Investor perception about Aster DM Healthcare is 'very upbeat': CEO

Group will avoid being 'one of those players' with a token presence through a single hospital, says Nitish Shetty

Hospital and pharmacy chain operator Aster DM Healthcare said in November it will sell its stake in the Gulf Cooperation Council (GCC) business for $1 billion, as part of a strategy to separate its India and Gulf businesses to unlock value. The hospital chain, led by Azad Moopen, got 73 per cent of its business from Gulf operations in the first half of Financial Year 2023-24 (FY24) and the rest came from India. Dr NITISH SHETTY, group chief executive officer of Aster DM Healthcare, India, told Sohini Das about the company’s plans for the country post the separation. Edited excerpts from a virtual interaction.

There has been market speculation that private equity (PE) and other investors are interested in picking up stake in your India business. Your comments.

When we listed as one entity (GCC and India businesses) we had thought that the Indian market would also appreciate and reward us for our GCC business. This, however, did not happen, and once we had clarity on this we made this conscious, difficult decision to segregate the GCC and the India businesses.

In our recent roadshows, from Mumbai to Hong Kong to London, we have noticed that investor perception is very upbeat. Now that we are a pure-play India business, many investors are open to investing in Aster DM as also PE players have a mandate to only invest in India. We have confidence in our brand coming out of the shadow of GCC.

Having said that, we will be exploring all this after the segregation is completed, and more clarity emerges. Our plan is to be among the top three in India.

One of our investors who have been with us for a long time are also kind of seeking an exit. Probably they may try to talk to some other PE investors who want to come on board. We want to ensure that people who come on board with us should be like-minded and align with our future prospects of what we want to achieve in the next four-five years.

We do not need an investor on board for our present organic growth plans, but we have the aspiration of being among the top three or four players in India. Therefore, probably an investor with a good track record, and fairly aligned with the vision our chairman (Azad Moopen) has, may come on board. Smartness lies in being open to all ideas and opportunities. There is no way our promoters are selling out and exiting the India business. Our chairman is very passionate about the business and what we have done in India in the last 10-15 years.

You plan to add 1,500 beds in India with an investment of Rs 850 crore. Will this be mostly brownfield?

We plan to add another 1,500 beds in the next two to three years, taking the total tally of beds in India to over 6,000 beds, which will include the upcoming Aster Capital in Trivandrum (Thiruvananthapuram) with over 350 beds in the first phase by FY26 and Aster MIMS Kasargod with about over 200 beds then we would be looking at adding bed capacity to our existing hospitals in Medcity, MIMS Kannur by about 100 beds each and Aster Whitefield with 159 beds.

We currently operate 19 hospitals in India, totaling close to 4,800 beds across these facilities. Out of these 19 hospitals, seven are located in Kerala, seven in Andhra, and another four in Karnataka and one in Maharashtra.

Among these beds, the Greenfield projects include around 350 beds each, commencing two years from now. The one in North Kerala is situated in the extreme North, and another Greenfield project in the extreme South consists of a 250-bed hospital. The rest of our projects involve Brownfield expansions.

Apart from South India, any other geographies you are keen on?

We are actually looking out. See, if you really look at us, we had a clustered approach where, wherever we are, like Bangalore (Bengaluru), for example, Kerala, we have had a presence for a long time. In Bangalore in the last seven years, we added 1,200 beds across three hospitals. That has given us credibility and visibility, and whatever we are doing in healthcare, it helps because the business is driven by word of mouth, referrals, and talent association. As we have grown and become more visible, a lot of talent has associated with us, contributing to our growth. Something similar we are keen on doing in Maharashtra. However, it requires a strategy similar to what we implemented in Bangalore. We aim to avoid being one of those players with a token presence through a single hospital.

We have moved away from the traditional strategy of being present in major cities like Bangalore, Mumbai, or Delhi merely to showcase a pan India presence. Presently, we believe in being visible and recognised wherever we operate based on the quality of our work. We aim to be among the top three players in every market we enter, a position we have already achieved in our existing locations.

Our plan is to further enhance our presence both inorganically and organically, with a focus on dominating the market. However, we refrain from experimental moves until we have clarity on our strategy.

Margins of your India business have gone up from 8.7 per cent in FY21 to 15.2 per cent in FY23. By when do you think you can catch up with your peers?

Margins are improving. We do know that compared to our competition our margins are on the lower side, but that is because of several reasons – around 70 per cent of our business is in Tier-II and Tier-III cities. But we do high-end work. However, things are changing. In the next three years you will see things change and all our parameters will be at par or better than what our peers are doing. Improving margins is a factor of scale. We were deploying hospitals in clusters, and they are working as one entity at a cluster-level. In the last one or two years, we are centralizing things like purchase etc to take advantage of the economies of scale. This is yielding dividends. So as we keep growing we will keep bringing in efficiency parameters. We are also in a market where the cash patients are more as of now compared to other geographies. Aster is mainly present in Kerala and Andhra and Karnataka, but in Kerala, at least 60 percent to 70 percent of them are cash patients. So there is headroom for us to take price corrections.

The Kerala market is more employee-friendly in terms of minimum wages and on the higher side compared to other geographies. That has put a little pressure on our margins. For example, in Kerala, minimum wages for nurses are Rs 30,000, whereas in other geographies, they get 18,000. So, that has put some pressure, but then we believe that the market has to absorb that cost, which we are working on.