Inventurus Knowledge Solutions IPO Analysis 2024: Should You Subscribe?

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Inventurus Knowledge Solutions Ltd (IKSL) launched its initial public offering (IPO) on December 12, 2024, with bidding set to close on December 16. The IPO, carrying a grey market premium (GMP) of 32%, received a good response on the first day.

However, investors should get a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Inventurus Knowledge Solutions IPO Details

  • Issue Details: Mainstream
  • Issue Size: Rs 2,497.92 crore 
  • OFS: Rs 2,497.92 crore
  • Price Band: Rs 1,265 – Rs 1,329
  • Lot size: 11 shares
  • Listing Date: December 19, 2024

Inventurus Knowledge Solutions IPO Subscription Status

The IKSL IPO kicked off with a strong response, recording an overall subscription of 1.36 times as of 5 p.m. on the opening day. Retail investors drove the demand, oversubscribing their allotted shares by 1.67 times, followed by qualified institutional buyers (QIBs) at 1.54 times. Non-institutional investors subscribed to 0.79 times their reserved allocation.

Overview of Inventurus Knowledge Solutions

IKSL is a technology-driven healthcare solutions provider specializing in a care enablement platform that enhances revenue optimization for healthcare organizations in the US, Canada, and Australia, with a primary focus on the US market. 

The platform supports healthcare providers by managing administrative, clinical, and operational tasks, allowing them to concentrate on patient care. IKSL combines technology with skilled resources to sustain strong healthcare enterprises. Its pricing model includes outcome-based fees, accounting for 40% of its revenue, while the rest comes from software-as-a-service (SAAS) fees. Currently, the company offers 16 services across two main bundles: administrative (37% of revenue) and clinical (63% of revenue).

Inventurus Knowledge Solutions Key Strengths

  • Strong Financial Performance: IKSL has achieved impressive growth, with operational revenue, EBITDA, and net profit recording robust compounded annual growth rates (CAGRs) of 54%, 37%, and 26%, respectively, between FY22 and FY24. Additionally, it boasts a Return on Equity (RoE) of 32%.
  • Wide Clientele: As of September 30, 2024, IKSL serves 778 healthcare organizations, including health systems, academic medical centers, multi-specialty and single-specialty medical groups, ancillary healthcare providers, as well as inpatient and outpatient care organizations. Notable clients include Mass General Brigham Inc., Texas Health Care PLLC, and The GI Alliance Management.
  • Client Loyalty: Over 90% of IKSL's revenues over the last three fiscal years have come from repeat clients, showcasing a stable and loyal customer base.
  • Strategic Acquisition: The acquisition of Aquity Holdings provides access to a customer base of over 804 clients (as of March 31, 2024), facilitating cross-selling opportunities and expanding market reach.

Inventurus Knowledge Solutions Risk Factors

  • Declining Margins: EBITDA margins have consistently declined from 36.33% in FY22 to 28.62% in FY24, while net profit margins dropped from 30.51% to 20.38% over the same period. This decline is primarily attributed to the $220 million Aquity acquisition last year, which led to increased leverage and suppressed operating margins in FY24.
  • Heavy Dependence on the US Market: IKSL derives nearly 96% of its total revenue in H1FY25 from US customers, making it highly vulnerable to risks such as exchange rate fluctuations, regulatory changes, and geopolitical uncertainties.
  • High Attrition Rates: Attrition remains a significant challenge, with rates recorded at 14%, 45%, and 54%, for the six months ending September 30, 2024, FY24 and FY23, respectively. Persistent high turnover could lead to increased staffing costs, shortages of skilled personnel, and potential disruptions from labor union activities.
  • Regulatory Compliance Issues: IKSL has previously encountered FEMA-related compliance deficiencies, including delays in reporting requirements and the issuance and transfer of securities. The company has submitted compounding applications to the RBI, which remain pending. This situation may expose IKSL to regulatory actions, penalties, or compounding fees.

Conclusion: Should You Subscribe to Inventurus Knowledge Solutions IPO? 

IKSL has shown strong growth in both revenue and profits in recent years, maintaining an impressive operating margin of 38% and zero debt through FY23. Although last year’s acquisition of Aquity for $221 million introduced some debt, this has been substantially reduced as of September 2024.

In terms of valuation, the IPO appears fully priced with a P/E ratio of 59x based on FY24 earnings. There are no directly listed competitors for comparison. While the valuation may appear high at first glance, it seems justified given the vast opportunities and the company's solid growth trajectory.

The $4.8 trillion US healthcare industry is growing at a stable rate of 8% annually, presenting significant opportunities. IKSL, which offers 16 different services, is positioned in a market worth $222 billion, with only $34 billion currently outsourced. This suggests substantial growth potential for industry participants.

Thus, IKSL's IPO represents a chance to invest in the burgeoning US healthcare outsourcing sector, which continues to grow steadily and remains under-penetrated. Given these aspects, investors may consider subscribing to the IPO from a long-term perspective.

For a deep dive into other IPOs, explore: IPO Corner on Liquide