Dr. Agarwal's Health IPO review (May apply)

•    The company is engaged in eye care business providing all eye health related treatments.
•    While its top line marked steady growth for the reported periods, it posted pressure on margins for FY23 for special one-time provisioning.
•    It has nearly 25% market share in its business of eye-care related services.
•    Based on recent financial performance, the issue appears exorbitantly priced.
•    Only well-informed/cash surplus/risk seekers may park moderate funds for long term.

ABOUT COMPANY:
Dr Agarwal’s Healthcare Ltd. (DAHL) is providing a comprehensive range of eye care services, including cataract, refractive and other surgeries; consultations, diagnoses and non-surgical treatments; and sell optical, contact lenses and accessories, and eye care related pharmaceutical products. According to the CRISIL MI&A Report, it had a market share of approximately 25% of the total eye care service chain market in India during the Financial Year 2024. With long-standing operational history, it endeavors to address all the needs of patients in their eye treatment journey through a network, which as of September 30, 2024, comprised 209 Facilities. According to the CRISIL MI&A Report, among its compared listed and unlisted peers, it had the highest number of eye care service facilities in India, as of September 30, 2024 

The company provides services like: Consultations, diagnoses and non-surgical treatments: We also offer doctor consultation services, diagnostic services for eye disorders along with non-surgical treatments, including retinal laser therapy and dry eye treatment; and products comprising Sale of optical, contact lens and accessories: it offers a wide range of glasses, lenses, contact lenses and frames at its Facilities; and ▪ Sale of eye care-related pharmaceutical products: the company sells certain eye care-related pharmaceutical products at its Facilities, as prescribed by doctors.

DAHL categorizes its 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. Its business operations are structured as a “hub and spoke” model, which enables it to build a scalable and accessible platform for the continued growth of business. As of September 30, 2024, its network in India includes 28 “hubs” (which are Tertiary Facilities, including three COEs) and 165 “spokes” (comprising 53 Primary Facilities and 112 Secondary Facilities). Its primary Facilities provides initial eye care diagnosis and clinical investigation services. The Secondary Facilities at spokes provide select services including cataract surgeries and clinical investigations while Tertiary Facilities has super-specialty surgical capabilities including retinal, corneal, and refractive surgeries. Its COEs, in addition to being Tertiary Facilities, also offer academic programs in ophthalmology and provide continuous training for doctors, optometrists, and counsellors, among others. Its integrated hub and spoke model enables deeper geographic penetration, allowing greater accessibility to patients while driving efficiency of critical resources across the network. 

As of September 30, 2024, it had total 209 facilities (including 16 international), 737 doctors, 1153398 patients served, 104591 cataract surgeries performed, 6805 refractive surgeries performed, 29391 other surgeries performed and overall total 140787 surgeries performed. As of September 30, 2024, it had 737 doctors and 4,858 employees (including paramedical staff) and additional 705 contractual employees. 

According to the management, as DAHL has over 71% stake in DEHL, it may consider merger of both the companies post three years of listing.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 75304970 equity shares issue worth Rs. 3027.26 cr. (at the upper cap). The company has announced a price band of Rs. 382 – Rs. 402 per equity shares of Re. 1 each. The IPO consists of 7462686 fresh equity shares (worth Rs. 300 cr. at the upper cap), and an Offer for Sale (OFS) of 67842284 shares (worth Rs. 2727.26 cr. at the upper cap). The issue opens for subscription on January 29, 2025, and will close on January 31, 2025. The minimum application to be made is for 35 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 23.84% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 195.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. With OFS, it is providing exit to some of its stakeholders and with the IPO, it is also unlocking the listing benefits. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., Morgan Stanley India Co. Pvt. Ltd., Jefferies India Pvt. Ltd., Motilal Oswal Investment Advisors Ltd., while KFin Technologies Ltd., is the registrar to the issue. Kotak Securities Ltd., Motilal Oswal Financial Services Ltd. are syndicate member for the issue. 

The offer included a reservation of up to 1579399 equity shares for its eligible employees, and 1129574 shares for eligible stakeholders of AEHL (Agarwal Eye Hospital Ltd.), and from the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

After issuing initial equity shares at par value, the company issued further equity shares in the price range of 19.44 – 457.66 between January 2011, and December 2024. It has also issued bonus shares in the ratio of 2 for 1 in September 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 0.50, Rs. 117.97, Rs. 125.40, Rs. 137.63, Rs. 148.09, Rs. 165.16, Rs. 205.95, Rs. 273.70, and Rs. 288.66 per share. 

Post-IPO, its current paid-up equity capital of Rs. 30.84 cr. will stand enhanced to Rs. 31.59 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 12698.37 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 713.78 cr. / Rs. 43.16 cr. (FY22), Rs. 1031.49 cr. / Rs. 103.23 cr. (FY23), and Rs. 1376.45 cr. / Rs. 95.05 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 39.56 cr. on a total income of Rs. 837.94 cr. It marked a setback for FY23 (despite higher other income), on account of deferred tax provisioning and finance cost and other one-time adjustments.

For the last three fiscals, the company has posted an average EPS of Rs. 3.21 and an average RoNW of 11.06%. The issue is priced at a P/BV of 7.63 based on its NAV of Rs. 52.72 as of September 30, 2024, and at a P/BV of 7.11 based on its post-IPO NAV of Rs. 56.57 per share (at the upper cap). 

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 160.16. Based on FY24 earnings, the P/E stands at 133.56. Thus the issue appears exorbitantly priced. 

The company reported PAT margins of 6.05% (FY22), 10.01% (FY23), 6.91% (FY24), 4.72% (H1-FY25) and RoCE margins of 15.02%, 15.18%, 14.61%, 8.30% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in September 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Apollo Hospitals, Max Healthcare, Fortis Healthcare, Global Health, Narayana Hrudayalaya, Krishna Institute, Aster DM and Rainbow Children’s., as their listed peers. They are trading at a P/E of 82.0, 96.9, 67.6, 57.6, 34.3, 73.2, 90.0, and 63.5 (as of January 24, 2025. However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
The four BRLM associated with the offer has handled 58 pubic issues in the past three fiscals, out of which 14 closed below the offer price on the listing date.