain qualified authorised service providers as well as the ability of its authorised service providers to grow their customer base, execute the business model and capitalise on brand recognition and marketing. High revenue dependence on functioning of central or regional labs Thyrocare’s multi-lab model encompasses a fully-automated CPL supported by four RPLs. The CPL performs all tests that the company offers while RPLs are equipped to perform the tests that are more routine in nature and conducive to high volume testing. Any disruption at CPL and/or RPLs can reduce or restrict sales and materially affect the business of the company. Any delay or interruption in transporting samples to CPL and or RPLs can also hurt the effectiveness of this business model. Competition risk Thyrocare offers 198 tests and 59 profiles of tests. The thyroid profile contributed 17% of the company’s revenue from diagnostic services for FY15 and the wellness and preventive care offerings contributed 51% of the company’s revenue from diagnostic services for FY15. If the company’s competitors develop diagnostic tests with competitive pricing, its test offerings fall out of favour, its customer’s preferences change or its ability to conduct these tests is impaired in any way, the company’s business, financial condition and results of operations could be material and adversely impacted. Vendor risk The equipment and systems at Thyrocare’s CPL have been provided by vendors at low or no capital cost in consideration for a minimum purchase commitment of reagents and consumables for a specified contractual period. The title to and the ownership of such equipment and automation systems remains with vendors and may only be passed on to the company upon completion of the term of the relevant arrangement at a mutually agreed price. This means that unless the company acquires the equipment at its CPL as per the terms set out in the relevant arrangement with the vendor, the vendor may at its discretion withdraw or retake possession of its equipment. Extensive regulatory compliance Thyrocare is amenable to laws and regulations relating to protection of environment and human health and safety, including those related to handling, transportation and disposal of medical specimens, medical waste including bodily fluids, infectious and hazardous waste and radioactive materials as well as regulations relating to safety and health of laboratory employees. The company’s molecular imaging business uses radioactive materials, which are inherently hazardous. Failure to comply with applicable environment, human health, safety laws and regulations could lead to revocation of operating permits or licenses, orders to curtail or cease operations, substantial fines, criminal penalties and/or other enforcement actions and penalties.

Valuations At the IPO price band of | 420-446, the stock is available at 51-54x on FY15 EPS of | 8.3.

Objects of issue The offer for sale is essentially to enhance the company's brand name and provide liquidity to existing shareholders. The company will not receive any proceeds from the offer.

Financial summary

Profit and loss statement | Crore (Year-end March) FY11 FY12 FY13 FY14 FY15*Revenues 77.9 109.1 134.3 150.0 183.0Growth (%) NA 40.1 23.1 11.7 NARaw Material Expenses 23.4 29.1 35.6 42.5 55.8Employee Expenses 5.3 7.1 9.0 12.1 17.8Other Expense 13.5 23.9 26.2 26.7 37.5Total Operating Expenditure 42.3 60.1 70.8 81.3 111.2EBITDA 35.6 49.0 63.5 68.7 71.8Growth (%) NA 37.6 29.5 8.2 NA

Depreciation 1.3 2.1 3.3 6.4 12.9Other Income 3.3 5.1 5.7 6.6 7.4Exceptional Items 0.0 0.0 12.0 0.0 0.0PBT after EO/Forex 37.6 52.0 53.9 68.9 66.3Total Tax 12.8 17.1 21.1 22.7 23.1Profit from minority shareholders -1.2PAT 24.8 34.9 32.8 46.2 44.4Growth (%) NA 40.8 -6.1 40.6 NAAdjusted PAT 24.8 34.9 32.8 46.2 44.4EPS 4.6 6.5 6.1 8.6 8.3

Source: Company RHP, ICICIdirect.com Research; * Consolidated financials

Cash flow statement | Crore (Year-end March) FY11 FY12 FY13 FY14 FY15*Profit after Tax 24.8 34.9 32.8 46.2 44.4Add: Depreciation 1.3 2.1 3.3 6.4 12.9(Inc)/dec in Current Assets 7.0 3.2 2.9 -4.6 -5.5Inc/(dec) in CL and Provisions 1.1 0.4 1.7 3.1 2.0Others -3.4 -4.1 5.2 -4.9 -19.4CF from operating activities 30.8 36.6 45.9 46.2 34.5(Inc)/dec in Fixed Assets -1.8 -5.4 -68.7 -14.6 -9.9(Inc)/dec in Investments -24.0 0.0 -40.5 -39.1 -8.8Others 1.9 -12.2 20.9 1.9 0.8CF from investing activities -23.9 -17.6 -88.3 -51.8 -17.9Issue/(Buy back) of Equity 0.0 0.0 0.8 0.0 0.0Inc/(dec) in loan funds 25.0 0.0 0.0 0.0 0.0Dividend paid & dividend tax 0.0 0.0 0.0 0.0 -22.9CF from financing activities 25.0 0.0 0.8 0.0 -22.8Net Cash flow 31.9 19.0 -41.6 -5.5 -6.3Opening Cash 8.2 40.0 59.0 17.5 11.4

Closing Cash 40.0 59.0 17.5 11.9 5.1Free Cash Flow 28.9 31.2 -22.8 31.6 24.5

Balance sheet | Crore (Year-end March) FY11 FY12 FY13 FY14 FY15*Equity Capital 10.8 10.8 10.9 10.9 50.5Reserve and Surplus 56.7 91.7 149.2 195.3 223.7Total Shareholders funds 67.5 102.5 160.1 206.3 274.2Minority Interest 0.0 0.0 0.0 0.0 36.0Total Debt 25.0 25.0 25.0 25.0 0.0Deferred Tax Liability 0.0 0.0 0.1 0.6 0.0LTP & Other LTL 3.9 6.2 7.4 7.5 12.1Total Liabilities 96.4 133.6 192.6 239.3 322.3Tangible assets 16.2 19.1 74.2 86.5 149.6Intangible assets 0.2 0.6 0.8 0.9 1.1Net Block 16.4 19.6 75.0 87.3 150.7Capital work-in-progress 0.0 0.0 10.5 6.4 5.6Total Fixed Assets 16.4 19.6 85.5 93.8 156.2Goodwill on Consolidation 0.0 0.0 0.0 0.0 45.3Investments 24.0 24.0 77.2 119.0 85.9Non Current Assets 4.6 3.7 5.4 5.6 15.7Inventory 4.0 5.1 5.2 6.3 7.4Debtors 3.0 3.4 3.3 4.9 4.9Loans and Advances 7.9 21.9 2.2 4.3 9.0Other Current Assets 1.1 0.3 0.1 0.0 0.0Cash 40.0 59.0 17.5 11.9 5.1Total Current Assets 56.0 89.8 28.4 27.4 26.4Creditors 3.5 0.6 0.2 1.5 0.8Provisions 0.3 1.0 1.1 0.4 1.2Other current libilities 0.7 1.9 2.7 4.5 5.3Total Current Liabilities 4.5 3.4 4.0 6.4 7.3Net Current Assets 51.4 86.3 24.5 21.0 19.1Application of Funds 96.4 133.6 192.6 239.3 322.3

Key ratios (Year-end March) FY11 FY12 FY13 FY14 FY15*Per share data (|)Adjusted EPS 4.6 6.5 6.1 8.6 8.3BV per share 12.6 19.1 29.8 38.4 51.0Dividend per share 0.0 0.0 0.0 0.0 4.3Operating Ratios (%)Gross Profit Margins 69.9 73.4 73.5 71.7 69.5EBITDA Margins 45.7 44.9 47.3 45.8 39.2PAT Margins 31.9 32.0 24.4 30.8 24.3Inventory days 18.8 17.1 14.3 15.3 14.7Debtor days 13.9 11.5 9.1 11.9 9.8Creditor days 16.6 1.9 0.6 3.7 1.7Asset Turnover 0.8 0.9 0.7 0.6 0.7EBITDA conversion Rate 86.5 74.6 72.4 67.3 48.0Return Ratios (%)RoE 36.8 34.1 20.5 22.4 16.2RoCE 55.7 50.8 33.6 33.4 24.2RoIC 71.7 76.0 32.1 31.4 24.6Valuation Ratios (x)P/E 96.5 68.6 73.0 51.9 53.9EV / EBITDA 66.9 48.2 37.9 35.1 33.3EV / Net Sales 30.6 21.7 17.9 16.1 13.1Market Cap / Sales 30.8 22.0 17.8 16.0 13.1Price to Book Value 35.5 23.4 15.0 11.6 8.7Solvency RatiosDebt / EBITDA 0.7 0.5 0.4 0.4 0.0Debt / Equity 0.4 0.2 0.2 0.1 0.0Current Ratio 12.4 26.1 7.2 4.3 3.6Quick Ratio 11.5 24.7 5.8 3.3 2.6

Source: Company, ICICIdirect.com Research; * Consolidated financials

RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

research@icicidirect.com

ANALYST CERTIFICATION We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. 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This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd has been appointed as one of the Lead Managers to the public issue of Thyrocare Technologies Ltd. This report is prepared on the basis of publicly available information.

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