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India recovers; GCC recovery remains slow

Aster DM Healthcare’s (Aster) Q4FY21 performance was broadly inline with our estimates, though margin was lower due to higher S,G&A expenses, particularly related to COVID-19 patients which would normalise. Overall occupancy improved marginally YoY and QoQ to 58% during Q4FY21. Consolidated revenue grew 4.8% YoY to Rs23.9bn (I-Sec: Rs23.2bn), India hospitals witnessed healthy recovery with 19.7% YoY growth. EBITDA margin declined 370bps YoY to 14.0% (I-Sec:15.7%) due to significant rise in other expenses. We expect overall business to stabilise in FY22 and expect strong 15.3% revenue CAGR over FY21- FY23E. We believe the company’s approach of asset-light expansion and an improving margin trajectory (300bps over FY21-FY23E) would aid positive FCF generation. The company reduced net debt by ~Rs8bn in FY21. Maintain BUY.

India recovers well, GCC to normalise soon:

Revenue grew 4.8% YoY led by healthy recovery in India business. GCC segment was impacted by 2nd wave of COVID-19 which moderated revenue growth to 5.2% YoY. Indian hospitals grew 19.7% YoY. Easing of lockdown restrictions in India aided the improvement in occupancy. India hospital witnessed increased footfall resulting in higher occupancy at 61% vs 56% YoY. Occupancy at GCC hospitals was down to 49% vs 58% YoY. GCC Clinics business grew 12.7% but Pharmacy business declined 13.2% due to lower footfalls. 2 nd wave of COVID-19 has impacted the business in GCC region and we expect gradual recovery as large part of population has been vaccinated.

Higher COVID-19 patients related expense impacted margins:

Overall, the consolidated EBITDA margin dropped 370bps YoY to 14.0% against our estimate of 15.7%. This was primarily on account of incremental business in GCC from COVID19 patients where company outsourced lab tests and its related expenses were much higher during Q4FY21. We expect this amount to normalise as COVID-19 patients come down and base business picks-up. We expect the company to return to normal EBITDA margin profile in FY22E and estimate EBITDA margin to rise to 15.3% by FY23E.

Outlook:

We expect Aster to report 15.3/28.2/125% revenue/EBITDA/PAT CAGRs, respectively, over FY21-FY23E largely driven by the hospital business while clinics and pharmacies would continue their steady growth. The company will be investing total capex of Rs5.8bn in FY22E including Cayman island project. We expect RoE/RoCE to gradually improve to 17.6%/10.6% by FY23E. The company reduced net debt by ~Rs8bn in FY21 from internal accruals.

Valuations:

We cut revenue and EBITDA estimates by 1-2% and 5-6% respectively for FY22-FY23 to factor in impact of 2nd COVID-19 wave. Maintain BUY with a revised SoTP-based target price of Rs193/share based on FY23E (earlier: Rs200/share). Key downside risks: Regulatory hurdles, delay in recovery post COVID-19 and delay in turnaround of new hospitals.

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