Dr. Agarwal's Health Care Ltd. got a 'hold' rating as Jefferies initiated coverage. But, the stock is trading at a significant premium valuation to peers and hence has limited upside potential, according to the brokerage.
Jefferies has a target price of Rs 460, implying an upside potential of 3.6% over the previous close.
Even though Dr. Agarwal's return on capital employed is way lower than peers, Jefferies assigned the stock a 55% premium to Rainbow Children's Medicare Ltd. and a 25% premium to diagnostic firms like Metropolis Healthcare Ltd. and Dr. Lal PathLabs Ltd. due to higher Ebitda growth.
It expects the company to drive 26% growth in operating income (Ebitda) over the next three years, given its comprehensive service offering, asset-light organic-inorganic expansion, and a strong brand name.
What Works For Dr. Agarwal's Health Care
Dr. Agarwal's Health Care has emerged as the largest player in eye care, driven by its comprehensive service offering, with surgeries accounting for 65% of revenues, and a vast network of 205 facilities in India and 16 in Africa, Jefferies noted.
India remains the key focus market, contributing 90% of revenue, with plans to merge with its Indian listed subsidiary, Dr. Agarwal's Eye Hospital Ltd., within the next three years.
The company's success can be attributed to its asset-light expansion strategy, strong brand name, and clinical excellence, Jefferies said.
With a goal to add 95-100 facilities over the next two years, reaching a total of 315-320 facilities, Dr. Agarwal's is well-positioned for growth. Acquisitions will continue to play a key role in accelerating entry into new markets, according to the brokerage.
Dr. Agarwal Health Care's share price closed 2.67% higher at Rs 444 apiece on Thursday, compared to a 0.45% gain in the benchmark Nifty 50. The scrip has risen over 10% since listing in early February.
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