Buy Aster DM Ltd For Target Rs.870 by Motilal Oswal Financial Services Ltd
Operational beat on higher patient volumes Capacity expansion and synergy realization strengthen growth visibility
* Aster DM Quality Care (ASTERDM) delivered a strong 2QFY27 performance, with revenue growing 19% YoY on a pro forma basis to INR28.3b, 4% ahead of our estimates. Growth was broad-based across hospital clusters and maturity levels, supported by higher patient volumes and improving realizations. Proforma operating EBITDA grew 25% YoY to INR6.8b, with a 111bp margin expansion to 24%. However, higher interest costs moderated the flow-through to earnings.
* Across hospital maturity cohorts mature hospitals delivered ~17% YoY revenue growth in 2QFY27, while emerging units grew ~61% in 2QFY27. Focus and underperforming hospitals also delivered healthy growth of 10% and 20%, respectively, indicating improving performance across the network.
* All regions sustained double-digit growth in 2QFY27, led by Kerala and Tamil Nadu (+23% YoY), followed by South-West and Central (+16%) and SouthEast (+13%). The performance reflects healthy demand across geographies, with occupancy improving across all three regions.
* Revenue growth reflects both volume expansion and premiumization. Patient volumes grew 12% YoY in 2QFY27, while higher clinical complexity supported the mix, with CONGO revenue increasing 16%.
* The expansion pipeline remains healthy, with plans to add 4,230 beds, taking total capacity to over 15,000 beds. The mix of brownfield and greenfield additions provides a balanced growth runway, while commissioning is phased over the coming years.
* We raise our FY27/FY28 estimates by 1.2%/2.5%, factoring in the stronger operating performance and improving growth trajectory across the network.
* We value ASTERDM at 25x 12-month forward EV/EBITDA to arrive at our TP of INR870. We remain positive on the stock aided by:
a) an established hospital network
b) healthy growth across clusters
c) visibility from capacity expansion, with scope for further margin improvement from synergy realization. Reiterate BUY
Healthy pro-forma growth with margin expansion
* ASTERDM’s 2QFY27 revenue jumped 136.3% YoY to INR28.3b (7% beat).
* On pro-forma basis, its revenue grew 19% YoY to INR28.3b from INR23.8b in 2QFY26.
* EBITDA margin expanded 250bp YoY to 23.4%. This was due to a decrease in employee and other expenses (down 120bp/40bp as a percentage of sales).
* EBITDA grew 165.5% YoY to INR6.6b (beat by 20%).
* Adj. PAT grew 147.5% YoY to INR2.7b (miss by 5% due to higher-thanexpected interest costs).
* On proforma basis, EBITDA/PAT grew 25%/28% YoY for 2QFY27.
* For 1HFY27, the revenue/EBITDA/PAT surged 82%/103%/116% to INR41.4b/INR9.3b/INR4.3b.
Highlights from the management commentary
* Merger synergies contributed INR166m in Q2FY27, translating to an annualized run rate of INR650m toward a full targeted potential of INR2b. Management expects to reach the full INR2b synergy annual run rate within the next 3 to 4 quarters, achieving full P&L recognition within 6 to 7 quarters.
* The synergy program is managed across a 10-point wheel covering material costs, clinical programs, IT integration, F&B insourcing, renewable energy, and doctor sharing, with 30% of articles already harmonized to the lowest vendor pricing.
* Management expects the full-year operating EBITDA margin to reach 24% to 25% over a 2–3-year horizon, factoring in incoming greenfield beds, brownfield ramp-ups, and synergy realization.
* Occupied bed growth of 8% YoY outpaced operational bed expansion, increasing bed occupancy by 335 bps to 68%.
* The company onboarded more than 100 doctors across the network in H1FY27 while launching new Centers of Excellence including the Arise Robotic Spine Institute at Aster CMI, Care Cancer Institute in Raipur, and Fetal Medicine Center at Aster Medcity.
* The company demonstrated rapid EBITDA breakeven across newly commissioned hospitals: Aster Whitefield in three months, Nagercoil in four months, and Kasaragod in nine.
* Capacity-driven growth will be propelled by the phased rollout of 4,230 expansion beds, starting with 1,200 greenfield beds over the next 18 months. The 454-bed Aster Trivandrum hospital is progressing on schedule for FY27.
Key operational updates
* Mature Hospitals (64% operational beds, 73% hospital revenue, 83% operating EBITDA): Revenue grew 18% YoY led by 11% volume growth and rising procedural complexity, generating a 30.2% operating margin in H1FY27.
* Focus Hospitals (15% operational beds, 15% hospital revenue): Revenue increased 13% YoY supported by 7% patient volume growth, with ongoing clinical enhancements tracking toward a 25% EBITDA margin benchmark.
* Emerging Hospitals (10% operational beds, 6% hospital revenue): Revenue grew 62% YoY on a 53% increase in patient volumes, driven by strong operational ramp-ups at Kasaragod and Nagercoil.
* Underperforming Hospitals (11% operational beds, 5% hospital revenue): Revenue grew 24% YoY with 7% volume growth, driven by higher occupancy and outpatient-to-inpatient conversion, expanding EBITDA margins by 700 bps and more than doubling operating EBITDA.
Maintain Buy
* We raise our FY27/FY28 estimates by 1.2%/2.5%, factoring in the stronger operating performance and improving growth trajectory across the network.
* We value ASTERDM at 25x 12-month forward EV/EBITDA to arrive at our TP of INR870. We remain positive on the stock aided by:
a) an established hospital network
b) healthy growth across clusters
c) visibility from capacity expansion, with scope for further margin improvement from synergy realization. Reiterate BUY.
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