Aster DM Healthcare
CMP – 149
Mkt Cap – 7500 Crores
Revenue FY18 – 6721 Crores
Net Profit FY18 – 269 Crores
P/E – 29x (FY18 Full Year)
Debt To Equity – 0.96
Promoter Holding – 37.45%
ISSUE PRICE – 180-190.

Aster DM Healthcare is a healthcare stock as the name suggests.
Aster is headed by Dr. Azad Moopen (Padma Shri 2011)
Aster is the only listed hospital business which has a wide reach outside India.
As of date, ASTER has 10 Hospitals across GCC (Gulf Countries), 104 Clinics and 216 Pharmacy Stores.
While in India, they have 11 Hospitals and 9 Clinics.

If we look at total Beds, Across GCC they have 1048 beds and in India they have a total of 4038 beds.
Out of which total operational beds are 841 in the GCC and 2906 in INDIA (Total 3747 operational beds)
Occupancy is around 60% on a consolidated basis in total.

Aster has the largest number of medial centers or Poly clinics in the GCC it also is the largest chain of pharmacy in UAE.
Aster’s key focus area remains GCC however they had expressed interest in tapping Tier II, Tier III cities in India but a properly structured plan has not emerged yet.
Aster has taken over many sick hospitals that have not been performing great which is why their operational beds figures as well as India numbers remain suppressed with lower realizations too.

Aster operates with an Asset Light Model in GCC, most of their hospitals are leased and not owned properties.
While in India, Aster’s majority of hospital properties are owned.

Aster came out with an IPO in February 2018 with an issue Price of 180-190.
There is some degree of cyclicality in its business which makes December and March quarter their best ones.

Aster reported 83% revenue from GCC and 17% revenue from India.
If we break up the segments, 46% of the revenue was from Hospital Business, 28% from Pharmacy and 26% from Clinics.
The bottom-line had 50% contribution from Hospitals, 23% from Pharmacy and 27% from Clinics.

Coming to the valuations, While the market chorus would say there is other income and everything else in the figures.
What makes ASTER a buy at current valuations?
We feel ASTER is the cheapest hospital stock available in the markets right now.

Lets take a look at ratios :-
Aster trades at a P/E of 29 (including large other income in profits)
Apollo trades at a P/E of 144 (consolidated)
Apollo trades at a P/E of 70 (standalone)
Fortis P/E is n/a as its loss making.

On price to book front :-
Aster trades at 2.60
Apollo trades at 4.64
Fortis trades at 1.84.

Now they key ratio which I like to look at is Market Cap to Revenue.
Let us look at the latest M&A in this industry first, that is IHH Healthcare takeover of Fortis Healthcare.
Fortis today trades at a market cap of 7200 crores on a revenue of 4561 crores.
Fortis has a total of 4800 operational beds, Fortis has been largely under the clouds and litigation for wrong doings of their erstwhile promoters.
Thats a mcap/revenue of 1.57.

Now take a look at Apollo Hospitals.
AH trades at a market cap of 17316 crores on a revenue of 7720 crores.
AH has a total of 10084 operational beds and we can call it the listed market leader.
But if we take Apollo Hospital consolidated numbers the revenue figure is 8243 crores.
That’s a mcap/revenue of 2.10.

On a Market Cap of 7500 crores, its total revenue for FY18 was 6721 crores.
With total operational beds at 3747.
Aster trades a mcap/revenue of 1.11.

Yes, lower valuations compared to the often called “cloudy” Fortis.
The promoter of Aster has recently been buying from open market according to insider trade declarations. 
I have chosen to ignore smaller listed players like Shalby Hospitals which command far more premium at 3.55 mcap/sales and also at par valuation smaller players like Narayana Hrudalaya and Kovai Medical.

All in all we feel Hospital & Healthcare sector is going to be in focus going forward, Aster is a good bet and a unique Multi national healthcare business available at cheaper valuations.

With the buzz word being Political-Risk free and also Recession-Proof, Hospital Industry is supposed to do well both in India and abroad.

While most of the hospital businesses listed in India have a Pharmacy element of atleast 15-20% in their bottom-line and the way e-Pharmacy becoming a threat in India.

We think Aster hedges that risk well because it is a GCC focused business which is not a HOT start up arena for E-Pharmacy.

Aster Website
Latest Investor Presentation
Screener of Aster

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Aster DM Healthcare Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.


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