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Aster DM Healthcare Ltd>
  • CMP : 321.8 Chg : -20.25 (-5.92%)
  • Target : 280.0 (33.33%)
  • Target Period : 12-18 Month

15 Feb 2023

Numbers driven by strong GCC performance…

About The Stock

Aster operates a network of hospitals, clinics, retail pharmacies in several GCC countries as well as India.

  • Its network consists of 15 hospitals, 113 clinics and 257 retail pharmacies in GCC states;15 hospitals, 12 clinics and 177 labs in India; total bed capacity: GCC: 1441, India: 4095
  • Revenue break-up Q3FY23: hospitals: 55%, pharmacies: 25%, clinics: 20% with GCC & India contributing 78% & 22% of revenues, respectively

Strong numbers propelled by GCC.

  • Revenues grew 13.3% QoQ to ₹ 3192 crore driven by 17.3% QoQ growth in the GCC business to ₹ 2550 crore. India was steady with 1.7% QoQ growth to ₹ 735 crore
  • EBITDA margins improved 273 bps QoQ to 14.1% while EBITDA grew 40.7% QoQ to ₹ 449 crore
  • Subsequently, net profit increased 201.6% QoQ to ₹ 139 crore
What should Investors do?

Aster’s share price has grown at 7.71% CAGR over the past three years.

We 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) possible strategic initiatives to unlock value

Target Price and Valuation

We value Aster DM with SOTP valuation at ₹ 280

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 a firm footing due to FCF generation from GCC
Alternate Stock Idea

Apart from Aster, in our hospital coverage we like Narayana.

  • Narayana operates a dual model, which perfectly blends established ”assetright” India business (more focus towards oncology, transplants, etc, besides cardiac pedigree) with a hospital in Cayman Islands
  • BUY with a target price of ₹ 870

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E FY25E 2 Year CAGR (FY23E-FY25E)
Revenues 8,717.1 8,608.4 10,253.3 11.6 11,713.3 12,935.9 14,384.1 10.8
EBITDA 1,265.6 1,062.8 1,483.3 34.9 1,607.4 2,141.8 2,476.8 24.1
EBITDA margins (%) 14.5 12.3 14.5 - 13.7 16.6 17.2 -
Net Profit 284.9 147.7 526.0 38.9 474.1 901.0 1,177.4 57.6
EPS (|) 5.7 3.0 10.5 - 9.5 18.0 23.6 -
PE (x) 36.8 71.0 19.9 - 22.1 11.6 8.9 -
EV to EBITDA (x) 12.6 14.1 10.1 - 8.9 6.2 4.7 -
RoCE (%) 7.2 5.4 9.0 - 9.2 13.5 15.3 -
ROE 8.7 4.4 13.3 - 10.7 16.9 18.1 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q3FY23 Results: Strong numbers propelled by GCC

  • Revenues grew 13.3% QoQ to | 3192 crore, supported by robust growth from GCC business, which came in at | 2550 crore, up 17.3% QoQ followed by 1.7% QoQ growth in India business at | 735 crore. In GCC, hospitals improved 11.5% QoQ to | 1059 crore, clinics grew 25.4% QoQ to | 662 crore and pharmacy grew 19.3% QoQ to | 829 crore. EBITDA margins improved 273 bps QoQ to 14.1% while EBITDA grew 40.7% QoQ to | 449 crore. Subsequently, net profit increased 201.6% QoQ to | 139 crore
  • Aster DM posted a strong set of numbers, which were a beat on our estimates on the revenue front but missed on the margin front. Beat on revenue was propelled by the strong rebound in GCC business post-holiday season. We are positive on Aster’s integrated business model and Aster’s growth strategy for India to add brownfield facilities with low capex investment but high potential opportunity. We expect a gradual margin and RoCE improvement on the back of higher occupancy and capacity optimisation in newer assets.

Q3FY23 Earnings Conference Call highlights: 

  • Average length of stay (ALOS) remained at 2.9 during the quarter with overall occupancy levels at 63% at the consolidated level
  • ARPOB for GCC came in at | 1,92,200 whereas for India it was | 37,200, both showed an improvement
  • GCC Pharmacy acceleration was driven by a combination of existing sales stores as well as newer stores
  • The three new hospitals in the GCC region suffered operational losses during the quarter. The empanelment’s process in these hospitals is open and is expected to come in Q4FY23 and Q1FY24. The management expects initial neutrality in H2FY24
  • The company has tied up with Talabat (online food delivery company) in order to expand its distribution reach in GCC region
  • Focus remains more on white labelled products, which includes better margin profile products
  • Aster Lab is expected break even in Q3FY24
  • During Q3FY23, Alfaone Retail Pharmacies Pvt Ltd was operating 239 retail locations under the "Aster Pharmacy" brand, which includes 105 in Karnataka, 72 in Kerala, 60 in Telangana and two in Andhra Pradesh
  • The management has guided that hospital peak capacities can reach up to 80-85% utilisation levels in India
  • Its focus remains more inclined towards the India business
  • The Andhra Pradesh, Telangana cluster may see some improvement in terms of profit and margins in Q4FY23. We expect it to return to pre-Covid levels of profitability
  • Aster app to get launched in India in the next six to eight months
  • Some of the hospitals are running at full capacity. The company is in the process of adding new beds in same areas
  • Also, it plans to add new beds in existing areas where it is enjoying a good presence
  • The work on the Phase-II 275 bed Aster Whitfield hospital in Bengaluru (oncology) is nearing completion
  • The company expects to start the construction of Phase-I 350 bed Aster Capital Hospital in Trivandrum
  • Intends to add more beds through O&M model, which is an asset light model
  • The company added 150 beds at Madegowda Hospital in Mandya, Karnataka, last quarter. It would be adding another 100 beds this quarter. Three asset-light hospitals have added a total of 390 beds this fiscal year



I/We, Siddhant Khandekar-Inter CA, Kushal Shah-CFA L1, CFP, Utkarsh Jain -MBA, 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.

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