Margins to scale up.
Currently, the company enjoys ~20% OPM in the Indian hospital segment and has guided for 300-400bps margin improvement over the next 2-3 years. Key drivers will be bringing more efficiency in consumables, faster ramp-up in the Whitefield facility, and occupancy scale-up.
Further, ASTERDM intends to add 500 beds through brownfield expansion in FY25 which will be margin accretive. Also, losses from pharmacy and labs have come off from Rs280m to ~Rs160mn in FY24. This should achieve a break-even in FY25 and start contributing from FY26. Overall we see consolidated margins for India business to improve from the current level of 16% to 19.6% in FY26E.
GCC stake sale – Contours of the transaction.
ASTERDM board has approved a 100% sale of its GCC business for an equity value of $1.01bn and EV of $1.3bn (Rs106bn; ex of lease). Out of a total of $1.01bn proceeds- receipts of $99mn are subject to certain conditions ($70mn on achievement of certain EBITDA by GCC in FY24). The sale transaction is expected to be completed by Q4FY24/Q1FY25. Management cited 75% of total proceeds to be distributed (Rs55-60bn; Rs110-120/share) as dividends and the rest to be utilized for inorganic initiatives and capex for Indian business.
India Financials:
Overall, we expect ASTERDM’s India revenues to increase 15% CAGR from FY24-26E; largely aided by occupancy scale-up and 500-bed addition through brownfield in FY25E.
India ARPOB to remain healthy at 6-7% YoY growth on improved case mix.
Gross margins to expand +100bps bps over FY24-26E on account of operational efficiencies resulting from consumables.
We expect India's EBITDA to grow at 27% CAGR over FY24-26E aided by ramp-up in occupancies, value accretive brownfield expansion of 500 beds in FY25E and breakeven in ASTER Lab & wholesale pharmacy biz by FY25E.
PAT to reach at Rs. 5.5bn by FY26E; supported by increased other income resulting from likely cash proceeds from GCC business stale sale.
At the current market price, adjusted for GCC and minority stake, the India business is trading at 17x EV/EBITDA on FY26E respectively which is at a 1540% discount to listed peers.
We believe such a steep discount is unwarranted given a similar growth profile. We maintain a ‘BUY’ rating with a revised TP of Rs515 (earlier Rs. 500) valuing the India hospital segment at 22x EV/EBITDA on FY26E EBITDA. Timely closure of GCC divestment and utilization of proceeds will be key monitorable in the near term.
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