IPO Analysis: Dr. Agarwal's Eye Care
Initial Impressions of the IPO
There was some excitement among retail investors who thought they’d get more allotment in the shareholder quota by buying shares of the company. However, some of those who did this are now facing losses even before the IPO has listed. The grey market premium (GMP), which initially showed some promise, has significantly dropped, suggesting reduced investor enthusiasm.
Company Profile
Dr. Agarwal’s is an established company in the eye care business, operating for generations. This brings credibility to the brand and shows experience in the industry.
The IPO is offering a total of ₹3027 crores, with ₹300 crores as a fresh issue. However, much of the offering consists of shares being sold by exiting owners, which could add pressure on the stock post-listing.
Financials
The financials show significant growth in revenue and profit, with revenue increasing from ₹700 crores to ₹1300 crores and profit doubling in the last two years. This is a positive sign of business expansion. However, the P/E ratio is quite high at 160%, making the IPO seem expensive compared to its peers like Apollo Hospitals (P/E 107), Max Healthcare (P/E 95), and others.
The company's high valuation is raising concerns, especially since its profitability is still growing and hasn’t been fully proven over the long term.
Market Reaction
While the IPO initially generated some excitement, the grey market premium has dropped sharply, suggesting that investor sentiment is becoming more cautious. There are concerns about the IPO’s high valuation and its sustainability in a competitive market where other well-established players exist.
Risk Factor
If you’re considering applying for the IPO, the risks are quite clear: a high valuation with limited potential for immediate listing gains due to reduced GMP, a market that’s not showing great enthusiasm, and a large portion of shares being sold by exiting owners. If the stock doesn’t list at a strong price, those who applied in shareholder or retail quotas could see losses right from the start.
Experience & Professional Leadership
The promoters, who are doctors themselves, have deep experience in the industry, with the brand being well-established and recognized as a leader in eye care.
Strong Brand Recognition
Dr. Agarwal’s is a market leader in its field, with a long history and a strong reputation.
Asset-Light Model
The company works on an asset-light model, meaning it doesn’t require heavy investments in physical assets, which is a positive for long-term scalability.
Solid Investor Backing
Investors like TPG and Tema Sec have been with the company, signaling confidence in its future prospects. The IPO also has good anchor investors, which adds a layer of stability.
Recent Growth
The company has seen significant growth in the last couple of years, indicating a potential for further expansion.
Concerns
Valuation: The company’s valuation appears quite high, especially with a price-to-earnings (P/E) multiple of 128. This is significantly higher than its listed peers, making it potentially overpriced at the moment. Though management justifies it with EV versus EBITDA comparisons, this high valuation is a risk if the market doesn’t align with these expectations.
Market Saturation: While Dr. Agarwal's is a leader, the eye care space doesn’t have high entry barriers, and competitors can easily enter the market, which could affect long-term growth.
Recent Growth: While the company has been around since 1957, its recent growth surge only came in the last 1-2 years. The question is whether this growth is sustainable or if it’s a short-term spike.