PL Stock Update - Aster DM Healthcare (ASTERDM IN) - Event Update - GCC stake sale to unlock value - BUY

Aster DM Healthcare (ASTERDM IN) – Param Desai – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs395 | TP: Rs430

Event Update – GCC stake sale to unlock value

Aster DM Healthcare (ASTERDM) board has approved the much awaited GCC stake sale at reasonable valuations, that will unlock value for shareholders. Proper capital allocation strategy will be a key to scale-up India operations. Conversely, ASTERDM India’s EBITDA increased sharply over last 3 years (30% CAGR over FY20-23). We estimate 23% EBITDA CAGR from India biz over FY23-26E aided by scale up in margins, healthy ARPOB and bed additions. Our FY24E/25E India business EBITDA stand increased by 1-3%.

At current market price, adjusted for GCC stake the India business is trading at 19x and 15x EV/EBITDA on FY25E and FY26E respectively which is at 15-30% discount to listed peers. We maintain ‘Buy’ rating with revised TP of Rs.430 (earlier Rs. 345) valuing India hospital segment at 20x (18x earlier) EV/EBITDA on Sept 2025E EBITDA. Timely closure of GCC divestment and utilization of proceeds will be key monitorable in near term.

• Contours of the transaction: ASTERDM board has approved 100% sale of its GCC business for equity value of $1.01bn and EV of $1.3bn (Rs106bn; ex of lease). Out of total $1.01bn proceeds- receipts of $99mn is subject to certain conditions ($70mn on achievement of certain EBITDA by GCC in FY24). The sale transaction is expected to be completed by Q4FY24. GCC business has been acquired by Fajr Capital which will own 65%, while remaining 35% has been acquired by ASTERDM promoters.
• Transaction in-line with our expectations: GCC reported Pre Ind AS EBITDA of Rs 7.5bn in FY23 and Rs 3.1bn in H1FY24. We have assumed EV of Rs96bn with equity value of Rs82.2bn and net debt of Rs13bn (adjusted for working capital). This implies that GCC stake sale has occurred at 13x EV/EBITDA on FY23 and 11x on FY24E, which is largely in-line with our estimates. Mgmt cited ~$18-20mn transaction cost and negligible tax liability from stake sale, given it is transacted through Mauritius entity. Further majority of proceeds will be distributed as dividend to shareholders.
• Business Leadership: Going ahead, Dr. Azad Moopen will continue in his role as the Founder & Chairman and oversee both India and GCC businesses, while Ms. Alisha Moopen will be promoted to the position of Managing Director and Group CEO of GCC business. Dr. Nitish Shetty will continue as the CEO of Aster business in India. Mgmt cited that post GCC stake sale, lot of PE firms are showing interest to the partner with ASTERDM for India operations.
  
• Expansion & margin improvement to drive India hospital business: India business reported Pre Ind AS EBITDA of Rs 4bn in FY23 and Rs2.5bn in H1FY24. ASTERDM plans to add additional 1,450 beds across Kerala and Karnataka regions over next 3-4 years through mix of owned, leased and O&M model from current level of 4850 beds. Currently company enjoys 70% occupancy with 20% OPM and has guided for 200-300bps margin improvement. ASTERDM will require Rs8.5bn of capex to commercialize addition 1450 beds, which will be largely funded through internal accruals. India hospital business enjoys+15% RoCE.