Buy Dr. Agarwal's Health Care Ltd for the Target Rs 610 by Motilal Oswal Financial Services Ltd
In-line revenue, margin beat; premiumization and surgery mix deliver again Network expansion on track; new centers ramping up well; earnings visibility intact
* Dr. Agarwal Healthcare (DAHL) delivered largely in-line revenue and betterthan-expected EBITDA/PAT (8% beat) in 4QFY26. The increased share of surgeries and higher premiumization boosted profitability in 4Q. DAHL beat EBITDA/PAT estimates for the third consecutive quarter in 4Q.
* Interestingly, DAHL achieved the highest-ever quarterly EBITDA margin of 28.6% (Post-IND-AS basis).
* DAHL delivered robust compounding growth of 14% in revenue from facilities set up prior to FY24. Facilities added in FY24/FY25 reported strong revenue growth of 16%/71.6%, implying healthy patient acceptance at new centers. New centers were added to increase the reach within its existing micro markets and to expand to additional micro markets.
* Among regions, South remained the biggest revenue growth driver with 22.6% YoY growth in FY26, followed by North (20.7%), West and East (19% YoY each).
* DAHL added 56 new centers in FY26, and aims to add another 60 in FY27.
* We raise our earnings estimates by 3% each for FY27/FY28, factoring in a robust pace of facility additions, a faster scale-up of existing facilities, and premiumization of high-end surgeries. We value DAHL (25x EV/EBITDA for the surgery business, 15x EV/EBITDA for the opticals business, 10x EV/EBITDA for the pharmacy business, adj. for a stake in Dr. Agarwal Eye Hospital/Thind hospital) and arrive at a TP of INR610.
* FY26 performance was broad-based, with 23.7% YoY growth in patients served and 14.5% YoY growth in surgeries performed. Even region-wise, growth was well-diversified. Given deeper penetration, addition of facilities and doctor talent, and strong brand recall, we expect 22%/23%/40% CAGR in revenue/EBIDTA/PAT over FY26-28, effectively driving return ratios toward mid-teens over the next three years. Reiterate BUY.
Solid quarter caps off strong FY26 earnings growth
* DAHL’s 4QFY26 revenue grew 22.6% YoY to INR5.6b (our estimate: INR5.5b).
* EBITDA margin contracted 30bp YoY to 28.6% (our estimate: 27.2%).
* Consequently, EBITDA grew 21.4% YoY to INR1.6b (our estimate: INR1.5b).
* Adj. PAT came in at INR388m in 4QFY26, up 8.4% from INR358m in 4QFY25.
* For FY26, revenue/EBITDA/PAT grew 22%/26%/59% YoY.
Highlights from the management commentary
* DAHL expects to sustain this growth momentum in FY27, led by deeper penetration in existing markets, addition of greenfield centers, and the implementation of new technologies.
* DAHL also expects to sustain EBITDA margin in FY27.
* DAHL is targeting to add 60 facilities in FY27, comprising 30 surgical facilities. ~24 would be added in South and 16 would be added in North. West is expected to witness 15 new additions. The facilities would be added on organic basis.
* FY27 capex would be INR3.8b for facility additions. Acquisition-related payment would be INR600-650m in FY27.
* The merger of Dr. Agarwal Eye Hospital with DAHL would be completed by Nov/Dec’26
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