Making sense of Portea’s IPO bid
Premium- Healthcare company Portea’s desire to go public in a shaky market for new-age businesses stems from its need for more capital and from its investors’ need for a long-awaited exit.
Amid an erosion of investor confidence in new-age businesses, the latest instance being the ongoing meltdown in Zomato, another one is seeking to go public. Healthvista India, better known by its brand Portea, filed its draft prospectus earlier this month for an initial public offer of ₹1,000 crore. Portea aims to ride the growth of organized out-of-hospital (OOH) healthcare services. This entails providing a range of services at home, including post-operative and post-hospitalization care, chronic care, elderly care, mother and baby care, and cancer care, as well as consultations and testing.
Where Portea has reached reflects the predicament of several new-age businesses today. Portea has established a business of some scale, but is facing growth pangs. It’s not profitable, though it’s progressively reined in losses by controlling costs.
Its underlying business case is that OOH healthcare is less capital-intensive than a traditional hospital. Portea says its investment commitment for a city includes an initial investment of ₹10-12 lakh and a total cash burn of ₹5-7.5 lakh over nine months, leading to break-even. A traditional hospital spends ₹1-1.4 crore in capital expenditure. But it’s a difficult market: only Apollo HomeCare and TriBeCa reported profits in 2020-21.
Portea is cash-negative operationally. This has been improving, which augurs well. But it’s drawing down capital, while also servicing debt. And its current assets—a measure of cash available—is not enough to support an expansion push. That’s one reason for its IPO. Another reason is to provide an exit to its existing institutional investors, and the overwhelming proportion of that in the issue size is a cause for concern.
Revenue pipelines
Portea’s proposition is that these problems will be taken care of as organized OOH healthcare grows. According to a Frost & Sullivan study quoted in Portea’s draft prospectus, the total market size is ₹38,071 crore. Only 3.2% is organized, which the study sees at 6.6% by 2027 with the market expanding to ₹1.17 trillion.
However, the growth potential is yet to reflect in Portea’s financials. The company draws nearly 60% of its revenues from healthcare services. Despite the pandemic, considered to be a driver of the OOH market, its revenues from healthcare services dropped from ₹86 crore in 2018-19 to ₹76 crore in 2020-21. For the nine-month period ended December 2021, it earned revenues of ₹67 crore, indicating a pickup in this segment. Specialty pharma and the sale of medical equipment account for a third of its revenues, but their growth too is tied to the growth of its core healthcare services.
Debt overhang
While Portea is often billed as a health-tech startup, its spending on technology is limited, and mainly goes towards ERP and CRM applications. Just about 1% of its total expenses went to software. Its prospectus lists trademarks as its intellectual properties, and not technology products or platforms. Employee benefits and consultancy payments account for half its expenses, both of which tend to increase in proportion with revenues. As it is, attrition rate among its on-roll healthcare professionals (including attendants and nurses) has exceeded 60% in each of the last four years.
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Debt servicing has emerged as a growing expense head, accounting for about one-fifth of its expenses in 2021-22. Despite raising about $90 million, as per Tracxn, the need for debt and its cash relative to operations indicates the tightness in Portea’s funding today. It also frames its prospective IPO, where it is looking to add ₹200 crore to its funds pile, part of which is earmarked to repay debt.
Exit option
Even as Portea looks for more funds, its venture capital (VC) investors, led by Accel, are seeking a partial exit. Most VC funds tend to look for exits in seven years, through an acquisition or an IPO.
For Portea, set up in 2012, acquisition was getting less likely, leaving IPO as the only exit option, with 13 shareholders looking to sell their shares. Given the IPO’s reported size of ₹1,000 crore, this means they are looking to sell about ₹800 crore of Portea stock. Portea’s last fundraise, of $2.17 million this June, valued it at $280 million, or, about 18.5 times its 2020-21 revenues. Among Indian new-age businesses that have recently gone public, Portea’s 80% offer-for-sale portion is among the highest. That, along with its rich valuations in a weak market, could weigh on the share sale.
(www.howindialives.com is a database and search engine for public data.)
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