Dr Lal PathLabs (DLPL) is in the business of providing diagnostic & related healthcare tests and services in India, has come out with initial public offer (IPO) to raise about Rs 40 billion to fund its expansion plans. The issue opens on December 7 and closes on December 9. The company has priced its public issue in the range of Rs 540 to Rs 550 a share. The face value of shares is Rs 10 each. It has put up 1,261,996 equity shares on offer under this public issue.

Brokerage firms ICICI Securities, BOB Capital Markets and Reliance Securities have recommended 'Subscribe' to IPO of Dr Lal PathLabs.

Commenting on the investment rationale, ICICI Securities, said, ''Evidence-based treatment is slowly becoming the norm for many doctors as correct diagnosis enables correct therapy and faster patient recoveries. Moreover, as literacy rates and disposable incomes rise, households increasingly demand better healthcare facilities and quality of care. This increase has also been boosted by the rise in urbanisation and increase in lifestyle-related diseases. Crisil expects healthcare delivery services to grow at 16-17% CAGR in FY15-18. We believe DLPL, with its pan-India presence and reputation for providing quality diagnostic healthcare services, is well positioned to take advantage of the growth of the Indian diagnostic healthcare services industry. At the IPO price band of Rs 540-550, the stock is available at 46-47x on FY15 EPS of Rs 11.7. We recommend that investors SUBSCRIBE to the issue.''

Meanwhile, BOB Capital Markets,  said, ''The company has posted a revenue of Rs 6.60 billion / 5.58 billion in FY15 / FY14. The company has got a healthy EBITA margins of 23.98% / 25.13% in FY15 / FY14. The company follows an asset light model because of which the company does not have any long and short term borrowings. This leaves a lot of room for the company to leverage its balance sheet at a further date for aggressive expansion, if it chooses to do so. Further, the Company has got a robust ROE of 27.63% / 34.38% for FY15 / FY14.

We recommend ''SUBSCRIBE'' to our investors as the company's past track record is very impressive and others cannot replicate the company's size and scale in the short term. Further, this is the first company to be listed from the diagnostic segment which has a lot of growth potential to grow in the medium to long term time horizon. The company is not issuing any fresh equity shares which are being offered to the public. Existing investors are offering their equity shares in the company's IPO.

Reliance Securities said, ''We reckon that while its franchise model is asset light on balance sheet, it is highly dependent on performance of franchisees and business partners. Further, while there has been an increase in evidence based treatments, lack of comprehensive and stringent framework exposes the vulnerability of large chains in this business. At the lower end of the price band, the company is valued at 46.6x FY15 PE, which is expensive given the highly fragmented market and low entry barriers in the sector. Though we like the fundamentals and remain confident of its immense business potential, we suggest investing at lower levels.''

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