Aster DM hits 8-month high, up 30% in 2 months on healthy growth outlook

Given its impressive revenue CAGR of 22 per cent through FY19-24 with improving profitability, analysts at Elara Capital expects strong growth to continue, though at moderated levels.

Aster DM share price: Aster DM Healthcare shares hit an eight-month high of Rs 519.15, as the scrip surged 7 per cent on the BSE in Monday’s intra-day trade amid heavy volumes on a healthy outlook. The stock of the hospital company is trading at its highest level since April 22, 2024. In the last two months, the scrip has rallied 30 per cent.

 

At 11:53 AM, Aster DM share was trading 4 per cent higher at Rs 507, as compared to 1 per cent gain in the BSE Sensex. The average trading volumes on the counter jumped four-fold, with a combined 3.21 million shares changing hands on the NSE and BSE.

 

 

In the past month, the stock price of Aster DM soared 20 per cent as the board of directors on November 29, approved a merger between the company and Quality Care India Limited (QCIL), backed by Blackstone and TPG, subject to completion of customary conditions and receipt of requisite regulatory approvals.

 

Blackstone and TPG, among the world’s largest alternative asset managers, are highly reputed in the Indian public markets having backed numerous companies in the listed space.

 

QCIL operates three brands namely CARE Hospitals, KIMSHEALTH and Evercare in India and Bangladesh and is focused on emerging cities in India. It operates a network of 19 hospitals across 14 cities in India and Bangladesh and had a total capacity of 5,150+ beds as on September 30, 2024. The merger is expected to be completed in the next 12-14 months, subject to regulatory and shareholders’ approvals.

 

The merged listed entity will be named Aster DM Quality Care. Aster DM Quality Care will have a combined portfolio of four leading brands: Aster DM, CARE Hospitals, KIMSHEALTH and Evercare. The combined entity will have a network of 38 hospitals and over 10,150 beds spread across 27 cities making it one of the top 3 hospital chains in India.

 

The transaction is also expected to trigger scale-related synergies in addition to increasing geographical presence and penetration, which will improve the company’s market position. The management also intends to integrate the backend operations of all the four brands, to rationalise procurement cost, improve material margins, reduce corporate overheads, and facilitate better vendor management leading to improvement in operating margins.

 

Despite the sizable, planned capex, ICRA expects the merged entity’s debt metrics and liquidity position to remain healthy on the back of expected strong accruals from operations and part of the proceeds from GCC asset sale remaining on the balance sheet of the company.

 

India's Healthcare Delivery market is set to thrive atop a conducive growth environment, given rising incomes, aging population, increasing penetration of health insurance and pick-up in medical tourism. So, expect Aster DM Healthcare to benefit from this secular growth story, given its prominence in the industry. Aster DM is a strong hospital brand present in South and West India, with existing capacity of 4,994 beds and planned addition of 1,800. And given its impressive revenue compound annual growth rate (CAGR) of 22 per cent through FY19-24 with improving profitability, we expect strong growth to continue, though at moderate levels, analysts at Elara Capital said in an initiating coverage report dated November 27. The brokerage has an ‘Accumulate’ rating on the stock with a target price of Rs 521 per share.

 

Aster DM’s total patient volumes and hospital revenue posted CAGRs of 13 per cent and 22 per cent through FY19-24. Analysts expect similar growth in FY25 followed by moderation to mid teen levels. Ebitda margin in the hospitals segment expanded to 19.6 per cent in FY24 from 10.8 per cent in FY19. 

 

The brokerage firm expects this to further improve to 23.6 per cent in FY25E. It expects 50-100bps annual improvement in Ebitda margin to continue for existing beds. Overall Ebitda margin may remain at ~20 per cent in FY25E-27E versus 15.6 per cent in FY24.