Accumulate Aster DM Healthcare Ltd for Target Rs. 582 by Elara Capitals
Temporary glitches in Kerala
Aster DM Healthcare’s (ASTERDM IN) Q4FY25 results were below expectations – Revenue, EBITDA and PAT missed our estimates by 10%, 24% and 17%, respectively. As in Q3, in Q4 too, weakness in the Kerala cluster, which forms half of overall revenues, was the culprit. Karnataka/ Maharashtra and Andhra Pradesh/ Telangana clusters continued to post robust growth. The proposed merger process with Quality Care India (QCIL) is progressing well (closure timeline is now Q4FY26). ASTERDM has indicated INR 300mn of synergy benefits in FY26 and has given proforma FY25 revenue and EBITDA numbers for the combined entity. We continue to view the deal as neutral-to-marginally value-accretive. We cut our FY26E and FY27E core EPS estimates in 10-12% range. We retain Accumulate with a higher TP of INR 582.
Temporary weakness in Kerala cluster: In the Kerala cluster, revenue was down 4% YoY and EBITDA 2% YoY. ASTERDM attributed this weakness to the Ramzan season, flux in the cluster’s management team and deliberate control on patients from Maldives (due to payment issues). We view this weakness as temporary and project high single-digit to low double-digit sustained growth. Addition of Aster MIMS at Kasargod and Aster Capital at Thiruvananthapuram would bolster growth in FY26/27.
Other clusters continue to report robust growth: Karnataka / Maharashtra cluster delivered 16% revenue and 22% EBITDA growth, as expected. Occupancy was slightly lower but was offset by superior average revenue per operating bed (ARPOB) growth. Andhra Pradesh / Telangana cluster continued its post operational improvement – Revenue grew 11% and EBITDA 62% YoY. We expect both the clusters to continue to deliver mid-teen revenue growth and higher EBITDA growth in the near term. Addition of 159 beds (Block D) at the Aster Whitefield hospital, of 350 beds in Aster CMI and a Woman and Child Hospital in Hyderabad should drive growth in these clusters in FY26 and FY27.
Management optimistic on margins: EBITDA margin rose ~300bps in FY25 to 18.5%, led by structural initiatives. ASTERDM targets further improvement in margin through operational efficiencies and brownfield expansions in bed capacity. Together with the synergies from QCIL merger, ASTERDM aims to take the EBITDA margin to 23-24% in 3-4 years.
QCIL merger on track: ASTERDM recently signed definitive agreements to merge with QCIL, a prominent unlisted firm in the hospitals space, with Blackstone and TPG as controlling shareholders. Quality Care India Limited (QCIL) runs 26 healthcare centers with 5,150+ beds across Kerala, Telangana and Bangladesh. Per ASTERDM, the process is progressing and it expects completion in Q4FY26. We are not building in the deal into our forward estimates at this stage and await clarity on the detailed financials.
Retain Accumulate with a higher TP of INR 582: We cut our FY26E and FY27E core EPS within 10-12%. ASTERDM trades at 81.7x FY26E core P/E and 38.3x FY26E EV/EBITDA (preIndAS). We retain Accumulate with a higher TP of INR 582 (from INR 521), which is 32.6x FY28E EV/EBITDA (pre-IndAS), as synergies from the QCIL deal justify a premium multiple. Increased competition in the space and adverse government regulations are key risks.
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SEBI Registration number is INH000000933
