Aster DM Healthcare - Lesser than expected COVID impact - ICICI Securities

Aster DM Healthcare's (Aster) Q1FY21 performance, with better occupancy in GCC hospitals, was above our estimates as COVID-19 impact was lower than expected on occupancy. Overall occupancy was down by 9% YoY to 47% in Q1FY21. Consolidated revenue declined 13.2% YoY to Rs17.6bn (I-sec: Rs14.7bn) due to 19.2% drop in India hospitals and 26.3% drop in GCC Clinics. EBITDA margin dropped 290bps to 8.1% but was higher than estimated with effective cost control. The occupancy level has significantly improved from lows of Apr'20 and management expects double digit margin Q3FY21 onwards. We believe the company's approach of asset-light expansion and an improving margin trajectory (90bps over FY20-FY22E) would aid positive FCF generation. Maintain BUY.

- Revenue growth affected by COVID-19 led lockdown: The revenue decline was mainly due to lockdown that affected hospital occupancies and footfalls. GCC hospital revenue was largely flattish supported by COVID-19 cases, although that dented ARPOB which declined 21.9% YoY. India hospital witnessed 19.2% revenue decline with lower occupancy at 41% vs 60% YoY, however ARPOB rose 7.3% with lower contribution from COVID-19 cases. GCC Clinics and Pharmacy business declined 26.3% and 10.7% respectively due to lower footfalls. We expect overall double digit growth to return from H2FY21 as normalisation of operations is expected Q3FY21 onwards. We also estimate strong 21.0% consolidated revenue growth in FY22E primarily driven by hospitals business on low base of FY21E.

- Cost control restricted margin drop: Overall, the consolidated EBITDA margin declined 290bps YoY to 8.1% against our estimate of negative margin. Effective cost control on staff and S,G&A expenses helped in arresting margin decline partially. We expect the company to return to double-digit EBITDA margin profile Q3FY21 onwards and also estimate 15.3% EBITDA margin in FY22E. Pre IND-AS EBITDA would improve from 11.1% in FY20 to 12.1% in FY22E.

- Outlook: We expect Aster to report 11.4/14.7/34.6% revenue/EBITDA/PAT CAGRs, respectively, over FY20E-FY22E largely driven by the hospital business as we estimate single-digit growth in clinics and pharmacies. Reduced capex requirement and improving margin would aid positive FCF generation. We expect RoE/RoCE to gradually improve to 14.2/9.0% by FY22E. The company reduce net debt by Rs2.7bn in Q1FY21 from internal accruals.

- Valuations: We raise earnings estimates by 2.2/5.9% for FY21E/FY22E to factor in the cost control initiatives which would be partially sustainable. The stock is attractively valued at 6.6xFY22E EV/EBITDA. We maintain our BUY rating on the stock with a revised SoTP-based target price of Rs166/share (earlier: Rs155/share). Key downside risks to our call: Regulatory hurdles, higher than expected impact of COVID-19 and delay in turnaround of new hospitals.

Shares of Aster DM Healthcare Ltd was last trading in BSE at Rs.131.45 as compared to the previous close of Rs. 134.75. The total number of shares traded during the day was 40205 in over 1044 trades.

The stock hit an intraday high of Rs. 136.5 and intraday low of 130. The net turnover during the day was Rs. 5341153.

Source : Equity Bulls

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