ICICI Securities: Maintain ‘buy’ on aster DM Healthcare, TP Rs 168

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Published: August 27, 2019 2:12:53 AM

Recent mandate by the authorities in GCC for complete insurance coverage has increased healthcare affordability for the low income group.

Recent mandate by the authorities in GCC for complete insurance coverage has increased healthcare affordability for the low income group.

Aster DM Healthcare (Aster DM) held an analyst meet wherein it discussed its historical performance and future outlook as well as addressed several investor queries. The meeting reinforces our positive view on the company driven by a diversified business model in hospitals, clinics and pharmacies across the GCC and India that helps minimise any potential regulatory or country-specific risk.
We believe the company’s approach of asset-light expansion with improving margin trajectory (190bps over FY19-FY22E) in hospitals would aid positive FCF generation FY20 onwards. A double-digit company revenue growth (11.6%) and turnaround of new hospitals would take RoCE to 10.0% by FY22E.

We maintain our ‘buy’ rating and SoTP-based target price of Rs 168/share. Aster is one of the largest players in GCC region and has a strong network of 12 hospitals, 106 clinics and 219 retail pharmacies, which together contributed ~84% of the company’s total revenues in FY19. Recent mandate by the authorities in GCC for complete insurance coverage has increased healthcare affordability for the low income group.

This would create a strong demand, especially for the Access and Aster brand hospitals.  We expect the company to report 11.6/14.7/24.1% revenue/ EBITDA/ PAT CAGRs respectively FY19-FY22, largely driven by the hospital business. Reduced capex requirement and improving margin would aid positive FCF generation FY20 onwards. This would not only help reduce debt but also improve return ratios. The stock is attractively valued at 7.1xFY21E EV/EBITDA. Key downside risks to our call are: regulatory hurdles and delay in turnaround of new hospitals.

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