Dr Agarwal's Health Care IPO: Should You Subscribe? Axis Capital, SBI Securities, Anand Rathi Weigh In

Dr Agarwal's Health Care Ltd., one of India's major eye care services provider, is set to launch its Rs 3,027.3-crore initial public offering on Jan. 29.

The proposed IPO consists of a fresh issue of Rs 300 crore and an offer-for-sale component of Rs 2,727.3 crore, according to the red herring prospectus.

Should one subscribe to the public issue? Here's what brokerages recommend:

Axis Capital highlighted Dr Agarwal's position as India's largest eye care chain by revenue, commanding a 25% market share in fiscal 2024.

The brokerage believes that consumer trust in the brand, along with its proven ability to integrate acquisitions, and consistent growth in operating profit margins would offer a promising opportunity for long-term investors.

However, Axis pointed out that there are competitors in this segment, including the likes of ASG Hospitals and Eye-Q Vision, and multispecialty giants like Apollo Hospitals and Fortis Healthcare. These players, while smaller in market share, could pose challenges, the brokerage said.

Dr Agarwal's has set its IPO price based on an EV/Ebitda multiple of 33.9 times for the financial year ending March 2024, and 27.7 times for the first half of the ongoing fiscal, SBI Securities said in a report.

The ratio between the enterprise value and earnings before interest, taxes, depreciation, and amortisation helps investors assess if a company's valuation is reasonable compared to its earnings. A lower ratio can indicate a good deal, while a higher ratio may suggest overpricing.

Strengths possessed by the eye-care provider include comprehensive service offerings, strong clinical governance, and a market cap-to-sales ratio of 9.5 times, as per the brokerage. On the other hand, risks include high attrition rates, regional concentration, and regulatory challenges, it added.

SBI Securities emphasised on the company's operational efficiencies and robust expansion strategy. Its hub-and-spoke model allows high patient volumes with minimal upfront investment and its asset light model—192 out of 193 facilities are leased—is an advantage, as per their note.

The brokerage firm added that the IPO price is in line with similar companies and recommends investors subscribe at the cut-off price for long-term investment.

Anand Rathi highlighted the company's valuation at 134 times the earnings per share value for fiscal 2024. It acknowledged Dr Agarwal's 25% market share and leadership in the eye care sector. The company's reliance on retainership agreements with doctors and geographic concentration are flagged as potential risks.

Despite rich pricing, the brokerage issued a "Subscribe – Long Term" rating, banking on future growth.