Kotak initiates coverage on Dr Agarwal's Health Care

Kotak Institutional Equities initiated coverage on Dr Agarwal's Health Care with an ‘Add’ rating and a target price of Rs 425, citing strong expected earnings growth and improving return ratios as the company focuses on organic expansion and operational ramp-up.

The target price implies a 7.6% potential upside from the stock’s closing price of Rs 394.95 on Tuesday. Shares of Dr Agarwal’s ended 1.94% lower on the BSE.

India’s largest eye care chain, Dr Agarwal’s Health Care, is expected to deliver 23% and 27% compound annual growth in EBITDA and earnings per share, respectively, over FY2024–28, the brokerage said in a note. Kotak Equities forecasts 22% revenue CAGR over the same period, supported by increasing footfalls, price hikes and a continued rollout of new centers.

The brokerage said it expects Dr Agarwal’s return on invested capital to improve to about 12% by FY2028, from 6.6% in FY2024, driven by a more disciplined acquisition strategy and operational scale-up.

The Chennai-based firm plans to nearly double its network to 500 centers by FY2030 from 221 locations across India and Africa as of 9MFY25. However, the brokerage said it expects over 80% of future expansion to be organic, in contrast to its previous heavy reliance on acquisitions. The company has added over 50% of its centers through M&A in the past three years, often at valuations 2–3 times higher than greenfield setups, which weighed on its return ratios.

While the recently added centers will continue to ramp up, the new organic additions are expected to drive growth with limited margin impact, the brokerage said, projecting EBITDA margins to rise by 80 basis points to 28% in FY2028.

The company’s hub-and-spoke model — comprising tertiary, secondary and primary centers — supports cost efficiency and scalability, the brokerage said. It expects footfalls to grow at a 22% CAGR through FY2028, aided by a cluster-based expansion strategy and capital-efficient setup model. Dr Agarwal’s asset-light approach, with nearly all facilities leased, allows it to scale with minimal upfront investment, Kotak added.

Despite the optimistic outlook, the brokerage flagged risks such as high revenue concentration in South India, potential issues in integrating acquisitions, and promoter family disputes.

Also read | Dr Agarwal's Health Care shares list flat at Rs 397 on BSE


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