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Shifting focus to India biz

Aster’s 3QFY22 beat expectations on the back of third consecutive quarter of India outperformance as the company shifts focus to India. Revenue/ EBITDA/ PAT of INR 26496 mn/ 3971 mn/ 1483 mn were +19%/+21%/+61% YoY and were +8%/+3%/+7% vs. our estimates. EBITDA margin improved by c.30 bps YoY to 15% (JMFe: 15.6%). India hospitals Revenue/ EBITDA of INR 6180 mn/ 1040 mn delivered a meaningful beat (+55%/+145%) as capacities continue to ramp up with over 60 beds being operationalized in 3Q. While GCC hospitals’ occupancy rose to c.52% (vs. 47% YoY), it was offset by lower ARPOB of INR 189900+ (vs. INR 194300+ YoY) only to report flat revenues YoY. GCC Hospital margins remain subdued at 16.2% (ex-Sanad c.18%) and are expected to revert to 17-18% once the Saudi assets are monetized in FY23. GCC Pharmacies and GCC Clinics reported a stellar show driven by increased RTPCR testing due to Omicron surge. Aster Labs has set up 1 reference lab, 8 satellite labs and 57 patient experience centres (‘PEC’) till date and intends to further add 10 labs and 40+ PEC in 4Q. The company has aggressive plans to scale up Aster Labs to 33 labs with 400+ PECs by the end of FY23. Aster continues to invest in digital initiatives including in their app ‘One Aster’ offering tele-consulting, diagnostic, e-pharmacy & wellness services to patients in UAE which is also expected to be mirrored in India. With over 400 beds to be operationalized in India in FY23, Aster’s India vision now envisages around 40-50% Revenue/ EBITDA contribution over the medium term by investing (c.INR 3bn+ annually) in various brownfield/ greenfield projects. To increase pharmacy footprint, Aster plans to add c.170 stores and foray into e-commerce by FY23. The management further announced that the company is in active discussions to on-board strategic investors for GCC business. Aster continues to trade at a significant discount to peers with increasing EBITDA contribution from India business to drive consensus upgrades hereon. Reiterate BUY with Price Target of INR 290.

Key operating details:

GCC performance muted; India business outperforms again:GCC hospitals revenue grew by 8% YoY (flat QoQ) to INR 8680 mn. GCC hospitals occupancy stood at 52% (vs. 47% YoY; 51% QoQ). GCC ARPOB decreased by c.2.3% YoY to INR 1,89,900. In-patient & out-patient volumes grew by c.15% YoY & c.32% YoY respectively. GCC Clinics and Pharmacies reported increase of +19%/+22% YoY with EBITDA surpassing expectations driven by increased RTPCR tests in GCC Clinics due to Omicron surge. India hospitals revenue (including contribution from clinics & labs) grew by 34% YoY (flat QoQ) to INR 6180 mn. India ARPOB grew by c.12% YoY to INR 33,600 with Inpatient/Outpatient visits surging 36%/55% YoY.

Strategic focus shifts to India: The company targets 40-50% Revenue/ EBITDA contribution from India business over the medium term thereby allocating majority of capex budget (INR 3 bn+) for the same. The company aims 33 Aster labs with 400+ PECs along with c.300 pharmacies by the end of FY23. The company is in active discussion with prospective partners for strategic sale of GCC business. The company is also on track

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