Shares of Metropolis Healthcare Ltd. gained after the diagnostic chain operator announced its plan to expand presence in southern India.
The company will acquire a 100% equity in Hitech Diagnostic Centre Pvt. in a cash and stock deal, according to an exchange filing. The cash consideration will be Rs 511 crore. Besides, Metropolis will issue up to 4.95 lakh equity shares on a preferential basis to the promoter group of Hitech. This is subject to shareholder approval.
Through the deal, Metropolis will get access to 31 laboratories and 68 collection centres of Hitech.
“The acquisition will allow Metropolis to increase its B2C business in the focus cities of Chennai and Bengaluru and benefit through optimisation of operational costs in the areas of procurement, supply chain, administration and support resource, laboratory network and back office infrastructure and allow the brand to make deeper inroads in different segments across key markets in south India,” the company said in a statement.
The acquisition is likely to be completed over the next three months. Dr. SP Ganesan, the founder and promoter of Hitech, will be part of the leadership team for the next few years.
“The acquisition adds 10% to the group’s revenue and Ebitda and increases its share in Chennai to 30%,” Credit Suisse said in a note. “Hitech’s margin is already comparable to that of Metropolis. Hence, further margin expansion will be contingent upon the quantum of synergies that can be realised,” the research firm said.
Shares of Metropolis gained as much as 5.4% to Rs 2,281 apiece in early trade on Monday. Of the 13 analysts tracking the company, eight have a ‘buy’ rating, two suggest a ‘hold’ and three recommend a ‘sell’.