Buy Aster DM Healthcare; target of Rs 224: Axis Capital

Axis Capital 's research report on Aster DM Healthcare

Despite seasonally weak quarter for GCC region (83% of revenue), Aster posted strong performance in hospitals and clinics business. EBITDA grew to Rs 1.4 bn (Rs 480 mn in Q1FY18) and EBITDA margin expanded 460 bps YoY at 7.7% on (1) higher ARPOBs; (2) growth in inpatient volumes; (3) higher footfalls in clinics and pharmacies; (4) maturity of hospitals; and (5) rich case mix. On blended basis, inpatient volumes grew 9% YoY with ARPOB at Rs 57,500 (vs. Rs 49,300 in Q1FY18) and occupancy stood at 58% (vs. 60% in Q1FY18). We expect profitability to soar over next 2-3 years as (1) GCC (ex- Saudi) continues to grow on new asset creation and existing facilities maturing, (2) Saudi facility turns around, and (3) Indian facilities mature.

Outlook

Mandatory health insurance in Dubai and Abu Dhabi (~60% of GCC business) and other emirates likely to follow suit should sustain long-term growth and profitability. Maintain BUY with TP of Rs 224 (13x FY20E EV/EBITDA).