Dr Agarwals Eye Hospital Ltd Management Discussions

Company OverView

About Dr Agarwals

Founded in 1957, and registered in 1994 as a Company, Dr Agarwals Eye Hospital is a leading chain of eye hospitals with predominant presence in Tamil Nadu. Under the able leadership of Dr Amar Agarwal, the company has been a pioneer and leader in the Indian Ophthalmology market with an established market position, healthy brand recall in the eye care segment. It offers comprehensive Services in the eye- care segment including Cataract, Glaucoma, Laser Correction, Cornea and Refractive, Retina, and Squint among others. It has presence in multiple locations in Tamil Nadu, Rajasthan, Andhra Pradesh, and Kerala.

Economic Outlook

Global Economy

As the global economy has seemed to move over COVID pandemic, the fear of recession persisted throughout FY24 in developed nations. Additionally, the intensifying conflict between Gaza and Israel is anticipated to spread across the broader region. This region constitutes approximately 35 percent of the worlds oil exports and 14 percent of its gas exports. Moreover, persistent attacks in the Red Sea, a vital route through which 11 percent of global trade flows, alongside the ongoing conflict in Ukraine, collectively pose a significant risk of triggering new adverse supply shocks to the global economic recovery. This could result in surges in food, energy, and transportation costs.

As a result, the global economy is expected to grow at 3.1% in FY24 and further grow modestly at the rate of 3.2 % in FY25, according to the recent IMF¹ forecasts.

The global headline inflation is expected to 5.8 % in FY2024 and further tumbling down to 4.4% in FY2025. The inflation growth is steadily moving in decreasing trends as each quarter progresses, and the declining momentum picks up, indicating an increase in consumers spend in the upcoming quarters.

Indian Economy

As India claimed its long-awaited position in the top 5 global economies in the world, it is marching towards obtaining a place in the top 3 global economies by 2027³. India appears to be more resilient than other economies around the world post COVID pandemic which is depicted by the growth of Gross Domestic Product (GDP) of India which is significantly higher compared to other peers and developed nations.

The growth projected in India is 6.5 percent in FY 24 and FY25¹ comparatively better than the global growth rate. The RBI has also determined to peg the inflation at 4.5% for FY25⁴, which could boost the consumer demands after attaining the same.

Indian Healthcare Industry

The Indian healthcare industry is poised to grow tremendously with support of rising income, greater health awareness and lifestyle diseases. Further, increasing access to medical insurance contributes acts as a catalyst in increasing the health care expenditure from the pockets of Indian consumers. The Indian healthcare market, valued at US$ 86 billion in 2016, was forecasted to grow to US$ 367 billion by 2023 and further to US$ 638 billion by 20 25⁵.

The peoples behaviour and focus on healthcare has seen a significant positive shift post COVID, acting as a stimulus for growth in the healthcare sector. The people and the government understood the significance of the healthy population for a wealthy nation.

Indias government expenditure on healthcare has reached 2.1% of Gross Domestic Product (GDP) in FY23 and 2.2% of GDP in FY22, with projections indicating a rise to 2.5% of GDP in FY20 25⁵. This upward trajectory in public healthcare spending is viewed as a pivotal factor in propelling India towards becoming a healthcare hub, fostering enhanced infrastructure in the sector.

The Healthcare Industry due to its lucrative market has enticed a numerous M&A activity, leading its way to consolidating unorganised verticals. Further, enticing Foreign Direct Investments in the sector resulting in robust growth in the sector.

Source:

1 World Economic Outlook - "Moderating Inflation and Steady Growth Open Path to Soft Landing" - January 2024 by International Monetary Fund

2 Indian Economic Outlook - Deloitte Insights - Jan 2024 - Dr. Rumki Majumdar.

3. https://www.businesstoday.in/latest/economy/story/india-to-become-third-largest-economy-in-the-next-three- years-says-jefferies-in-a-note-418454-2024-02-22 - Article Indian Healthcare Industry

4. Monetary Policy Statement, 2024-25 Resolution of the Monetary Policy Committee (MPC) April 3 to 5, 2024 - RBI

Indian Eye Care Industry

India is dominating the global eye care market with performing 83 lakh cataract surgeries in FY 2022-23 surpassing the combined figures of US, Europe, and China⁶.

The economic value loss because of avoidable sight is estimated to be of $27 biMion in Indian subcontinent⁷. The huge value depicts the significance of treating curable blindness in India.

Further it is being perceived as Indian Eye Care market is at its inflection point with the numerous regions are brought under organised structure through acquisitions and expansions by large players. It is expected that more than 2,000 eye hospitals⁶ would be established across India in 5 years time by four to five large players. The above performances of Indian Eye Care market stand as a testimony to the pace at which the market is growing. With a mere 10% of the sector is organised, there is huge gap for growth prospectus to the organised firms.

Key Performance Indicators

Financial Performance

The company saw a robust growth in FY24. The top line consistently grew at 19.09% from 268.10 Cr to 319.30 Cr. The revenue growth along with consistent cost control measures, has reflected down on to EBITDA with 30% growth from 76.45 Cr to 96.03 Cr. In the capital markets, the company saw a significant increase in market capitalization with the share pricing reaching north of 3660 per share as on 29th April 2024 (with an increase of 188% to last year price).

Operational Performance

The total number of patients served showed a robust yearly growth of 17.3% in FY24. Cataract - the biggest contributor to the revenue - showed a yearly revenue growth of 24% in FY24. Other streams of revenue including refractive, opticals, and retina have also shown considerable growth over the previous year.

As planned expansion strategy, the company opened seven new centres in Tamil Nadu. Further, the company has been committed in consolidating its presence in Tamil Nadu by exploring the accessibility to the remote areas. The same is achieved through inaugurating 36 eye vision centres under the brand of "Dr Agarwals Eye Clinic" with 8 centres in Tamil Nadu and 3 Centres in Andhra Pradesh which acts as a base for identifying patients and serving them with proper care in appropriate secondary centres linked to the Eye Clinic.

SWOT Analysis

Strengths

The company has been able to continue its momentum by achieving growth in both revenue and EBITDA, while increasing the profit margin as well. The experience of promoters who possess an ideal blend of clinical expertise and managerial proficiency helps the management navigate the any headwinds in operations side with ease. The companys long-standing accomplishments in the field of ophthalmology has helped to create a favourable position in market to reach and attract a larger patient population.

Weakness

The companys operations are dependent upon the ophthalmologists, given the scare availability of merely 27,000⁸ ophthalmologists and 42,000+⁹ eye care practitioners (includes optometrists, ophthalmic assistants and refractionists) in India, which is significantly lower compared to the countrys vast population, highlights the operational difficulty posed to the company. The companys reliance on a few regions due to clustering of branches has made the performance of branches dependent on economic, social and political well-being of that region.

Opportunities

The individuals are highly health conscious, especially in the aftermath of the COVID outbreak. This will stimuli for new opportunities in the eye care segment. The development of new state-of-the-art technology with the combination of a seasoned team of doctors enables to delivery exemplary eye-care services.

The company is actively learning experiences through the success and challenges of the peers, further have been proactive in mitigating those risks from leveraging its knowledge from the above. The Source:

5. Healthcare (December 2023) by India Brand Equity Foundation

6. https://www.ibef.org/news/eye-care-industry-is-at-an-inflection-point-and-a-boom-in-m-a-activity-is-expected - Article In Indian Brand Equity

7. IAPB report on World Sight Day 2023

8. https://www.aios.org/ - All India Ophthalmological Society

9. https://optometrycouncilofindia.org/ - Optometry Council of India above factors complement the companys future prospectus in the field of ophthalmology foreseeing a broader growth in the healthcare industry.

Threats

The region-specific operation model of the company faces immense pressure from competition with limited scope for expansion. The uncertainty of global economy amid ongoing conflicts have led to the hard geo-economic policies among the developed countries, lingering the concerns about their potential impact on the overall business landscape.

Human Resource

In the service industry, human resources play a crucial role, the performance of which has a significant impact in the overall performance of the company. The company has developed a team of experienced human resource professionals handling the talent acquisitions and retentions in line the primary vision of the company. The details regarding developments in Human Resources is dealt in the "Particulars of Employees" forming part of the of the Directors Report.

Internal Control Systems and Their Adequacy

The organization has consistently adhered to the internal controls which is designed and updated as required effectively throughout the operations of the company to ensure accurate accounting, monitoring operations, safeguarding assets against unauthorized use or losses, complying with regulations, and ensuring the reliability of financial reporting. These controls have been thoughtfully implemented to provide the necessary safeguards and reasonable assurance.

Risk and Mitigation

Competition intensity and new entrants to the market:

The new entrants of sole practitioners who are capturing the market by providing comparable services with primitive technology and the well- established peers expanding its presence around the companys vicinity poses a threat to market share. This can have a substantial effect on a companys bottom line.

Risk Mitigation:

The company has equipped itself to delivery high quality service with no compromise on patient safety which has been the long-standing capability of Dr. Agarwals. The same stands as a competitive advantage for the Company.

Pace of obsolescence of technology and treatment methods:

The developments in technology have been inevitable in healthcare sector, various procedures & machines are available for performing the same surgeries. The company not being updated about change in trends of the obsolescence of technology poses a risk to performance of surgeries.

Risk Mitigation:

R&D department of the company constantly explores new ways to equip itself with near-term and incremental enhancements, as well as step-change improvements to existing products and processes, resulting in minimal obsolescence.

Materials Risk:

Any delay in procurement of high- quality materials could result in postponement of surgeries resulting in less patient satisfaction.

Risk Mitigation:

The companys procures material directly from manufactures and super-stockists for timely delivery and to obtain best quality materials.

Labour deficit and loss of key staff members, including medical personnel:

Non-availability of quality doctors could result in lesser patient satisfaction which could impact significantly the topline.

Risk Mitigation:

The organisation has been committed in recruiting and training talented physicians and enhancing their capabilities.

Increasing compliance and regulatory impediments:

The increasing stringent measures of the global regulatory environment has led to heightened regulatory scrutiny, which has raised the minimum standards that must be maintained. This requires the alignment of corporate performance objectives with regulatory compliance requirements.

Risk Mitigation:

The company understands that regulatory requirements can be challenging at times and has put up accurate measures to adhere to the evolving regulatory standards to align its decision- making process and incorporate these into the business plan in which it works in line with regulatory standards.

Cautionary Statement

The goals, aspirations, or projections of the company may be considered forward-looking within the context of the securities laws and regulations that are now in effect. It is possible that the actual results will be significantly different from those represented in the statement. The global and domestic business climate, changes in government rules and tax laws, economic developments inside the country, and other factors such as litigation and the like are important elements that could influence the operations of the company.