'Merger will be EPS accretive from first year; expect to hit 13,300 beds by FY27', says Aster DM's Alisha Moopen

Back on November 29, 2023, when Aster DM Healthcare approved the sale of its Middle East or GCC (Gulf Co-Operation Council) business to Alpha GCC Holdings Ltd for an equity value of a billion dollars, Dr Azad Moopen had told Moneycontrol that if Aster gets like-minded investors, the firm would induct them for its India business. Many PE firms had looked at Aster DM Healthcare's listed India business in the early stages. What worked in favour of Blackstone and TPG and why did you pick them?

We believe that integrating Aster and Quality Care’s extensive network and deep operational expertise with backing from Blackstone and TPG – which are among the most respected private equity firms, will enhance our ability to deliver world-class healthcare services, drive innovation, and improve patient outcomes. We were searching for a reputed partner, and Quality Care was the right platform for Aster to pursue its expansion plans while ensuring control.

In terms of specialization, life sciences have been a key investment theme for Blackstone globally, while healthcare has long been a thematic focus for TPG globally and in India. Blackstone and TPG are among the world’s largest alternative asset managers and are highly reputed in the Indian public markets, having backed numerous companies in the listed space.

What are the key synergies you see from the merger with Blackstone and TPG-backed Quality Care India Ltd?

We expect multiple synergies from the merger with Blackstone and TPG-backed Quality Care India. This merger is expected to result in synergies from revenue, procurement and supply chain, capex, and integration of corporate functions. The merged entity is positioned for substantial revenue growth, leveraging clinical depth to drive future success. The merger will also enable significant strengths, including scale, diversification, enhanced financial metrics, increased growth potential, and backing of marquee PE investors such as Blackstone and TPG.

The merged entity will be amongst the top 3 hospital chains in India by revenue and number of beds, with a significant presence across South and Central India. It will establish a diversified presence—38 units with 10,150+ beds.

The merged entity is focused on offering affordable, high-quality healthcare services to underserved markets in India. Through this merger, it expands into four additional states—Madhya Pradesh, Chhattisgarh, Tamil Nadu and Odisha. The merger also establishes the entity as one of the leaders in key regions, including Kerala, Vizag, Bhubaneswar, Raipur, Aurangabad, Indore, Hyderabad, and Nagercoil. It provides an opportunity to create micro-market leadership in key markets.

Lastly, we expect strong financial and operating metrics post-merger, with better margins and RoCE. Aster and QCIL bring a balanced mix of mature hospitals, with significant opportunities for both brownfield and greenfield expansion. Thus, there are multiple synergies that will benefit the merged entity.

Why did Aster DM Healthcare opt for joint control status post this merger and not opt for selling minority stake instead to a private equity firm, a scenario in which, it would have remained the sole promoter of the India business?

The Moopen family has been instrumental in managing Aster's India and GCC businesses and leading its growth. As per the merger plan, Dr. Azad Moopen will continue in his role as the Executive Chairman and will oversee the merged entity. Mr. Varun Khanna, Group MD of Quality Care, will be the MD and Group CEO of the merged entity. We successfully negotiated an arrangement for shared control with the private equity firms, ensuring that the business can confidently continue its growth journey under the leadership of Dr Moopen.

The merged entity will be jointly controlled by Aster Promoters and Blackstone, holding 24.0% and 30.7% ownership respectively. Having Blackstone and TPG helps bring in global expertise from two marquee firms having a successful track record in the healthcare sector.

What are the expansion plans of the merged entity Aster DM Quality Care Ltd to get a wider footprint across other markets in India and increase bed capacity?

Aster DM Quality Care Limited will have a combined portfolio of four leading brands: Aster DM, CARE Hospitals, KIMSHEALTH, and Evercare. As mentioned earlier, the combined entity will have a network of 38 hospitals and 10,150+ beds spread across 27 cities.

The merged entity is expected to grow to ~13,300 beds by FY27. ~3,100 beds are planned to be added in the next 2.5 years, of which ~ 1,880 beds through Aster & the balance through Quality Care. Out of ~3,100 bed additions, ~2,090 is brownfield, with the rest being greenfield (incl. new hospitals in Hyderabad, Kasargod, Indore, and Trivandrum).

By when do you expect the merger to be EPS accretive and are you pleased with the Aster valuation at 36.6x FY24 adjusted post INDAS EV/ EBITDA?

The merger will be EPS accretive from the first full year of operations. The transaction values Aster at 36.6x FY24 adjusted post INDAS EV/ EBITDA, which is 45% higher than the relative multiple ascribed to QCIL i.e. 25.2x FY24 adjusted post INDAS EV/ EBITDA. The merger will be highly value accretive for Aster shareholders while being scale and EBITDA margin accretive at the same time.

Do you expect a tough challenge in the crowded South market which already has leading players like Apollo Hospitals and Manipal Hospitals? What will be your strategy?

The merger further strengthens the position of the merged entity as one of the leaders in the South and Central Indian markets. The merged entity will help in creating a stronger brand presence across South India with hospitals across key locations. Therefore, we do not see a tough challenge in the South market. In fact, we see this as an opportunity to capitalise on the burgeoning demand for quality healthcare in India.

Our aspiration has always been to make specialised care available to a larger number of people through our quality healthcare services. Our regional leadership in the southern markets will enable us to effectively meet the diverse healthcare needs of South India’s population and attract international patients as well.

The current plan for Aster for the next 2-3 years is focused on Karnataka and Kerala, the merged entity will also benefit from an existing and growing presence in Maharashtra and Tamil Nadu, including Quality Care’s recent expansion into Nagercoil. Further QCIL has plans to strengthen its presence in other states of Telangana, Kerala, Odisha, and Madhya Pradesh. All in all, the merged entity will be one of the leaders in India’s healthcare sector and is well positioned in the south market as well.