Dr. Agarwal's Health Care Ltd. IPO: Key Details

Dr. Agarwal's Health Care

• Dr. Agarwal's Health Care is coming out with a 100% book building; initial public offering (IPO) of 7,56,95,687 shares of Rs 1 each in a price band Rs 382-402 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on January 29, 2025 and will close on January 31, 2025.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 1 and is priced 382 times of its face value on the lower side and 402 times on the higher side.
• Book running lead managers to the issue are Kotak Mahindra Capital Company, Morgan Stanley India Company, Jefferies India and Motilal Oswal Investment Advisors.
• Compliance Officer for the issue is Thanikainathan Arumugam.

Profile of the company

Dr. Agarwal's Health Care provides a comprehensive range of eye care services, including cataract, refractive and other surgeries; consultations, diagnoses and non-surgical treatments; and sell opticals, contact lenses and accessories, and eye care related pharmaceutical products. The company had a market share of around 25% of the total eye care service chain market in India during the Financial Year 2024. With long-standing operational history, it endeavours to address all the needs of its patients in their eye treatment journey through a network, which as of September 30, 2024, comprised 209 Facilities. Among its compared listed and unlisted peers, the company had the highest number of eye care service facilities in India, as of September 30, 2024. 737 doctors served its patients across its Facilities as of September 30, 2024, and during the Financial Year 2024, it served 2.13 million patients and performed 220,523 surgeries. It served 1.15 million patients and performed 140,787 surgeries during the six months ended September 30, 2024.

The company categorizes its Facilities as Primary Facilities [(which are non-surgical eye care facilities); Secondary Facilities (which are surgical Facilities); and Tertiary Facilities which are super-specialty surgical Facilities and include three centres of excellence (COEs)], depending upon the nature of services provided. The company’s business operations are structured as a “hub and spoke” model, which enables it to build a scalable and accessible platform for the continued growth of its business. As of September 30, 2024, its network in India includes 28 “hubs” (which are Tertiary Facilities, including three COEs) and 165 “spokes” (comprising 53 Primary Facilities and 112 Secondary Facilities). 

The company’s Primary Facilities provide initial eye care diagnosis and clinical investigation services. The Secondary Facilities at its spokes provide select services including cataract surgeries and clinical investigations while its Tertiary Facilities have super-specialty surgical capabilities including retinal, corneal, and refractive surgeries. The company’s COEs, in addition to being Tertiary Facilities, also offer academic programs in ophthalmology and provide continuous training for its doctors, optometrists, and counsellors, among others. Its integrated hub and spoke model enables deeper geographic penetration, allowing greater accessibility to patients while driving efficiency of critical resources across the network. 

Proceed is being used for:

• Repayment/prepayment, in part or full, of certain of its borrowings
• General corporate purposes and unidentified inorganic acquisition

Industry Overview

The Indian eye care industry is projected to grow at CAGR of 12-14% between Financial Year 2024 to 2028 to reach market size of Rs 550-650 billion According to IAPB, India has the highest number of visually impaired people in the world as nearly 1 out of every 5 individuals in India face vision loss disorder. There is a high burden across eye related ailments and diseases in India with increasing need for medical intervention. Because of high prevalence of eye disorder in India population, eye care is an integral part of the Indian health care system. The eye care market in India has grown at CAGR of 11.5% between Financial Year 2019 and 2024 to reach the value of Rs 378 billion in Financial Year 2024. This market includes surgical and non-surgical treatments for patients suffering from various eye disorders. Surgical treatments in this industry includes cataract surgery, glaucoma, retina surgeries, refractive surgeries, cornea and other eye related surgeries. Cataract surgery has the largest share of eye care surgery in India.

The growth in the industry is led by factors such as high prevalence of eye related disorders in India, rise in incomes levels, shifting age demographics, lifestyle changes, emerging eye care service chains, government and non-government organization initiatives to promote awareness about eye health in India. Rise in income levels enable higher spending by the individuals on the health care, including eye care. With changing lifestyle such as increase in time spent on electronic devices may increase the eye disorders. With rise in diabetic patients in India, there will be higher prevalence of diabetic eye diseases such as cataract, glaucoma, diabetic retinopathy etc. Eye care is a critical healthcare need in India today, with increasing requirements for healthcare providers to tackle the problem of vision impairment and blindness. Emerging eye care service chains enable access to quality eye care treatments with standard operating procedures to maintain high quality services to their patients. These eye care service chains have multiple branches in or across cities to ease the eye care treatment procedure for their patients. In India, government is playing a key role in promoting eye care treatments with multiple initiatives to support patients suffering from eye related disorders. Basis these factors, the eye care industry in India is projected to grow at CAGR of 12-14% between Financial Year 2024 to 2028. This growth is higher than the CAGR growth rate of 9-11% projected for the healthcare delivery market in India during the same period.

The Indian eye care industry consist of government-based hospitals, charitable/trust-based hospitals, single speciality hospitals, multi-speciality hospitals and standalone clinics. The eye care service chains are part of single speciality and multi-speciality hospitals with network of eye care centres within/across various cities. These eye care service chains have strong brand equity as these hospitals work on standard operating procedures, offering reliable and quality treatment of patients at their centres. While standalone hospitals/clinics are, typically, doctor owned hospitals/clinics rather than large corporations or healthcare networks. These hospitals/clinics are located in a single location and focus on performing high volume procedures. These hospitals and clinics can also be single or multi-speciality healthcare centres. Consistent clinical outcomes are a key success factor for eye care service providers. The eye care industry is highly fragmented with presence of few eye care service chains. The share of eye care service chains in India is about 13-15% of the total eye market as of March 31, 2024, which was estimated to be 12-14% in Financial Year 2023, signifying the headroom for growth for organised eye care service chain market in India.

Pros and strengths

Largest eye care services provider in India with a trusted brand: The company is India’s largest eye care service chain by revenue from operations for the Financial Year 2024, with around 1.7 times the revenue from operations of the second-largest eye care service chain in the country during such period. Further, the company also had a market share of around 25% of the total eye care service chain market in India during the Financial Year 2024 and had the highest number of eye care service facilities in India, as of September 30, 2024. As of September 30, 2024, It has 193 Facilities in India spanning 14 states and 4 union territories, and 16 Facilities spread across nine countries in Africa. The company has a diversified presence across Tier-I cities (where 70 of its Facilities are located) and other cities (where 123 of its Facilities are located) in India. The company’s wide network maximizes its patient reach and fosters its brand visibility across urban and rural areas.

End-to-end, comprehensive eye care services offering: The company is an end-to-end eye care services provider offering a comprehensive set of services, which allows it to cater to all ophthalmic needs of its patients. It provides a comprehensive range of eye care services and products, covering cataract surgeries, refractive treatments and other surgeries; and other services, such as consultations, clinical investigations and nonsurgical treatments; along with optical and eye care related pharmaceutical products.

Scalable, asset-light, hub-and-spoke operating model: The company’s network operates on a “hub-and-spoke” model which supports high patient volumes and yields economies of scale, allowing greater accessibility and choice to patients while driving efficiency of crucial doctor resources across the network. It leases all (except one) of its facilities, which allows it to scale its operations with minimal upfront investment. Through this hub and spoke and asset light approach, it was able to grow to 193 Facilities in India as of September 30, 2024 from 91 Facilities as of March 31, 2022. As of September 30, 2024, its network in India includes 28 “hubs” (which are Tertiary Facilities, including three COEs) and 165 “spokes” (comprising 53 Primary Facilities and 112 Secondary Facilities).

Proven clinical excellence driven by a strong clinical board: Consistent clinical outcomes are a key success factor for eye care service providers, which it aims to maintain across its facilities. Chaired by Dr. Ashvin Agarwal and comprising qualified doctors, it has a clinical board to ensure standardisation of clinical protocols, products, and processes across its network. The company’s clinical board is overseen by its international advisory team and internal specialty expert team, which provide strategic direction and oversight across its operations. It has also constituted clinical committees to further the standardization of its services.

Risks and concerns

Significant majority of its facilities are located in few states: Of its 193 Facilities in India, 120 Facilities are situated in the states of Tamil Nadu, Maharashtra and Karnataka, and a significant percentage of its patients are served by its facilities in these states. The company’s network in Chennai, Tamil Nadu consists of 21 Facilities as of September 30, 2024. While the company has not faced any instances of reduction in patient footfall, reputational harm or liabilities on account of natural calamities, or any social, political unrest, or economic disruption, civil disturbance, sustained downturn in the economy, or changes in state or local policies of these regions, it cannot assure that it will not face any such instances in the future. Any adverse effects on the revenues from its facilities situated in the states of Tamil Nadu (particularly in Chennai), Maharashtra and Karnataka in India in the future could adversely affect its business, financial condition, results of operations and cash flows.

Operates in a regulated industry: The healthcare industry is subject to laws, rules and regulations in the regions where it conducts its business or in which it intends to expand its operations. The company is required to obtain a number of approvals from governmental and regulatory authorities, including in relation to the operation of its facilities, procurement and operation of medical equipment, and storage and sale of drugs. The company is yet to apply for certain approvals from the relevant pollution control boards for one material Facility each in Tamil Nadu and Punjab and Haryana, operated by the company. Further, it is yet to apply for trade licenses from the relevant local municipality for one material Facility each in Tamil Nadu and Punjab and Haryana operated by the company, and one material Facility in Tamil Nadu operated by its Indian Material Subsidiary. Its failure to comply with applicable safety, health, environmental, labor and other regulations, or to obtain or renew approvals, may adversely affect its business, reputation, financial condition, results of operations and cash flows.

International operations expose it to various risks: The company commenced its international operations by setting up Facilities in Africa in 2012. As of September 30, 2024, it operates 16 Facilities across nine countries in Africa. It is subject to political, economic and other risks associated with the countries in which it operates, and which it may not be able to influence or control. While it has not experienced any instances of political, economic or other risks materially affecting its operations outside India during the six months ended September 30, 2024 and the Financial Years 2024, 2023 and 2022 (aside from the global effects of the COVID-19 pandemic), it cannot assure that such risks will not materialize in the future. The company is also subject to risks related to compliance with the laws of countries where it operates, including in relation to provision of healthcare services, prescription of drugs, and tax structures, along with challenges due to distinct cultural and language factors. Its failure to address such risks could adversely affect its business, results of operations, financial condition and cash flows.

Dependent on third-party contractors to provide certain services: The company relies on third party contractors to provide certain services including, among others, house-keeping and security services. It does not have direct control over these third-party service providers, and there is no guarantee that they will provide satisfactory services to it and its patients. The company’s service providers may experience disruptions in their operations or services due to factors beyond their and/or its control. If any of its service providers’ operations or services are disrupted or terminated, it may not be able to find alternative quality service providers on commercial terms to its satisfaction in a timely and reliable manner, or at all. Poor quality service or lapses in service from its third-party service providers may expose it to liabilities that it may not be able to recover from the service providers and may adversely affect its business, results of operations and cash flows.

Outlook

Dr. Agarwal's Health Care offers a comprehensive range of eye care services, including cataract and refractive surgeries, consultations, diagnoses, non-surgical treatments, and the sale of optical products, contact lenses, accessories, and eye care-related pharmaceutical items. The company’s proven clinical excellence is driven by a strong clinical board and a history of surgical innovations. Its proven track record of delivering organic growth, integrating and scaling acquisitions and improving operating profitability. On the concern side, a significant majority of its facilities are located in the states of Tamil Nadu (in particular, Chennai), Maharashtra and Karnataka in India and any adverse developments in relation to these facilities could adversely affect its business, financial condition, results of operations and cash flows. Moreover, a portion of its revenue from operations is denominated in foreign currency, which exposes it to foreign currency risk, which may adversely affect its business, financial condition, results of operations and prospects.

The company is coming out with a maiden IPO of 7,56,95,687 equity shares of Rs 1 each. The issue has been offered in a price band of Rs 382-402 per equity share. The aggregate size of the offer is around Rs 28,91.58 crore to Rs 30,42.97 crore based on lower and upper price band respectively. On performance front, total income increased by 33.44% to Rs 13,764.49 million for the Financial Year 2024 from Rs 10,314.94 million for the Financial Year 2023 primarily due to increases in revenue from operations and other income. Moreover, the company’s restated profit for the year decreased by 7.92% to Rs 950.51 million for the Financial Year 2024 from Rs 1,032.30 million for the Financial Year 2023.

The company will continue to explore expansion opportunities in India by setting up new Facilities to expand its geographic footprint and deepen patient reach. It has an established expansion track record supported by its capital efficient hub and spoke model. It expects that a wider geographic presence will help expand its patient base as well as improve its profitability by allowing it to better leverage its infrastructure through its hub and spoke model. It will also continue to identify and relocate select Mature Facilities, which cater to a high volume of patients, and it expects footfalls to increase further, to nearby locations. With larger space and better infrastructure, it plans to accommodate these high volumes and efficiently cater to the increase in demand.