IPO Note - Aster DM Healthcare Ltd - Avoid - By SSJ Finance & Securities

Atish Matlawala, Senior Analyst, SSJ Finance & Securities

Aster DM Healthcare Ltd (ADHL) is one of the largest private healthcare service providers which operates in multiple GCC states and is an emerging healthcare player in India. ADHL operates in all of the GCC states (UAE, Oman, Saudi Arabia, Qatar, Kuwait, Bahrain and Jordan), India and the Philippines. The company operates in multiple segments of the healthcare services industry, including hospitals, clinics and retail pharmacies. As of September 30, 2017, the Company had 17,408 employees including 1,417 full time doctors, 5,797 nurses, 1,752 paramedics, and 8,442 other employees (including pharmacists). GCC operations are headquartered in Dubai, UAE, while Indian operations are headquartered in Kochi, Kerala.

Long standing presence across GCC states and India with strong brand equity

ADHL is one of the largest private healthcare service providers which operate in multiple GCC states based on numbers of hospitals and clinics, according to the Frost & Sullivan Report, and an emerging healthcare player in India. Company believes that it is well placed to capitalise on the expected growth in healthcare sector in the GCC states due to our early mover advantage, strong brand presence using a targeted strategy of offering different brands to cater to diverse group of customers and existing track record.

Further, the presence of its pharmacies at multiple locations across various GCC states also enhances the visibility of its brands.

Well diversified portfolio of service offerings to leverage multiple market opportunities

ADHL has established presence across multiple geographies, multiple healthcare delivery verticals and serve multiple economic segments. It provides healthcare services in the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait and Bahrain, which comprise all of the GCC states, in Jordan (which it classifies as part of its GCC operations) and in the Indian cities of Kochi, Kolhapur, Kozhikode, Kottakkal, Bengaluru, Vijayawada, Guntur, Wayanad and Hyderabad. It operates clinics in Manila, Philippines. It operates in multiple formats providing a wide range of services through its diverse network of 9 hospitals, 90 clinics and 206 retail pharmacies in the GCC states, 10 multi-specialty hospitals and 7 clinics in India, and 1 clinic in the Philippines as of September 30, 2017.

Valuation

ADHL has reported a CAGR of 32.5% and 30.6% on revenue and net profit fronts respectively over FY2013-2017. On its upper band of price of Rs 190, the issue is priced at PE ratio of 28.7x of its FY2017 EPS of Rs 6.6. Most of its revenues comes from UAE and hence ADHL fortunes are directly related with oil. With lower oil prices we believe ADHL will face pressure on margins. Hence, we recommend to Avoid the IPO.

Source : Equity Bulls

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