Aster DM healthcare

Stock Opportunities
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Update on this
The GCC division to be sold to alpha GCC for EV of 13,540 Cr , Alpha GCC will have 35% ownership by promotors & rest by consortium of PE firms.
Concal scheduled at 11:30Am today : Webinar Registration - Zoom

Find more details in PPT

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Correct me if Iā€™m wrong teamā€¦.
All said and done if Aster GCC business gets sold - that basically means we lose our cash cow
Yes weā€™d receive cash in exchange, but the cash would not justify the current valuations.

Aster would have deploy this cash and then build up the same level of operations it had back in GCC and the chances of that to happen is very unlikely.
GCC business was very much a monopoly because of few hospitals and very high insurance penetration. In India you have significant competition with low insurance penetration.

Hence this deal is really unfavourable to retail investors.
Let me know what you think? Am I missing something?

4 Likes
47

Hi Rishabh

An alternate view for your consideration

1. Valuation post demerger (analysis done on a pre-tax basis for simplicity - please do your own post tax assessment of cash payment)

  • Market cap today (pre-merger): ~Rs 20,000 cr
  • Implied market cap for India business: Rs 11,800 cr (Rs 8,200 cr equity value of GCC business based on equity value of Rs 1 bn)
  • Implied EV/EBITDA (TTM) of India business net of cash = 23 (EV/India TTM EBITDA. Assume 100% GCC equity value paid out)
  • From an industry perspective, you could look at other similar companies (my review was EV/EBITDA is of the magnitude of 18-40). So on a relative basis looks fairly valued to undervalued (depending on what multiple you use). Once detailed historical financials for India business are available, should be possible to understand DCF basis

2. GCC Cash cow and outloook for future investments

  • While the GCC was the cash cow for the business, the India business is now generating cash - using EBITDA as a proxy for OCF, it now contributes 31% of EBITDA (TTM) vs 29% in FY22.
  • Key drivers for improvement in cash flow is maturity of Indian hospitals (>3 years), more leased land for hospitals, brownfield rather than greenfield expansion and initial testing of asset light O&M options
  • Cash flow should further improve as newer hospitals also mature (ROCE of hospitals >3 years is 25.8% vs total ROCE of 14.1% for India)
  • Perhaps the GCC might have provided some incremental cash for further expansion. It now appears that for keeping the same pace of expansion, there would likely be an increase in debt in India (headroom is improved after higher debt GCC entity separates) and likely Private Equity investment (as per the Q2 FY24 call and general interest in the industry). Of course, PE investment will result in dilution - but the expectation is that they should drive further value

3. Competitive dynamics

  • Supply side competition: There are indeed many hospitals in India (large national - Apollo, large regional - Narayana, Aster, Max, Medanta, etc, plenty of small ā€˜unorganisedā€™ local ). Within regions the competitive dynamics vary - e.g. in Kerala I would say that Aster is the market leader. In Karnataka it is more competitve. However, I am not convinced being a national players adds any benefits compared to regional for hospitals (unlike pharmacies where procurement volumes matter). Happy to hear alternate views
  • Demand side drivers: I am not sure India is yet at a stage where Supply > Demand. If you look at most hospitals, mature hospitals are able to maintain 65%+ occupancy with increasing ARPOBs. New hospitals reach similar numbers in 3 years. We are perhaps still in a secular demand stage which will only accelerate with increasing wealth, health awareness and insurance penetration

Hope this helps in your thoughts

Disc: Invested with a full position and likely to be biased. Am not a SEBI registered advisor and none of the above is investment advice - please do your own due diligence

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* From an industry perspective, you could look at other similar companies (my review was EV/EBITDA is of the magnitude of 18-40). So on a relative basis looks fairly valued to undervalued (depending on what multiple you use). Once detailed historical financials for India business are available, should be possible to understand DCF basis

Narayana Hrudayalaya Ltd
EVEBITDA 21.5
Operational Beds - 6096
Founded - 2000 - 24 year ago.

Compared to Aster India
EVEBITDA ā€“ Valued more than NH post demerger
Operational Beds - 4080 (India - other than Kerala it is Asset light)
India operation started around 2014.

Key aspect is Aster yet to establish out side Kerala which enjoy its GCC brand recall.

My one cent is India business is unfavorable.

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49

Interesting view Mr. Amrish - you are certainly more experienced than I am in the markets, and have clearly found a contrarian bet.
However, prima facie I would still stay away from Aster given my experiences when promoters sold the cash cow.

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Dividend by Aster shall be in the range of Rs 110 to Rs 120/= per share

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51

Shareholders approve separation of GCC business from India Business of ASTER.

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Why did Aster DM fell by 20%, any reason?

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Itā€™s trading ex dividend