Buy Aster DM Healthcare; target of Rs 620 Prabhudas Lilladher

Prabhudas Lilladher's research report on Aster DM Healthcare

ASTER DM Healthcare (ASTERDM) board has approved merger with Quality care that makes them third largest healthcare chain by revenue and bed capacity in India. The deal was transacted at swap ratio of 57.3: 42.7 in favor of Aster shareholders. We believe transaction was done at 26% premium from ASTERDM relative to Quality Care despite similar pre IND AS EBITDA adjusted for minority based on FY25E, which is justified and done at fair value in our view given higher growth profile for AsterDM. Our back of envelope calculation suggest ~Rs20bn EBITDA in FY27E vs Rs10.8bn in FY24 for combined entity adjusted for rental and minority. This implies 24% EBITDA CAGR over FY24-27E. The combined entity is trading at 21.5x EV/EBITDA on FY27E which is still at 10-20% discount to some of peers, which is unwarranted given higher growth profile, backing of marquee PE investors like Blackstone and combined entity scale of operations.

Outlook

We maintain our Buy rating with revised TP of Rs620/share, valuing 27x EV/EBITDA for combined entity.