Aster DM Healthcare (ASTERDM IN) - Q4FY23 Result Update - India hospitals growth on track

Our FY24E and FY25E EBIDTA stand increased by ~3%. ASTER DM’s consolidated EBIDTA (post IND AS 116) grew 9% YoY (13% QoQ) to Rs 5bn; in line with our estimate. There were certain one off in Q4- Rs160mn write off related to Cayman biz along with start-up losses (Rs110mn) of units in GCC. ASTERDM has a unique business model with presence in India and an established business with strong returns in GCC. We expect 15% EBIDTA CAGR over FY23-25E, as margin in its India business will gradually improve with brownfield expansion and new hospitals ramp-up in GCC. At current market price, the stock trades at an attractive valuation of 9x FY25E EV/EBIDTA (Pre Ind As), which is at 25-50% discount to Indian peers. Timely stake sale of GCC business will re-rate and lower gap with peers. We maintain our ‘Buy’ rating with TP of Rs. 335/share (earlier Rs 265/share) based on 18x FY25E EV/EBIDTA to India business and 8x EV/EBIDTA to GCC business.

•  In-line EBIDTA est.; ramp up across India hospital and GCC clinics biz: India business EBIDTA (post Ind AS) was up 16% YoY (2% QoQ) to Rs. 1.3bn, while GCC hospital EBITDA declined by 22% YoY (13% QoQ) to Rs 1.5bn. India hospital biz reported OPM of 19.3% (up 135bps QoQ) while GCC hospital biz reported OPM of 13.7%; down 250bps QoQ. New hospitals in GCC contributed EBIDTA loss of Rs. 110mn in Q4. Segment wise, GCC pharmacy and clinics reported strong EBITDA growth of 14% YoY and 24% YoY; respectively. Consolidated margins were down 150bps YoY to 15.5%.
• Healthy ARPOB; net debt reduced by 3bn QoQ: Revenue grew by 20% YoY (2% QoQ) to Rs 32.6bn; 8% above our estimates. India revenues were up 33% YoY to Rs. 8bn. For FY23, revenues increased 16% YoY to Rs. 119bn. ARPOB for India business was increased 2% QoQ to Rs 37.9K per day. India and GCC hospitals occupancies were at 68% and 49% in Q4. Net debt declined by Rs.2.8bn QoQ to Rs 18.5bn; of which India debt amounted to Rs.5.1bn.
• Key con-call takeaways: (1) AsterDM added total 390 beds in FY23 under O&M asset light model and achieved breakeven for Aster Narayana Athri Hospital in Tirupati within the first quarter of its operations. (2) Further, 100 beds of Madegowda Hospital in Mandya, Karnataka commenced its operations on 1st April 2023 (3) GCC restructuring is likely by H1FY24- Shortlisted bidders and currently at last leg of the process to select a final buyer. Reiterate its stance of distributing proceeds from stake sale in form of dividend. No capital gain tax of GCC biz stake sale as they come under Mauritius India tax treaty (4) Guided improvement in GCC matured hospital margins (currently at 17%) as utilization goes up and cost optimization opportunities. (5) India Lab biz to report breakeven in 6-9 months in FY24 as increased focus on B2C pick up points, collections centers and home collections to drive volumes (6) Currently 99% of promoter holding is pledged. Guided pledged to come off by end of FY24 as GCC biz stake sale happens. (7) Digital initiatives spent was at Rs. 1bn in FY23.