Buy Dr. Agarwal's Health Care Ltd for the Target Rs 620 by Motilal Oswal Financial Services Ltd
Healthy start; growth broadens across the network Strong SSSG and rapid network expansion
* Dr. Agarwal Healthcare (DAHL) delivered better-than-expected financial performance with a 4%/8% beat on revenue/EBITDA. The PAT beat was much higher (23%) due to further support from lower tax rate.
* There was robust YoY growth across centers, both mature (3+ years into operations) and emerging facilities. DAHL reported 16.3% same store sales growth (SSSG) for all facilities set-up/acquired up to FY23. Facilities that commenced operations in FY24/FY25 witnessed 19.6%/38.6% YoY revenue growth in 1QFY27.
* Growth was backed by sustained momentum in the number of surgeries performed, supported by healthy improvement in realization.
* Region-wise, the newer North region continued to witness strong YoY growth in surgeries (+37% YoY), while South, West, and East India recorded ~13% YoY growth.
* We raise our estimates by 5%/2% for FY27/FY28, factoring in:
a) an increased share of higher-end surgeries
b) faster addition of new facilities.
* We value DAHL at 25x EV/EBITDA for the surgery business, 15x EV/EBITDA for the opticals business, and 10x EV/EBITDA for the pharmacy business, adjusted for its stake in Dr. Agarwal Eye Hospital/Thind hospital), and arrive at a TP of INR620.
Highlights from the management commentary
* The 16% SSSG was equally driven by volume and value growth. Premiumization was the primary driver of higher realizations, while volume growth was driven by higher patient footfalls/OPD (6%) and by conversion to surgeries (2%).
* 18 new facilities included 1 tertiary facility in Thane and 15 secondary facilities (four in Maharashtra, two each in TN, Delhi, and Kerala, one each in Punjab, Rajasthan, Telangana, Andhra Pradesh, and Uttar Pradesh). DAHL launched primary facilities in J&K and Tamil Nadu.
* High-end surgeries formed 29% of total cataract surgeries for the quarter.
* The merger with Dr. Agarwal Eye Hospital is expected to be completed by midNovember.
* Leadership changes in Gujarat led to considerable revenue growth in Gujarat.
* There has been a strong recovery in revenue from the Punjab/Haryana facilities, which were impacted by floods in the previous year
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