Kotak Institutional Equities has initiated coverage on Dr. Agarwal's Eye Hospitals with an ‘add' rating and a fair value of Rs 425, implying a 5% upside from the current market price. The brokerage highlighted Dr. Agarwal's strong earnings potential, bolstered by a well-calibrated expansion strategy and operational scale-up.
With 205 centers as of nine months of fiscal 2025 and a 25% market share in the organised eye care space, Dr. Agarwal's leverages its early-mover advantage and doctor-promoter legacy, the brokerage said in its note on Tuesday. A key strength lies in its first-mover advantage, enabling it to establish a strong foothold and brand recall in a competitive market.
Dr. Agarwal's plans to expand from 221 to around 420 centers by financial year 2028E and to 500 centers by fiscal 2030E. Historically, about a third of its growth has come via acquisitions— more than 65 centers added over the past 15 years, Kotak Institutional Equities noted.
Acquisitions have been instrumental to Dr. Agarwal's growth, especially post fiscal 2022. The company typically targets high-margin, reputable centers, retaining founder doctors to ensure continuity. However, these centers cost 2-3 times more than organic builds, compressing return ratios. The future shift toward more selective acquisitions should help mitigate this.
Financially, Kotak forecasts robust financial year 2024–28E CAGRs of 22% in revenue, 23% in Ebitda, and 27% in EPS. Ebitda margins are projected to improve to 28% by fiscal 2028E, the brokerage added. With a ramp-up of newly added centers and steady patient inflows, cumulative operating cash flows are estimated at Rs 2,300 crore and free cash flows at Rs 380 crore over fiscal 2025–28E. Return on Invested Capital is expected to improve meaningfully from 6.6% in fiscal 2024 to 12% in financial year 2028E.
Key risks include high revenue concentration in a few states, acquisition integration challenges, and potential internal conflicts within the promoter family, according to the brokerage.
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