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M&A continues in Hospital segment

ICICIdirect Research 06 Dec 2024 DISCLAIMER

Aster DM Health and Blackstone-backed Quality Care (QCIL) have agreed to merge and create one of the top 3 Hospital Chains in India. 

The merged entity will have combined revenues of around ₹ 7,314 crore with EBITDA of ₹1396 crore (~19% margin), bed capacity of around 10,150 with ARPOB of ₹39,100 and RoCE of 18%.
The management is expecting combined margins of 23-25% in a timeframe of 3-4 years post-merger on back of improved operational metrics along with greenfield and brownfield expansion in both the entities.

The transaction values Aster at 36.6x EV/EBITDA of FY24 and QCIL at 25.2x EV/EBITDA of FY24 and combined entity at 21x FY26 EV/EBITDA with EV of Rs 42,200 crore assuming 20% EBITDA growth in two years.

 Aster as a standalone entity is currently trading at 32x applying the same growth criteria. Thus, the deal provides a better proposition for existing Aster shareholders with a better ROCE and margins profile.

Similarly, there is also a significant scope for ARPOB improvement for the combined entity which currently stands at ₹39,100. This is significant discount to most of the Pan-India hospitals. Every move towards ARPOB improvement is expected to improve the financials of the combined entity.

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