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Kerala cluster aided profitability

Quick Pointers:

* ASTERDM + QCIL 4,000+-bed expansion plan over the next 3 years

* ARPP growth guidance at 7-8% YoY over the next 2-3 years

ASTER DM Healthcare’s (ASTERDM) Q2 consolidated EBITDA grew 13% YoY to Rs2.53bn, above our estimate; aided by better recovery in performance at Kerala cluster. EBITDA has been increasing sharply over the last 3 years (30% CAGR over FY22-25). ASTERDM’s board has recently approved merger with Quality Care (QCIL), making it the third largest healthcare chain by revenue and bed capacity in India. We remain positive on ATSERDM given the rising visibility on post-merger synergies, occupancy improvement, margin expansion and upcoming bed additions. Our FY26-27E EBITDA estimate broadly remains unchanged. We estimate combined entity post Ind As EBITDA to grow at 24%+ CAGR over FY25-28E to Rs31bn+. The combined entity is trading at ~30x and 24x EV/EBITDA on FY27E and FY28E (adjusted for minority stake and rental) respectively. We maintain our ‘BUY’ rating with revised TP of Rs775/share, valuing 30x EV/EBITDA for the combined entity on Sept FY27E.

* EBITDA beat led by recovery in Kerala cluster: ASTERDM’s EBITDA (post-Ind AS) grew 13% YoY (22% QoQ) to Rs2.53bn, vs our estimates of Rs2.2bn. OPM improved by 40bps YoY to 21.1% (180bps QoQ). Pre-Ind AS EBITDA was at Rs2.24bn (up 12% YoY) with OPM of 18.7%. Hospital EBITDA grew by 12% YoY to Rs2.83bn with OPM of 24.4%, up 40bps YoY. Cluster wise, Kerala, and Karnataka & Maharashtra cluster reported EBITDA growth of 19% and 5%, respectively, while AP & Telangana cluster’s EBITDA declined by 5% YoY. Pharmacy business reported positive EBITDA at Rs 4mn with 1.4% margins (vs EBITDA of Rs10mn with 2% margins in Q1) driven by a strategic exit from certain loss-making unit in Q1. Labs reported EBITDA of Rs 70mn with margins at 18% vs EBITDA of Rs30mn with margins at 8% in Q1.

* Strong 18% growth in ARPOB; improved occupancy by 500bps QoQ: Consolidated revenue improved 10% YoY (11% QoQ) to Rs12bn. ARPOB continues to improve 18% YoY (1% QoQ) to Rs50.6k per day aided by improved ALOS and better case mix. Occupancy was improved 500 bps QoQ at 64% vs 72% in Q2FY25. IP volumes were down by 1% YoY. ALOS improved to 3.1 days vs 3.2 days in Q2FY25. Net cash stood at Rs6.4bn as of Q2FY26.

Key con-call takeaways:

* Bed expansion and capex: ASTERDM added 200 beds in the last 12 months, taking total capacity to 5,199 beds. It commissioned 100 beds out of a 264 beds capacity hospital in Kasargod (Kerala) in Oct’25. 75 brownfield beds at Aster Ramesh Ongole and 159 brownfield beds at Aster Whitefield Block D will be operationalised in 2HFY26. The company incurred a total capex of Rs 3bn, with around 50% allocated towards expansion projects. Overall, ASTERDM plans to add ~2,300 additional beds over next 3 years through greenfield and brownfield projects, taking total capacity beyond 7,800 beds.

* QCIL expansion: Plans to invest ~Rs 20bn to add 1,700 beds in 3–4 years (Indore, Bhuvaneshwar, Onco unit in Raipur etc), including 700 beds (of which 300 beds in Tier-2 markets) through greenfield and brownfield expansion.

* The management indicated that the recent GST rate revision had no impact on OP services, while for IP cases, it led to a ~1.1% reduction in topline and an EBITDA impact of 35–40 bps. However, this is expected to be offset by the recent increase in CGHS tariffs, which is estimated to provide a positive topline impact of Rs 20mn/month, with 70–80% of the benefit directly contributing to EBITDA.

* Kerala Cluster: Witnessed strong recovery driven by higher elective and complex procedures. IP volumes grew 13% QoQ; MVT business surged 49% YoY and 67% QoQ with strong inflows from Maldives, Oman, and Middle East. Kerla cluster growth was supported by stabilized leadership, high-end specialty mix (oncology, robotic surgeries), and cost optimization. Mgmt guided MVT and complex care continue to drive growth; Kerala reaffirmed as a key growth engine for the India business.

* Karnataka and Maharashtra Cluster: Revenue grew ~10% YoY, supported by strong ramp-up at Aster Whitefield, which posted ~27% growth in Q2. Oncology contributed ~17% to cluster revenue; high-value programs in neurosciences and complex surgical care continue to scale. EBITDA up 6% YoY, partly impacted by higher material costs due to immunotherapy and targeted oncology treatments. Other mature units (e.g., Aster CMI) delivered single-digit growth; continued improvement expected in H2FY26 with stabilization and patient traction in North Bengaluru.

* AP & Telangana Cluster: EBITDA margins recovered sharply to 13.3% (vs. 7.9% in Q1FY26). Management indicated ongoing strategic review of AP & Telangana cluster for margin enhancement; long-term improvement expected from cost efficiencies and leadership strengthening. It recently increased stake in Aster Ramesh Hospitals in AP to 70%.

* QCIL performance and guidance: QCIL reported revenues of Rs12bn (15% YoY) and EBITDA of Rs2.9bn (up 22% YoY) with margins expanding 130bps YoY to 24.1% in Q2. Efficiency initiatives such as procurement centralization and F&B insourcing added ~Rs 200mn+ to EBITDA, with management guiding margins to exceed 25% going forward.

* QCIL Mature units (60% of QCIL revenue) delivered 14% revenue and 27% EBITDA growth (33% margin); emerging units (6% of QCIL revenue) posted 85% YoY EBITDA growth. Focus units (20–25% of QCIL revenues), grew 9% YoY in Q2, with Hyderabad assets showing strong double-digit growth. QCIL improving clinical mix (CONGO-T share up 80 bps to 58.5%) and adding 100 new clinicians; focus on robotic, oncology, and cardiac programs. The Nagercoil unit in Tamil Nadu, launched in Oct’24, achieved breakeven within 3 quarters and is now operating at 20%+ EBITDA margins. ARPP grew 10% YoY, with ARPOB at Rs 44k in Q2. The company plans to add 5–7 LINAC systems to strengthen oncology capabilities and expand robotic programs in Hyderabad. Expansion plan includes 1,700 beds in cities like Indore, Bhuvaneshwar, Onco unit in Raipur etc, with continued operational synergies post-merger.

* QCIL merger update: Merger progressing smoothly; BSE/NSE issued noobjection letters post approvals from CCI and shareholders. Share swap completed and AsterDM acquired 5% stake in QCIL in exchange for 3.6% preferential allotment. Currently awaiting final regulatory clearance from the NCLT and the transaction is expected to be completed by Q1FY27. Post merger combined entity’s margin guidance of 25%.

* Cost efficiency initiatives (renewable energy, centralized procurement) reduced overheads by 100 bps.

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