Dr. Agarwal's Health Care Gets Jefferies' Initiation, But Limited Upside Seen

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.

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.