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Our Take:

Aster DM Healthcare Ltd has a unique business model among Indian healthcare service providers with a strong established presence in GCC (Gulf Cooperation council) and India. While the India expansion remains on an investment curve, a firm presence in GCC helps the company in pursuing aggressive expansion in both GCC and India albeit via an asset light model.

The company has a diversified portfolio of healthcare facilities, consisting of 26 hospitals (bed capacity 4873), 115 clinics and 225 retail pharmacies; of which 13 multi-specialty hospitals and 9 clinics are in India. The business model is further diversified through the company’s different formats within hospitals and clinics targeting different economic segments – Medcare, Aster and Access.

Aster’s quality of medical care and track record of building long term relationships with its doctors and other medical professionals has enabled it to build a strong brand across its area of operations and gain consumer confidence. Aster continues to focus on expanding its operational capacity through inorganic growth in the GCC and Indian healthcare market.

Valuations & Recommendation:

Aster DM Healthcare Ltd, over 30 years, has created a healthcare eco-system across two key geographical regions. Being present in GCC and India, Aster drives multiple operational as well as strategic synergies. While in GCC, it offers services across hospitals, clinics & pharmacies, providing primary, secondary and tertiary/quaternary care, it leverages its brand to source quality medical professionals through its India operations. We are positive on Aster’s integrated business model and expect a gradual improvement in margins and RoCE on the back of higher occupancy and capacity optimisation in new assets once pandemic related risk wanes-off. GCC is a lucrative healthcare market for Aster given low capex intensity and strong margin resulting in high RoCE.

India market continues to be the growth engine. We expect profitability to see a sharp improvement over next 2-3 years led by improving maturity mix in UAE and India hospitals, margin expansion in Indian operations, restructuring strategy of clinics portfolio and improvement in occupancy ratio on the back of increasing need for healthcare services. Going forward, we remain optimistic about the opportunities available in India and the GCC markets in healthcare industry.

With investment strategies in place and a team of excellent doctors with a common vision of providing quality healthcare service, we believe that Aster DM is well poised for sustainable growth. We believe the base case fair value of the stock is Rs 163 (14.5x FY23E EPS; 7.4x FY23E EV/EBITDA) and the bull case fair value of the stock is Rs 180 (16x FY23E EPS; 7.9x FY23E EV/EBITDA) over the next two quarters. Investors can buy the stock at LTP and add on dips to Rs 134-135 band (12x FY23E EPS; 6.5x FY23E EV/EBITDA). At the LTP of Rs 147.95, the stock is trading at 13.2x FY23E EPS; 6.9x FY23E EV/EBITDA.

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