Is This Hospital Stock With Strong Presence In Gulf Headed Sharply Higher?

Brokerage firm Prabhudas Lilladher has a buy call on the stock Aster DM Healthcare and sees a higher price target for the stock.

Strong presence in Gulf and India

According to the brokerage firm, Aster DM Healthcare has a unique business model with presence in India and an established business with strong returns in the Gulf region. For the quarter ending June 30, 2022, the Gulf region hospital business reported moderate EBITDA growth of 2% YoY to Rs1.3 billion, while India hospital business reported healthy EBITDA growth of 18% YoY.

Price target of Rs 234 on the stock

At current market price, the stock trades at an attractive valuation of 8x FY24E EV/EBITDA, which is at 25-50% discount to Indian peers. "We believe such high discount reflects Aster DM Healthcare's lower contribution from India region and higher capital outlay outside India. Also, such steep discount is unwarranted given stable profit trajectory and reduction in leverage. We maintain our estimates and 'Buy' rating with target price of Rs 234 per share based on 15x FY24E EV/EBITDA to India business and 7x EV/EBITDA to GCC business," Prabhudas Lilladher has said.

What the management says?

According to Prabhudas Lilladher, the management in a concall revealed that the GCC biz was impacted by seasonality in Q1. Further losses from new hospitals commissioned in GCC were at Rs160 mn during Q1 (2).

The management guided EBITDA margins to improve to 17-18% for GCC hospitals by Q4 while in case of India hospital biz guided for 18% and 20% OPM by FY23 and FY24, respectively (3) Delay in launch of 145-bedded Aster Royal Hospital in Muscat was due to regulatory approvals. Aster DM Healthcare had soft launched of 110 beds in Sharjah.

Huge demand in Trivandrum likely

The management sees a huge demand-supply gap in Trivandrum and expect an early break-even of this project. They reiterated capex plan of Rs. 6 billion for FY23 of which Rs. 3bn for India expansion. India Labs and wholesale Pharmacy biz reported revenues and EBITDA loss of Rs. 420 million and Rs. 80 million, respectiv

Stake sale in Saudi operations: An update

According to the Prabhudas Lilladher report, the company guided to explore minority stake sale for Saudi operations. Earlier, Saudi exit was planned due to high capital requirement but post restructuring, profitability has improved

How the stock of Aster DM Healthcare has performed?On the NSE the stock of Aster DM Healthcare was seen trading at Rs 207. The stock had hit a 52-week high of Rs 244 and a low of Rs 158. Investors are advised to buy into stocks with caution, as the Sensex has surged past the 60,000 points mark all over again. https://www.goodreturns.in/company/aster-dm-healthcare/quote.html “Market has bounced back sharply by 18% in last one and-a-half month, turning positive for YTD (CY22). It has sharply outperformed the global markets with gains of 3%. Nifty is now just 3% away from all time high and although at index level risk reward may not be favourable at current juncture, stock specific action is likely to continue in the market,” Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

On the NSE the stock of Aster DM Healthcare was seen trading at Rs 207. The stock had hit a 52-week high of Rs 244 and a low of Rs 158. Investors are advised to buy into stocks with caution, as the Sensex has surged past the 60,000 points mark all over again.

"Market has bounced back sharply by 18% in last one and-a-half month, turning positive for YTD (CY22). It has sharply outperformed the global markets with gains of 3%. Nifty is now just 3% away from all time high and although at index level risk reward may not be favourable at current juncture, stock specific action is likely to continue in the market," Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

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