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Published on 14/02/2018 5:38:43 PM | Source: Prabhudas Lilladher Ltd

IPO Note - Aster DM Healthcare Ltd - Prabhudas Lilladher

Aster DM Healthcare Limited is one of the largest private healthcare service providers, which operate in multiple Gulf Cooperation Council (GCC) states and is an emerging healthcare player in India. The company operates in multiple segments of the healthcare industry, including hospitals, clinics and retail pharmacies and provide healthcare services to patients across economic segments in several GCC states. Incorporated in 2008 in a re‐organisation to facilitate the growth of operations, operations in the GCC states and India were consolidated under one Company

* Diversified revenue sources from hospitals, clinics and pharmacies: Aster has an established presence across multiple geographies, with multiple healthcare delivery verticals that serve multiple economic segments. They operate in multiple formats providing a wide range of services through a diverse network of 9 hospitals, 90 clinics and 206 retail pharmacies in the GCC states, 10 multi‐specialty hospitals and 7 clinics in India, and 1 clinic in the Philippines. Aster DM has expanded to 323 operating facilities in 9 Countries, including 19 hospitals with a total of 4,754 installed beds.

At the upper end of the price band of Rs180‐190, the post money valuation of Aster is Rs97.98bn at the higher end of the band. With 81% revenue contributions from GCC countries, Aster is looking forward to expand its Indian business and increase revenue contribution from India to 30‐35% in the next 2‐3 years. Aster plans to set‐up 5 new hospitals in India and GCC each by FY22E. While Aster’s asset‐light lease model for setting up of hospitals results in higher ROCE vs. peers, it may take a longer than planned execution time to increase presence in India and de risk revenue mix. The risks of a) dependence on operations in the GCC States and its related risks (i.e. foreign ownership restrictions and changing political developments) and b)retention of specialized doctors (employee costs already being 35% of sales) may trigger underlying risks in case of adverse situations. We believe the IPO is fairly priced at current risk‐return matrix. With plan of strong capex for owned hospitals, increasing opex with setting up of new hospitals on lease model and longer gestation period, investment in Aster will be beneficial in long‐term outlook. We recommend "Subscribe", with a long term investment horizon.

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