Post-pandemic investments signal a strong commitment to improving healthcare infrastructure and accessibility. Additionally, increasing health awareness among consumers is driving demand for quality healthcare services.
Two companies aggressively expanding in this landscape are Dr Agarwal’s Healthcare and Krishna Institute of Medical Sciences (KIMS). Both have a dominant presence in southern India and are now setting their sights on broader national growth. A closer look at their financials, profitability, and growth strategy reveals which one is better positioned for long-term success.
Business overview
Dr Agarwal’s Healthcare, incorporated in 2010, is India’s largest eye care service provider, commanding a 25% market share. It offers a comprehensive range of eye care services, including optical retail, contact lenses, accessories, and eye care pharmaceuticals.
The company follows a three-tier business model, where primary centers handle basic eye care and teleconsultations, secondary centers perform cataract surgeries, and tertiary centers focus on complex procedures. This model helps optimize resources and reduce costs. Dr Agarwal’s has a strong presence in southern India with 113 branches, followed by 35 in the west, 11 in eastern India, and six in the northern region.
KIMS, founded in 1973, is one of the largest corporate hospital chains in Andhra Pradesh and Telangana, offering multidisciplinary and super-specialty healthcare services across more than 40 fields, including cardiac sciences, orthopedics, neuroscience, renal sciences, mother and child care, gastric sciences, and oncology. It has a dominant presence in Telangana, Andhra Pradesh, and Maharashtra and is expanding into Karnataka.
Dr Agarwal’s Healthcare has a vast network of 165 facilities across 13 states and four union territories, along with 15 international centers in nine African countries. The company has treated over 1.1 million patients and performed 140,000 surgeries since its inception. KIMS, on the other hand, operates 12 multi-specialty hospitals with a total bed capacity of 3,900, with 3,500 beds currently operational.
In terms of market performance, KIMS has a market cap of ₹246 billion, whereas Dr Agarwal’s listed on 4 February 2025. KIMS’ share price has risen 45% in the last year, significantly outperforming the Nifty 50 benchmark, which returned 8% during the same period.
Revenue growth
Tracking revenue growth provides insight into a company’s expansion potential. Dr Agarwal’s earns 64% of its revenue from services and 36% from product sales. Over the past five years, the company has grown at a compound annual growth rate (CAGR) of 20.2%.
KIMS generates most of its revenue from cardiac sciences (18%), followed by orthopedics (14%), neuroscience (11%), and renal sciences (9%). The company has posted a revenue CAGR of 17.3% over the last five years, driven by higher average revenue per operational bed (ARPOB) and rising occupancy rates.
Profitability
Dr Agarwal’s Healthcare has maintained strong profitability, with Ebitda growing at a CAGR of 24.2% over the last five years. The company’s business model ensures cost efficiency, contributing to consistent profit growth. Its gross profit and net profit margins have averaged 27.1% and 9%, respectively, over this period.
KIMS has also demonstrated robust earnings growth, with Ebitda and net profit growing at a CAGR of 20.9% and 23.9%, respectively. The company has benefited from a high occupancy rate, an established market position, and strong ARPOB. Its gross and net profit margins have averaged 29.4% and 17%, respectively, over the last five years, positioning it ahead of Dr Agarwal’s Healthcare in profitability.
Debt management
Debt levels are a crucial factor in assessing a company’s financial health. KIMS has a debt-to-equity ratio of 0.5, which has increased as the company’s total debt rose from ₹1.6 billion in FY22 to ₹9.3 billion in FY24. This increase is largely due to KIMS’ aggressive ₹20 billion expansion plan, which aims to boost bed capacity from 3,900 to 5,000 by FY27.
The company is opening new hospitals in Nashik, Bangalore, Anantapur, Srikakulam, and Ongole, along with a ₹5 billion specialty hospital in Mumbai with a 300-bed capacity. Despite its rising debt, KIMS has sufficient liquidity to meet its capital expenditure requirements.
Dr Agarwal’s has a debt-to-equity ratio of 0.7 as of FY24. The company follows an asset-light model by leasing most of its facilities, keeping initial capital expenditure low and preventing debt levels from increasing sharply. It plans to use its IPO proceeds to repay borrowings and fund organic expansion. Additionally, the company expects to generate sufficient cash flow to finance future growth.
Dividend policy
A company shares its profits in the form of dividends with its shareholders. A company paying consistent dividends indicates it has stable profits.
Neither Dr Agarwal’s Healthcare nor KIMS currently pay dividends to shareholders. However, sustained growth in profits and a reduced reliance on external debt could lead to future dividend payouts.
Financial efficiency
Return on capital employed (RoCE) and return on equity (RoE) are key indicators of financial efficiency. Dr Agarwal’s Healthcare has maintained a three-year average RoCE of 16.3% and an RoE of 16.9%. KIMS, in comparison, has consistently delivered higher returns, with an average RoCE of 24.7% and an RoE of 21.7%, reinforcing its stronger financial performance.
Valuation
A company’s valuation can be assessed using price-to-earnings (P/E) and price-to-book (P/B) ratios. KIMS has a P/E ratio of 66.7, compared to its three-year average of 44.8, while its P/B ratio stands at 12.2, lower than its historical average of 31. Strong revenue and profit growth, along with continuous expansion, justify its relatively high valuation.
Dr Agarwal’s Healthcare has a P/E ratio of 186 and a P/B ratio of 7. Given its recent listing, the high valuation appears expensive compared to peers and industry averages. However, continued revenue and profit expansion could support these elevated multiples in the long run.
Which is the better bet?
Dr Agarwal’s Healthcare has outperformed in revenue growth, profit expansion, and cost efficiency. However, KIMS leads in absolute revenue, profitability, financial efficiency, and debt management.
Read this | Dr. Agarwal’s Health Care IPO: Is a clearer vision on the horizon?
Both companies are well-positioned for the next phase of growth, driven by government initiatives to enhance healthcare infrastructure and promote medical tourism, increasing health consciousness among consumers, and rising income levels. India’s aging population and growing demand for high-quality healthcare services further strengthen the industry’s long-term prospects.
While the healthcare sector presents a strong investment opportunity, investors should conduct thorough research before making financial decisions. Additionally, corporate governance and management transparency should be key considerations when evaluating these companies.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
