‘Going public will help Metropolis build credibility with stakeholders’

Being a listed firm will help Metropolis Healthcare execute its growth plans by attracting quality talent and business partners, says Ameera Shah, managing director of the Mumbai-based diagnostics chain that successfully concluded a ₹1,200 crore-IPO (initial public offering) of its shares last month and listed on the bourses at a premium to its offer price.

Metropolis’s share price closed at ₹934.85 per share on the BSE on Wednesday, which is a 6.2% premium to its offer price of ₹880.

In an interview with Fortune India, Shah said that though the IPO didn’t yield any fresh infusion of capital into Metropolis (the IPO saw the promoter group led by Shah’s family and private equity investor The Carlyle Group offload a portion of their respective shareholding), it would help Metropolis scale to the next level.

Shah is happy with the fact that Metropolis had a successful IPO despite choppy market conditions, which she says is a reaffirmation of the quality of the organisation. She is also confident that the marquee international and domestic institutional investors that have bought into Metropolis’ growth story by subscribing to the company’s shares via the IPO will stand shoulder-to-shoulder with the company as it presses on with its future growth plans.

Edited excerpts:

It was speculated for a long time that Metropolis would be going public in the near future. Why did you choose to take the company public at this point in time? Did you need to offer an exit to existing investors?

No, there was no hurry from an exit point of view. The Carlyle Group invested in Metropolis in September 2015 and it’s just been around three-and-a-half years. The IPO was done more from the point of view of where we go as a company from here on. From 2016 till now, we have built a much stronger foundation for Metropolis than what existed before. And while the business has transformed from what it was, the idea now is to take it to the next level.

To do this, we need a combination of organic and inorganic growth. We also need to create credibility with investors as a traded company, which holds itself accountable to quarterly results and the level of governance expected of a public company. Finally, building the right team to propel the company in the future is also important and being a publicly traded company helps us attract the right kind of talent through resources like liquid stock options.

What is Metropolis’ broad shareholding pattern following the IPO?

The Carlyle Group and the promoters sold some of their shares through the IPO. Following which, around 58% is owned by the promoter group, Carlyle holds around 13%, around 3% is with an employees’ and partners’ pool and the rest is public float.

Who are some of the noteworthy institutional investors that have invested in the company?

So there are international investors like Capital International, Neuberger Berman, Grandeur Peak and First Stage. Then there are domestic institutions like Aditya Birla Sun Life Mutual Fund, Sundaram Mutual Fund, UTI, Edelweiss and a bunch of others. We have ended up getting some really good quality investors. Lot of people look at an IPO as an ego boost and are more concerned with the level of over-subscription an issue gets. I always feel that the quality of investors you get is more important.

They need to genuinely believe in what you want to achieve and play a role alongside you when the time comes. In every journey there will be ups and downs and the question is who is going to stick by you and and who is going to leave you as soon as there is trouble.

Why did you choose to go ahead with the IPO at a time when there has been substantial volatility in the markets?

Getting the kind of response that we did to our IPO in the market being what it is, is an achievement. There is no guarantee of how the market is going to behave after the elections. Everyone is assuming that the Sensex is going to zoom after the elections but that may not happen if we have a government that doesn’t have the requisite strength in Parliament. And then our IPO could have been delayed by a year or two while the market stabilised. The public issue isn’t the end of the journey, but the start of a new chapter. So whether you do the IPO at a point where you get 10% lesser valuation than what you would have otherwise got won't change the future of the organisation. Also, a successful IPO at a time when the momentum of a bull market is absent and the market is anxious and nervous is the hallmark of a good company. So in a way it becomes a test of your quality and steel.

Does this give Metropolis a benchmark valuation at which it will raise capital in the future to fund growth, since the proceeds from this IPO hasn’t come into the company?

For sure. Today Metropolis is still trading at a discount to the competitive benchmark, which is Dr. Lal PathLabs. This isn’t for any reason other than that we haven’t been a publicly traded company for a long time. As time goes by and the market sees us delivering on our committed results quarter after quarter, the belief is that we will get closer to the benchmark valuation. And then if we can show that we are in a better place in terms of operational and financial metrics, then there is no cap on the upside. So we will wait for that to happen and simultaneously pursue growth. From an organic growth perspective we don’t need to raise any additional capital. But if there is a big acquisition opportunity that comes along tomorrow, which we can't fund through our internal accruals and debt then we may have to look at raising funds.

Frankly, we have been in a period over the last year or so when we couldn’t do any acquisitions since we were working towards preparing the draft red herring prospectus and gearing up for the public issue. This year will be a lot more substantive when it comes to acquisitions.

How does life change for a company after its listing?

In private companies, often it is only the top three to five employees who end up becoming the face of the company and realise the full responsibility and accountability of what it means to be at the top. When you become a publicly traded company, the seriousness of what you are doing suddenly becomes more real to the people down the line and people take their accountability more seriously.

The second difference is from a governance standpoint. But governance is more about mind set. There are enough public companies that have no governance. Even as a private company, we have had private equity partners for 15 years and as promoters we have always wanted to do what is right by the company. Getting listed gives us an opportunity to improve our governance even further, which helps as we try and move away from being an individual-led business to becoming an institution.

What is the size of Metropolis’ network of labs and collection centres currently?

Currently we have around 2,400 collection centres and 115 labs. We are in five countries and want to get deeper into markets in India where we are already leaders. We are strong in markets like Mumbai, Pune, Surat, Bengaluru and Chennai and want to get a market share in these regions that is head and tails above everyone else. Then we have a second category called seeding markets, which includes cities like Delhi and Kolkata where we aren’t market leaders but feel we can increase our market share in these cities drastically.

So these markets, which collectively account for 80% of our revenue, are where we will increase our operational capabilities. Compared to our peers, Metropolis has a more diversified geographic presence which helps in mitigating risks since healthcare is a state subject and increased concentration of operations in a few pockets can increase operational risks.

You had mentioned earlier that you would like to see Metropolis evolve from being a brick-and-mortar company to a technology company in the healthcare space. How is that unfolding?

We are currently in the process of rolling out some of the initiatives which we were working on for the last seven-eight months. We will see Metropolis have many more customer features that will be tech-enabled on platforms like mobile apps and other digital platforms. We launched our tech-enabled preventive healthcare package called TrueHealth in March, and we are branding and marketing that as a separate wellness brand. We are creating a data lake that will lead us to store and mine customer data and rely more on analytics as we move along. Our IBM Watson platform also went live a couple of months ago.