Dr. Agarwal’s Health Care Ltd (Avoid)

Highlights

Dr. Agarwal’s Health Care Limited (DAHCL) incorporated in 2010, is engage in the business of providing a comprehensive range of eye care services, including cataract, refractive and other surgeries; consultations, diagnoses and non-surgical treatments; and sell opticals, contact lenses and accessories, and eye care related pharmaceutical products.

With long-standing operational history and network of 209 facilities, DAHCL had a market share of approximately 25 pct of the total eye care service chain market in India. In FY24 the company has served 2.13 mn patients and performed 220,523 surgeries.

They categorize their Facilities as Primary Facilities (which are non-surgical eye care facilities) Secondary Facilities (which are surgical Facilities) and Tertiary Facilities (which are super-specialty surgical Facilities and include three centres of excellence (COEs), depending upon the nature of services provided.

Their primary facilities provide initial eye care diagnosis and clinical investigation services. The Secondary Facilities at their spokes provide select services including cataract surgeries and clinical investigations, while their tertiary facilities have super-specialty surgical capabilities including retinal, corneal, and refractive surgeries.

Out of the total proceeds of Rs. 30,272 mn, ~Rs. 1,950 mn would go towards repayment of portion of certain borrowing availed by the company, Rs. ~1050 mn would go towards funding general corporate purposes and unidentified inorganic acquisition, Rs. 27,272 mn would go towards existing selling shareholders of the company.

Key Highlights

• The Indian eye care market has grown at a CAGR of 11.5 pct between the FY19 and FY24 to reach the value of Rs. 378 bn in the FY24 and it is projected to grow at CAGR of 12-14 pct between FY24 to FY28 to reach market size of Rs. 550-650 bn. led by factors such as high prevalence of eye related disorders in India, rise in incomes levels, shifting age demographics, lifestyle changes.
• In addition to DAHCL India operations, they commenced international operations in 2012 and as of H1FY25, operate 16 facilities across 9 countries in Africa, where they provide a range of eye care services, including treatments for cataract, glaucoma, diabetic retinopathy, retinal detachment, and dry eye, along with refractive surgeries and paediatric and neuro ophthalmological treatments.
• In order to instil convenience in their patient’s eye care journey with them, several of their facilities also have embedded pharmacies and optical product counters, which facilitate cross-selling of optical and eye care-related pharmaceutical products to patients. Their pharmacy business comprises sales of ophthalmic and nutraceutical products prescribed by doctors, while their optical product counters offer a wide range of glasses, lenses, contact lenses and frames.
• DAHCL network operates on a hub-and-spoke model which supports high patient volumes and yields economies of scale, allowing greater accessibility and choice to patients while driving efficiency of crucial doctor resources across the network. They lease all (except one) of Facilities, which allows them to scale operations with minimal upfront investment. Through this hub and spoke and asset light approach, they were able to grow to 193 Facilities in India from 91 Facilities as of FY22.
• DAHCL key growth strategies include (i) Continued organic expansion of network in India (ii) Strengthen brand equity with community, patients, and doctors across India (iii) Undertake opportunistic acquisitions and restructuring to scale their operations, leveraging experience of inorganic growth and integration (iv) Attracting and retaining qualified doctors and paramedics through continuous training, knowledge sharing and upskilling (v) Focus on improving profitability and Facility-level growth and enhancing operational efficiencies.
• The company’s sales/EBITDA/profit has grown by 38.34 pct/42.64 pct/48.39 pct CAGR Over FY22-24. During FY24, company reported sales of Rs. 13,322 mn which grew by 30.86 pct YoY while EBITDA grew by 29.54 pct YoY to Rs. 4066 mn as EBITDA margin expanded by 202 bps FY24. As of FY24 the company reported profit of Rs. 951 mn against profit of Rs. 1,032 mn. As of H1FY25 company registered sales/EBITDA/Profit of Rs. 8,200 mn/Rs. 2,285 mn/ Rs. 395 mn which grew 26.05 pct YoY/28.13 pct YoY/27.08 pct YoY.

Key Risk

• DAHCL source their equipment (including maintenance services), medical consumables, drugs, and supplies from third-party suppliers under various arrangements. Failure of such third parties to meet their obligations could adversely affect their business.
• DAHCL business exposes them to risks inherent to the operation of complex medical equipment, which may experience failures or cause injury either because of defects, faulty maintenance or repair, or improper use, which may affect their business.

Financial Performance

Valuation

Dr. Agarwal’s Health Care Limited is dedicated to advancing healthcare through innovation and expertise. With a focus on expanding their services and enhancing patient outcomes, they continuously strive to set new benchmarks in healthcare. At the upper end of the price band of Rs. 402 the issue is priced at a PE of ~160 its FY25E annualised earnings. The issue looks fully priced. One can Avoid this issue.

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