Buy Aster DM Healthcare Ltd For Target Rs. 300 - ICICI Direct
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GCC clinics, new hospitals dent margins; India margins upbeat…
About the stock: Aster operates a network of hospitals, clinics, retail pharmacies in several GCC countries as well as India.
* Its network consists of 15 hospitals, 110 clinics and 245 retail pharmacies in GCC states;15 hospitals, 11 clinics and 159 labs in India; total bed capacity: GCC: 1160, India: 3905
* Revenue break-up FY22: hospitals: 56%, pharmacies: 21%, clinics: 23% with GCC & India contributing 77% & 23% of revenues, respectively
Q2FY23 Results: Beat on the revenue front but missed on the margin front
* Revenue increased 6% QoQ to | 2816 crore, driven by strong growth in Indian hospitals
* EBITDA improved 9.2% to | 319 crore. EBITDA margins improved 35 bps QoQ to 11.3%, led by strong margin improvement in India hospitals but offset by lower margins at GCC clinics and new hospitals
* Net profit declined 32.6% QoQ to | 46.2 crore, mainly due to lower other income and higher taxation
What should investors do? Aster’s share price has grown by ~1.7x over the past three years (from ~| 145 in November 2019 to ~| 250 levels in November 2022).
Target Price and Valuation: We value Aster DM at an SOTP of | 350
Key triggers for future price performance:
* Expansion via asset light model (1000 beds through O&M) in India, keeping an eye on leverage
* Strong RoCE in GCC due to assets light model, integrated business model, faster occupancy & strong brand equity, healthy ARPOB & targeted strategy
* Increased focus on asset light retail models like diagnostics, pharmacy distribution, homecare along with push towards integrated virtual platform
* It is pursuing aggressive expansion in both GCC and India via assets light model but remains on a firm footing due to FCF generation from GCC
Alternate Stock Idea: Apart from Aster, in our hospital coverage we like Narayana
* Narayana operates a dual model, which perfectly blends established ‘’assetright’’ India business (more focus towards oncology, transplants, etc, besides cardiac pedigree) with a hospital in Cayman Islands
* BUY with a target price of | 800
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