Dr. Agarwal's Eye Hospital Limited (DRAGARWQ.BO) Earnings Call Transcript
August 28, 2025
Earnings Call Speaker Segments
Ladies and gentlemen, good day, and welcome to the conference call on the merger of Dr. Agarwal's Eye Hospital into Dr. Agarwal Health Care. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Aashna Dharia Head of Investor Relations from Dr. Agarwal Healthcare Limited. Over to you, Ms. Aashna Dharia.
Thank you, Alrik. A very good morning, ladies and gentlemen. Thank you for joining us on this call. Today marks a significant milestone for Dr. Agarwal Group as we announced the proposed merger of Dr. Agarwal's Eye Hospital into Dr. Agarwal's Health Care. On the management side, I would like to introduce the participants of today's call. Dr. Adil Agarwal, Chief Executive Officer [indiscernible]; Yashwanth Venkat, Chief Financial Officer; Mr. Hanigan Adan, Community [indiscernible], Mr. Sandeep, Head Financial Controller. We've also released a press release and investor presentation, which are available on our website and on the stock exchanges. Before we begin, I would like to define everyone that the call is being recorded and the transcript will be made available on our website afterwards. It's now my pleasure to hand over the call to Dr. Adil, our Chief Executive Officer, who will share his opening remarks. Dr. Adil, over to you.
Thank you, Aashna. Good morning to all of you, and a very warm welcome. Thank you for joining our conference call today. The merger of Agarwal's Eye Hospital Limited into Agarwal Health Care Limited is an important strategic step in our group's journey and will drive both operational and financial efficiencies through streamlined functions and faster decision-making. It will enable unified capital allocation, strengthen the balance sheet to support future growth and provide a simplified legal regulatory and governance framework. This long-waited move towards a simpler and more efficient group structure reinforces our commitment to creating long-term value for our stakeholders. Achieving this milestone reflects focused effort and determination of our entire team. As we had promised, we remain fully committed to completing the merger at the earliest and unlocking the next phase of our [indiscernible]. Now to shed some light on the process followed, we adhere to the highest level of Corporate Governance standards for this merger. PwC Business Consulting Services LLP and Bansi S. Mehta Valuers LLP, the independent valuers acted at the joint valuation advisers and have recommended a share swap ratio of 23 equity shares of AHCL for every 2 shares of Agarwal Eye Hospital Limited. The fair opinion on the share exchange ratio recommended by the valuers has been provided by the study registered Category 1 merchant bankers, Kotak Mahindra Capital Company, to AHCL and by Motilal new investment advisers to AEHL, respectively. With that, I would now like to invite Mr. Yashwanth Venkat, our Chief Financial Officer, to walk you through the specifics of the transaction details.
Thank you, Adil. Let me split this transaction into two parts, to make it easier for the understanding of all. We begin with the preferential allotment of AEHL [indiscernible] to AHCL and then move on to the proposed merger. In relation to the preferential allotment, AHCL [indiscernible] 1,32,827 equity shares of AEHL at a price of INR 5,270 per share, amounting to a total investment of approximately INR 70 crores. The funds induced into AEHL will be utilized to finance its immediate fund requirements for the CapEx plans, specifically for the construction of the flagship facility at Capital Group. Post the preferential allotment, the total equity share capital of AEHL is expected to increase from 47 lakh shares to 48.3 lakh shares. Within this, the promoters holding pace from 71.9% to 72.7%. The number of shares held by public shareholders will remain unchanged at 13.2 lakh shares. However, that shareholding percentage will dilute from 28.1% to 27.3%. While preferential issue is announced simultaneously with the merger, it will not be subject to the completion of the merger and will get completed ahead of the merger. Key point to note here is there is no impact of the preferential issue on the eventual public shareholding in the merged entity. Now moving on to the second part. The proposed merger of AEHL into AHCL through a scheme of amalgamation. The scheme provides for merging of AEHL with AHCL, creating a single listed entity combining business operations of both the entities. Following the merger, AEHL will be absorbed into AHCL and its public shareholders will directly become shareholders of AHCL. We believe it represents a clear win-win for both AHCL from AEHL. From AHCL shareholders' perspective, the merger will result in simplification of corporate and public governance structure, better flexibility and ease of conducting integrated business operations, alignment of industry benefits of combined business accruing to our shareholders. From AEHL shareholders' perspective, the merger will provide participation in AHCL high-growth pan-India story and access to a larger clinical talent pool, access to a larger cash pool for expansion and growth, ease of operations and better utilization of combine business resources being a part of the company with larger market cap. As mentioned previously by Dr. Adil, we have adhered to the highest level corporate governance standards for this merger. Several market-leading firms have helped us with due diligence across legal, financial and tax diligence. Under this scheme, I reiterate each shareholder of AEHL will receive 23 equity share of AHCL for every 2 equity share held at AEHL as for the recommended swap ratio. The swap ratio implies a 15% premium for AEHL or AEHL 10-day VWAP of INR 4,454 per share. In terms of the post-merger shareholding of the combined entity. AEHL public shareholders will hold 4.6% stake in the combined entity. AHCL public shareholding will get diluted from 67.6% to 64.5%. Promoter & Promoter Group will hold close to 30.9% stake in the combined entity. Total share [indiscernible] entity would be approximately INR 33.13 crores. Lastly, indicative time line and next steps, the implementation of the transaction is expected to take around 12 to 14 months subject to requisite approvals. As we move forward, it is important to recognize the milestones that remain in completing this transformative merger. The process will involve updating key regulatory approvals beginning with no objection lenders from the stock [indiscernible] entities followed by the approval from the NCLT. Shareholder and creditor meetings will play a critical role in the merger scheme. At these NCLT convene meetings, the scheme will require approval from a [indiscernible] majority, including approval from majority of minority shareholders of both AEHL and AHCL. Upon receipt of these approvals, the process will culminate in development, listing and trading of the new shares, marking the successful completion of the merger. Thank you all. We'll open from floor to questions.
[Operator Instructions] The first question comes from the line of Binay Singh from Morgan Stanley.
Good to see the transaction going through. Just two questions. First is in the presentation also, we talked about cost reduction and synergies and compliance costs going down. So at the EBITDA level, is there anything major that you would call out as an expense that is being incurred on both sides, which will go away when the entity merges? That will be the first one. If there's any cost item that is happening in 2 sides, which basically drives efficiency now.
Yes, Binay, thanks for the question. I will just request our CFO, Yashwanth to answer what are the cost synergies we are going to get from this transaction.
See, in terms of cost synergies on, Binay, is in terms of the main thing is and compliance costs. One, currently, we are having -- since we have 2 companies, there are actually in terms of the auditors. We have to have 2 separate auditors for both the companies. That is one major cost. Apart from that, in terms of cost charge across both the entities, there will also be a significant reduction in tax [indiscernible] from a GST perspective to [indiscernible]. Three, is also, we believe that there will be a little bit of optimization of resources once this becomes a combined entity. Also, other costs such as filing costs, et cetera, will also come down.
And secondly, just on the transaction, the INR 70 crore preferential issue. Any reasons for taking this route instead of giving a loan to the subsidiary? Any thoughts on that?
Yes, Binay, so I can take that. We believe that instead of us putting any more stress on the balance sheet at the AEHL, we feel that this will be a better out for us to do a financial allotment. Since we have a good amount of cash reserves at the holding company level, we felt that the peer development then at a fair valuation will make the most sense for us.
The next question comes from the line of Ankit Shah, an individual investor.
I've been, actually, I'm a shareholder of Dr. Agarwal's Eye Hospital, and I've been a shareholder for the last 18 years. So I'm joining this call more to understand why the merger issue is so in favor of the holding companies rather than the subsidiary company. And since I've been a shareholder for such a long time, what I can definitely vouch for is that the corporate governance levels are at the highest level, right, even for a very small company, which has been listed for the [indiscernible] I think the corporate government levels are very high. But I'm just used that the merger ratio is in favor of the holding company, right? Because if I were to just do a basic analysis of FY '25 revenues, right, and I adjust the revenues of the holding company for the minority interest of AEHL, the ratio should be more towards 15 to 17 shares for each share held for the subsidiary company. Even if I look at EBITDA, even if I look at PBT, any metric I look at it, and I'm not even counting for the fact that there's been a massive CapEx, which has happened at the subsidiary level for the flagship hospital, and I'm not even counting the increase in revenues that are going to happen because of that. right? But even if I just look at FY '25 revenues, I think the merger ratio just seems very off, right? I mean it's 30% lower than what, any basic analysis would suggest. I don't know what this [indiscernible] are all about because I'm just doing a very basic back-of-the-envelope calculation.
Thanks, Ankit. Your points are noted. I will request our CFO to explain the rationale behind how we arrive to the shares operation.
In terms of the swap ratio, the staff ratio determined for the merger has been recommended by independent registered valuers, on which spans opinion has been provided by independent, so the register merchant bankers. So the valuers have used several valuation methodologies, including market value trading multiples [indiscernible] and also applied appropriate was to deep methods to [indiscernible] the final value of [indiscernible] the valuation was based on latest available historical financials and outlook for the respective businesses as well. So post that, the valuation reports and [indiscernible] opinions were placed before the Audit Committee and Boards of the respective committee for their necessary consideration and approval to the transaction. We believe overall, we think it is a fair deal for the shareholders of both companies as it provides them with an opportunity to participate in growth and value creation in the long run, Ankit.
No, no, I definitely agree with both the parts where you are saying the process, which is actually a legal process, right, which you have sort of used in terms of getting a MS opinion and all of that, but we all know how those opinions work because it's not like DCF is all based on assumption because who knows the future in terms of what the revenues and profits are going to be. So I don't know how that all. But I'm just saying that if I just look at today and take a very dispassionate perspective, can you say that revenues of the subsidiary companies are roughly 25% of the holding company? I'm just doing a very basic analysis, right? And as I said before, right, I gave the contract that I've been sort of for 18 years. And I think the management and founders have been fair in terms of the governance and everything. But this one, just seeing that just -- and so that's my perspective now. I don't know if that sort of the legal process and all I understand because you get a fairness opinion, all of that, that is understandable that every company does. But this is more about the test at a very basic level when I'm looking at it. It just seems unfair to the minority shareholders of the subsidy. So that's my point. There's no point to discuss for just the point I wanted to make. If I would request other to see if the merger can be approved. So that's just my [indiscernible].
Thanks, Ankit. Your points are noted. We'll evaluate.
The next question comes from the line of Sid Chandrasekar, an individual investor.
So again, my point is also on similar lines to the previous caller. So as we see, right, so again, I'm going again seeing a similar level of comparison when compared to the current tender. So on all parameters, revenue we can say like 1/4 of the revenue we are getting from subsidiary and the EBITDA level or PAT, even like [indiscernible] PAT is coming from, right? So on all parameters, simply comparing any level of parameters [indiscernible], one I would say like geographical concentration. The other one is on growth. I just want you on information. So why you are restricting our subsidiary only to the [indiscernible]?And second one is on the growth parameter. If you see growth is somewhat looks higher in parent business, clearly because we have done a lot of equity infusion, which has not happened in the subsidiary level. I don't know like why -- because it's already in the past itself, we could have rise money in the subsidiary and we could have done a better growth here, right? So I'm just wondering, like it seems like both the companies are not treated fairly, right, in this case. I just want your opinion on that. So I understand like you will get a fair value, right? But I don't know on what parameter this becomes a fair value, right? So because we could not feel like, okay, this is where parent holds a prospective than compared to subsidiary. So all the growth and everything comes with the fact like the last 5 years, I think you have from recent funds and IPO console, everything is equity-based, right? None of them is organic one, right? So are going to compare the parent versus subsidiary? Subsidiary is a better profile, right? So just what your opening, so I think let's not go to the fair value provision, but I'm just wanting to fit what's your opinion on this?
So for that, we believe that we have followed a fair process, which has been advised to us by our respective advisers, and we believe the highest and the corporate governance have been met. AEHL shareholders shall be benefited from this transaction on multiple grounds, including the fact that they will become shareholders of an entity, which has a pan-India presence with a much larger single parent. They will have access to consolidated cash resources, which can be strategically deployed for growth and continued operations. Also, this will be part of a larger growth story as a larger market company, and they will continue to be part of that growth structure. So we believe from that perspective, it is a fair deal for shareholders of both the companies as it provides them with option partly both in growth and value creation in the long run.
Yes. My question is like why we haven't priced any funds in subsidiary, right? Already unlisted when you could have gone with rights issue or something like that, and we could have increased growth right? And also like while you restricted subsidiary now they are saying like, okay, parent is a parent in debt who stopped it, right? So it's not like someone has stopped it, right? So both companies are under your management on it, right? So you could have grown this and lever basis.
We understand your concerns to that, but this is something which has been happening. And the subsidy has been given a lot of support by the parent company and by [indiscernible] as well. And we will ensure now that with this entire merger, now all the shareholders can now participate in that growth, which is happening at the pan national level.
But that comes at the cost of the shareholders of the subsidiary, right?
See, we have taken a finance opinion from multiple sources to that. And we believe that whatever is being proposed right now is a fair deal, and both the boards have approved the matter.
Okay. Sir, okay. And just in open here, I'm very [indiscernible]. So given right, so, this company was -- subsidiary was listed a very long time. We did not do any conf call or investor presentation. So only or parent comes in the picture, like we are doing all the I'm not showing any operate governance issue on something on an operating level. Just pointing out some facts, right? So some were shareholders of subsidiary where you mentioned that the second stage at this point. That's all from my side.
We understand. We understand.
The next question comes from the line of Anandha Padmanabhan from PGIM India AMC.
I just wanted to understand the steps ahead. So in terms of shareholders' approval for the scheme for the merger, would for real Agarwal Eye Hospital, would it require majority of all the shareholders or the majority of the non-promoter shareholders?
On this process, I will request our Company Secretary, Mr. Thanikainathan, to just give you an update on what is the next decisive steps and the [indiscernible], right?
Thank you. On the process, he has [indiscernible] majority of minority approval at both AHCL ales at the AEHL level. As the process was we will update to the stock exchange post getting their players will approach NCLT. The NCLT will convene the shareholders and previous meeting. At that point in time, we record the majority of majority approval at both the company's levels.
And what happens in case for AHCL, the minority shareholders do not approve the a majority of the minority shareholders do not approve the merger, then what's the next steps in that case?
Then this is subject to an outcome from the NCLT. So we have to follow the MCT from [indiscernible].
The next question comes from the line of Anuj Jain from Equitas Capital.
Yes. Anil Jain from Equipassion Capital. I have been a shareholder since last 8, 9 years, and in continuation with the previous participants that since the Agarwal group -- Dr. Agarwal Group is being known for this very good corporate governance, but looking at this announcement yesterday, we were saw that the merger ratio was completely in favor of parent company and completely ignoring the minority shareholders who are holding the shares since 30 years since its listing in '95, so -- and you can -- the valuation can be like at any parameters like revenue, EBITDA, PAT at all levels, it completely looks in favor of holding company. So my humble request is now on behalf of all minority shareholders, is that please look into this swap ratio? That's all we can do now as a minority shareholder. It is completely unfair. I don't know what is this reasonable valuation by the Category 1 merchant banker, this and that. So we just as a minority service, you can just request Dr. Adil and all the management and Board of Directors of the group to reconsider. That's all from my side.
Thank you, Anuj, your point is noted. We just would like to reiterate the fact that the proposed transaction is being done in a consent independent valuation of equity shares of both the listed subsidiary, AEHL and the holding company AHCL we carried out jointly by PwC and Bansi S. Mehta who are the valuers, and they have recommended the share exchange ratio under the scheme. The finance opinion also was provided by a semi registered category 1 merchant banker, which is Kotak Mahindra for AHCL and similarly, Motilal Oswal investment advisers to AEHL. These valuers have used internationally accepted valuation methodologies, which include market value approach, a comparable company approach and a [indiscernible] approach. It's not just 1 metric, which was used. 3 different valuation approaches we are used to arrive at a fair valuation for both entities. Based on which, our share swap ratio was announced, right? We are happy at some point to speak with the AEHL shareholder to explain how the valuation was arrived at, and you will appreciate the fact that it was done in a very scientific methodology. Further for the market price method, the value has factored in the prices for an appropriate period in the past to avoid any impact of any current volatility. Valuation report and final opinions were placed before the Audit Committees and the Board of both the respective companies for the necessary consideration and approval. So if you believe we are running a very -- company which has high on corporate governance, you'll appreciate the fact that we have very respected both on both entities. Overall, again, I reinstate we think it's a fair way for the shareholders, but we understand some of the concerns of the minority shareholders and at the AEHL, we would expect on value and we will try to do [indiscernible]. Thank you once again.
Yes, just a continuation. We continuously -- we definitely agree with the fact that this group is definitely known for corporate governance since last 30 years since listing, but my one question is that I don't know what the international practices of valuation they are talking about. And the thing is that it is completely unfair since I'm also in the market since last 30 years. And I don't know on what metrics because we can see top line EBITDA PAT, growth this and network, debt equity. On all parameters, it looks completely unfair. I don't know which widen criteria, which you are talking about, which I can't see and which no layman investor can see even a senior pro investor can't see. I don't know which fairness you're talking about. And my one question is that if these merchant bankers would have in the minority shareholder of Eye Hospita, would that be fair is the [indiscernible] that question? If you get that question, say yes, it is in favor of Eye Hospital minority shareholders. That's -- so it's humbly request we can do now that please reconsider this. This is completely unfair and please look into this matter openly. That's all from my side. Yes.
Your concerns are noted. We value you. Again, we will try to do our best.
And I doubt that this is going to improve your reputation of good corporate governance. I doubt that it is going to improve your corporate governance this thing.
Noted your point, just one point from our end, sir. See, as far as the premium paid to AEHL shareholders is concerned, when you take the 10-day VWAP, the day volume-weighted average price as is concerned, the premium to the 10-day VWAP is close to about 15%. The 10-day VWAP is. So in terms of the 10-day VWAP, the premium itself is close to about 15%, sir.
The next question comes from the line of Varun Herma, an individual investor.
So I think as you can tell from the previous questions that have been raised, people are quite displeased with the ratio, right? And so I think ultimately, these things boil down to a vote. And obviously, no one can predict how that pans out. But I just feel that any opinions have been voiced. And there's the reason the holdco trade at such a higher valuation. And even when the IPO was done, it came at such a high valuation. And look at where other hospitals are trading in the market. Subsidiaries trading at a discount. And obviously, somewhere it was felt that something like this might happen, which is why I think there was a sharp fall in the price of the subsidiary post the listing. So I don't know exactly what the piece was when deciding this ratio. But I think at the very least, it would be great if you can organize a call separately for the subsidiary shareholders where you can be a little more transparent about the valuation methodologies which were utilized. And if truly, that is the case, and it would be great if we could be educated on that so we can understand how to process this.
So your point is absolutely fair, we are more than happy to meet with the AEHL minority shareholders offline and discuss this in detail. We can find requisite -- we can find a proper time, and we can take you all through the details. You would all understand it's a fair and a very, very transparent process. We more than happy to discuss this with you [indiscernible].
Yes, I think. So please just, I'll e-mail in about that, please just set that up for us. I'm sure there will be a lot of people who are interested. So would appreciate that.
We'll do that. Thanks.
The next question comes from the line of Ankur Shah from Quasar Capital.
So interestingly, just sharing 1 perspective, again, we are very small minority shareholders in the AEHL entity. And interestingly, the management has seen both the sides in the last 1 year where they were selling shareholders while doing an IPO. This is just another perspective, adding to the perspective which already previous participants have already mentioned. And last one, and even this is a question to the valuation gains of PwC and Bansai S. Mehta, in last one, when the management is a selling shareholder, the valuation of like if EV EBITDA has to be taken then 25x plus, even the deals are happening, like HCG deal, rainbow side all the finger specialty guys, they trade at 25-plus. With this brand and same management team, everything same. Interestingly, it is, but from all angles, it's a very [indiscernible]. And secondly, on the fairness of opening, I would like to mention a conflict of interest that your BRL managers have, of the AHCL entity have been have provided the fair opinion. So again, within 1 year, the AHCL company has given a large checkup fee to both of these companies who have provided fairness of opinion. So I would actually point out our conflict of interest over there. So otherwise, I think rest of the points are already very well mentioned. And yes, I think organizing a call to understand any more scientific logic than what my education serves me because we are also see we understand, we have worked in transaction advisory department on how valuations are done. So we would like to understand how this scientific valuation does work.
Thanks, Ankur, your concerns are noted. I think doing a separate call offline will definitely help you all understand and answer some of your concerns, which you're having on the valuation.
The next question comes from the line of Viraj Shah from PGIM.
Just one question from my side. Can you please let me know if the merger is happening via special resolution or nominal resolution?
I'll ask my company secretary answer that.
Yes. Both AEHL special, the deposit special resolution at both the company level, AEHL as well as AHCL from a company that perspective. Also from SEBI perspective, we need to cast majority of minority approval assets.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Dr. Adil Agarwal for the closing remarks.
Yes, can you hear me? Thank you all Okay. Thank you, everyone. Thank you for taking the time, and thank you for all the support.
Thank, thank you. On behalf of Dr. Agarwal's Health Care Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
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