loader2
Login Open ICICI 3-in-1 Account
  • Text Size
  • Text to Speech
  • Color Contrast
  • Pause Animations
Open ICICI 3-in-1 Account
  • CMP : 742.4 Chg : 3.85 (0.52%)
  • Target : 250.0 (16.28%)
  • Target Period : 12-18 Month
Result Update

12 Aug 2022

New hospitals dent margins; guidance upbeat…

About The Stock

Aster operates in segments like hospitals, clinics, retail pharmacies and provides healthcare services to patients across economic segments in several GCC states through various brands such as Aster, Medcare and Access.
• Its network consists of 13 hospitals, 109 clinics and 240 retail pharmacies in GCC states;14 hospitals, 11 clinics, 131 pharmacies and 114 labs in India; total bed capacity: GCC: 1160, India: 3905
• Revenue break-up FY22: hospitals: 56%, pharmacies: 21%, clinics: 23% with GCC & India contributing 77% & 23% of revenues, respectively

Q1FY23

Aster DM reported in line revenues as GCC - hospitals, pharmacies and clinics (down 5% QoQ) and India operations (up 10% QoQ).
• Sales were down 2% QoQ to ₹ 2662 crore due to seasonality in GCC
• EBITDA was at ₹ 292 crore, down 37% QoQ with margins at 11% due to additional expense for newer hospitals & high Covid base in some verticals
• Consequent PAT was at ₹ 68 crore (down 70% QoQ)

What should Investors do?

Aster’s share price has grown by ~1.7x over the past three years (from ~₹ 121 in August 2019 to ~₹ 215 levels in August 2022).
• Maintain BUY for a 1) unique blend of GCC healthcare network and a quest to expand in India with calibrated capex approach, 2) visibility on recovery in margins and 3) strategic initiatives for GCC and India on track

Target Price and Valuation

We value Aster DM at an SOTP of ₹ 250.

Key Triggers for future price performance

• Expansion via asset light model (1000 beds through O&M) in India, keeping an eye on leverage
• Strong RoCE in GCC due to assets light model, integrated business model, faster occupancy & strong brand equity, healthy ARPOB & targeted strategy
• Increased focus on asset light retail models like diagnostics, pharmacy distribution, homecare along with push towards integrated virtual platform
• It is pursuing aggressive expansion in both GCC and India via assets light model but remains on firm footing due to FCF generation from GCC

Alternate Stock Idea

Apart from Aster, in our hospital coverage we like Narayana.
• Narayana operates a duel model, which perfectly blends established ‘’Asset-right’’ India business (more focus towards oncology, transplants, etc, besides cardiac pedigree) with a hospital in Cayman Islands
• BUY with a target price of ₹ 800

Particulars

Particulars (₹ crore) Amount
Market Capitalization 38,465.3
Debt (FY22) 4,907.0
Cash (FY22) 45.0
EV 15,602.0
52 week H/L (₹) 770.0/519.0
Equity Capital 873.9
Face Value (₹) 10.0

Price Chart

Recent Events & Key Risks

• Commenced operations at Aster Mother, Kerala and Aster Hospital, Sharjah
• Key Risk: (i) Another Covid wave (ii) Stretched capex cycle

Research Analyst

Result Update
ICICI Securities – Retail Equity Research

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Revenues 7,962.7 8,717.1 8,608.4 10,253.3 11.6 10,897.6 12,024.9 8.3
EBITDA 862.8 1,265.6 1,062.8 1,483.3 34.9 1,565.1 2,009.8 16.4
EBITDA margins (%) 10.8 14.5 12.3 14.5 - 14.4 16.7 -
Net Profit 333.1 284.9 147.7 526.0 38.9 538.4 831.8 25.8
EPS (|) 6.7 5.7 3.0 10.5 - 10.8 16.7 -
PE (x) 28.9 37.7 72.7 20.4 - 19.9 12.9 -
M.Cap/ Revenues (x) 1.2 1.2 1.0 1.0 - 1.0 0.9 -
EV to EBITDA (x) 14.0 12.8 14.3 10.3 - 9.3 6.7 -
RoCE (%) 8.3 7.2 5.4 9.0 - 9.4 12.5 -
ROE 10.4 8.7 4.4 13.3 - 12.0 15.6 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q1FY23 Results: Revenues steady while margins drop
• Revenues de-grew 2% QoQ to | 2662 crore as 10% QoQ growth in the India business to | 669 crore was offset by 5% QoQ de-growth in GCC business to | 2111 crore. In GCC, hospitals declined 3% QoQ to | 913 crore, clinics de-grew 19% QoQ to | 538 crore and pharmacy grew 8% QoQ to | 660 crore. EBITDA margins contracted 598 bps QoQ to 11% while EBITDA de-grew 37% QoQ to | 292 crore. Subsequently, net profit declined 70% QoQ to | 68.5 crore
• Aster DM posted in line revenues while margins were a significant miss with I-direct estimates. During Q1, Aster started operations management of the 140-bed Aster mother hospital in Areekode in Kerala. At a blended level, occupancy improved to 60% in Q1FY23 from 58% last quarter and ARPOBD declined to | 69,250 in Q1FY23 from 73,700 last quarter. Aster owns a unique business model among Indian healthcare services providers with strong established presence in GCC and India. We are positive on Aster’s integrated business model and growth strategy for India to add brownfield facilities with low capex investment but high potential opportunity. We expect gradual margins and RoCE improvement on the back of higher occupancy and capacity optimisation in newer assets

Q1FY23 Earnings Conference Call highlights
• GCC Hospitals: GCC grew 26% YoY excluding PCR Covid testing in base of Q1FY22. PCR revenue has de-grown from 33% last year to 9% in Q1FY23. First quarter is seasonally weak and due to festival holidays Q1 numbers came in softer. The management has guided for being on the lookout for minority shareholder/strategic partner for Saudi operations. Earlier, Saudi exit was planned due to high capital requirement but post restructuring, business has improved along with interest from investors. The company is also on track for separating GCC and India operations but timelines are not fixed yet. On the margins front, there was | 16 crore impact in GCC due to new hospitals coming on-stream in this quarter. GCC existing hospitals margins are likely to improve to 17-18% by FY23 end
• GCC Pharmacy: Witnessing good traction in retail pharmacy and guidance is for growth to sustain. On the margins front, ramp-up is expected in Q3 and Q4 towards 11.5%
• GCC Clinics: About 33% of revenues were from RTPCR in FY22 and on that base the company is expecting 200 bps decline in margins in FY23
• India Hospitals: In India, focus remains on hospitals brownfield expansion (800-100 beds guidance in O&M model) with low capex requirements. This is further exemplified by guidance to be EBITDA breakeven in three months for Areekode hospitals. Andhra and Telangana cluster performance are weaker than Kerala and Karnataka mainly due to high base of Covid last year (50% of revenues with margins being 20%+). Other hospitals have gone line with government schemes leading to lower occupancy. The management has guided for margins to get ramped to 18% in FY23 and 20% by FY24
• The company is guiding for 200 bps improvement in RoCE every year

Disclaimer

ANALYST CERTIFICATION

I/We, Siddhant Khandekar, Inter CA, Raunak Thakur, PGDM, Kush Mehta, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. 

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. 

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports. 

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. 

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research. 

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. 

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. 

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. 

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. 

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. 

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. 

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. 

RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5%to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research

pankaj.pandey@icicisecurities.com

 

 

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

 

 

research@icicidirect.com
Read More