Dr Agarwal's Eye Hospital Ltd (DAEHL)

About:

  • Chain of 149 eye hospitals (as on June 30, 2023) across domestic and international destinations.
  • Operates a hub and spoke delivery model: well-equipped tertiary hospitals supported by secondary care, primary care hospitals and outreach clinics.
  • Key markets for the company include Tamil Nadu, Karnataka, Maharashtra, Gujarat, Punjab, Telangana, Andhra Pradesh, Kerala, and West Bengal.
  • Offers services in the eye-care segment including Cataract, Glaucoma, Laser Correction, Cornea and Refractive, Retina etc.
  • Parent → Dr Agarwals Health Care Ltd. (DAHCL) | Owns 71.75% of the shareholding. This used to be below 60% till FY12. It was increased to 70+% in FY13 using open offer. | Provides centres on lease to DAEHL | Planned to expand its current network of 150+ centres to over 300+ centres in the next 3 years | Intends to establish more than 100 primary eye clinics in tier 2 and tier 3 towns in the next couple of years. Africa is another important geography for it where it has a network presence of 15 hospitals. It will also deepen the presence in Kenya, Zambia, and Tanzania and looks to add 10 centres across these countries. Source of funding:
    • May 10, 2022: Dr. Agarwal’s Health Care Ltd. raises over 1,000 Crore funding from TPG Growth and Temasek.The company also raised ₹270 crores investment from Temasek in 2019.
    • August 17, 2023: Dr Agarwals Health Care Ltd. raises 650 crores from TPG and Temasek.
  • Added more than 33 centres in the last one year ended fiscal 2023 and 10 centers in for Q1FY24
  • 2019: With an aspiration to bring standardisation in procedures, to ensure regular trainings and Continuing Medical Education (CME) of our doctors, the Clinical Board was setup. We began this journey in 2018 to equip our doctors with necessary skills and provide our patients world class service consistently across branches. two key initiatives undertaken in the Current financial year. Clinical audits were performed at all branches and learnings were shared with the branch teams. We are in the process of continuously monitoring the audit findings. The electronic medical records system implemented in the last year has enabled remote and frequent auditing. Secondly, the Branch Safety Scorecard (BSSC) was introduced. BSSC evaluates every branch on 5 parameters Endophthalmitis, Reporting of incidents, Aqueous meets Vitreous (AQMV), Critical events and Customer Happiness.
  • 2023: Entered the Kerala market with a state-of-the-art branch in Cochin.
  • Cathedral Road centre to be launched in FY24 with state-of-the-art infrastructure, and world class eye care facilities being provided to the needy under a single roof.
  • 80+% of FY23 revenue came from surgeries.
  • OPM % jumped from 18% in FY19 to 27% in FY20 due to decrease in rent expenses [Other Expenses].
  • Parent Vs Listed Entity Numbers (Source: Latest Credit Report and Screener.in):
DAHCL (Parent) DAEHL (Listed Entity)
Figures in Rs. Crores 2022 2021 2022 2021
Operating income 698 472 201 140
Reported profit after tax 43 -59 37 24

Opportunities:

  • Promoter team with right blend of Clinical and managerial expertise.
  • Aging population (above 60 years) with growing affluence.

Threats:

  • Elective nature of procedure.
  • Leasehold premises. In the event of non-renewal, businesses may face disruptions.
  • Geographically concentrated operations with modest growth in scale amidst stiff competition.

Risks:

  • Limited disclosures in public filings. For instance, I could not find rationale for Africa operations.
  • Ramp up and stabilization of operations for new centers incur higher costs during the initial phases.
  • Plan to raise debt~200Cr. in the listed business for the upcoming growth.

KPIs:


Overall:

Expansion plan of the parent indicates a 25~30% cagr in Income and Operating Income for the next 3 yrs. Even the expected additional borrowing of 200 Cr. seems serviceable, considering the operating cash flow of the last 5 yrs. Although existing D/E of ~2+ looks high, the debt mainly consists of lease liabilities that have maturity after 5 or more Yrs. and do not strain the immediate cash flow.

Disc: No Position.Shared the above for collabrative learning.
Sources: Public Filings - ARs, Company Website, Credit ratings

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Thanks for sharing. Looks promising story from HC sector. Currently, it has run-up a lot and would wait to see how well they execute. Overall, post covid HC / Hospitals have seen one way interest from investors. Would be interesting to see if capex in this sector is actually eps accretive.

Thank you sharing the initial summary @Surender . I am also tracking this for quite some time now as it repeatably comes in a lot of screeners. Unfortunately the company is not doing any investor calls or presentations. So very difficult to get any clear picture of any future prospects. For me right now the main concern is the deb/eq (1.7 as of 20 jan 2024). So hoping for their first investor call/presentation in future to get some idea.

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194cr of lease liabilities is shown under borrowings. Actual debt is 34 cr long term and 6cr short term debt. So D/E is near 0.3.

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Thanks for the clarification @Hemanth_Kumar. That’s a good positive to know. Although I am not invested, but it does look like an interesting idea to pursue if we can get some visibility of their roadmap.

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