Aster DM Healthcare IPO: Subscribe to the issue from a long term perspective

SPA Securities | Feb. 12, 2018, 4:20 p.m.

Outlook and Valuation

Aster DM Healthcare is one of its kind complete healthcare provider, which caters to patients through hospitals, clinics and pharmacy stores, which are vertically and horizontally integrated. Over the past two years the company has incurred a capex of ~INR 8700 million with which the company plans to expand its presence in GCC (with 4 hospitals and 355 beds) and India (with 5 hospitals and 1300 beds). The revenue from this capex is expected to be recognised in next two years. With stable growth in the GCC, the company plans to increase its contribution to revenues from India from ~19% to ~35% in 3-5 years (with expansion in Tier 1 and Tier 2 cities). With definite expansion plans through organic and inorganic growth opportunities and a limited timeframe for EBITDA breakeven (less than 12 months for hospitals, 18-24 months for clinics), the company is well poised for growth through expansion going ahead. The company’s revenues grew at a CAGR 23.7% to INR 59.3 billion in FY17. PAT for FY17 was at INR 2670 million with EBITDA Margins of 6.5%. We expect the company revenues to continue to grow at similar level with EBITDA margins growing back to ~13% by FY20E. Hospitals trade at TTM EV/Sales of 2.5x - 3.0x. The company is trading at a FY17 EV/Sales of 1.9x. We recommend SUBSCRIBE to the issue from a long term perspective.

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