Aster DM Healthcare - India recovers; GCC recovery remains slow - ICICI Securities

Aster DM Healthcare's (Aster) Q3FY21 performance was below our estimates due to weak growth in GCC hospitals. Overall occupancy remained flat YoY and QoQ at 57% during Q3FY21. Consolidated revenue declined 2.7% YoY to Rs22.6bn (I-Sec: Rs23.8bn), India hospitals witnessed healthy recovery with 7.7% YoY growth. EBITDA margin declined 210bps YoY to 14.5% (I-Sec:15.0%) on a high base. We expect overall business to stabilise by Q1FY22 and expect strong 18.6% revenue growth in FY22E. We believe the company's approach of asset-light expansion and an improving margin trajectory (140bps over FY20-FY23E) would aid positive FCF generation. The company recently announced its expansion to Cayman Islands with a 150 beds multi-specialty hospital for US$120-130mn and is exploring various options to fund the same. Maintain BUY.

- India recovers, GCC to normalise soon: Revenue declined 2.7% YoY due to weak performance in GCC region. GCC segment revenue dropped 5.1% YoY while Indian hospitals grew 7.7%. Easing of lockdown restrictions in India aided the improvement in occupancy. India hospital witnessed increased footfall resulting in higher occupancy at 61% vs 58% QoQ. GCC hospital revenue grew 1.3% YoY but down QoQ as Q2FY21 was aided by pent-up demand. Occupancy at GCC hospitals was down at 47% vs 56% QOQ. GCC Clinics and Pharmacy business declined 1.3% and 15.1% QoQ respectively due to reduction in footfall. Another wave of COVID-19 has impacted the business in GCC region and we expect gradual recovery over next two quarters.

- Lower occupancy at GCC impacted margin: Overall, the consolidated EBITDA margin dropped 210bps YoY but improved 250bps QoQ to 14.5% against our estimate of 15.0%. Lower revenue in GCC hospitals business along with higher S,G&A expenses impacted the margin. We expect the company to return to normal EBITDA margin profile in FY22E and estimate EBITDA margin to rise to 15.8% in FY23E. Pre IND-AS EBITDA would improve from 11.1% in FY20 to 12.5% in FY23E.

- Outlook: We expect Aster to report 10.1/13.5/35.9% revenue/EBITDA/PAT CAGRs, respectively, over FY20E-FY23E largely driven by the hospital business while clinics and pharmacies would continue their steady growth. Reduced capex requirement and improving margin would aid positive FCF generation. We expect RoE/RoCE to gradually improve to 17.2%/10.5% by FY23E. The company reduced net debt by Rs3bn in 9MFY21 from internal accruals.

- Valuations: We cut revenue and EBITDA estimates by 3-4% and 3-12% respectively for FY21-FY23 to factor in weak Q3 and lower occupancy at GCC. We maintain BUY with a revised SoTP-based target price of Rs200/share based on FY23E (earlier: Rs196/share based on Sep'22E). Key downside risks: Regulatory hurdles, delay in recovery post COVID-19 and delay in turnaround of new hospitals.

Shares of Aster DM Healthcare Ltd was last trading in BSE at Rs.148.55 as compared to the previous close of Rs. 148.45. The total number of shares traded during the day was 5794 in over 140 trades.

The stock hit an intraday high of Rs. 151.35 and intraday low of 148.2. The net turnover during the day was Rs. 865279.

Source : Equity Bulls

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