Buy This Small-Cap Hospital Stock For Target Price Of Rs 234: Prabhudas Lilladher
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Stock Outlook
The current market price of the stock is Rs 216.15 apiece at the time of writing. The 52-week low of the stock is Rs 158.10 apiece recorded on 7 March 2022. The 52 week high of the stock is Rs 244.30 apiece recorded on 2 August 2022.
Returns on Investment
The stock in the past 1 week gained 3.59%. In the past 1 month, the stock declined 5.77%. Whereas, in the past 3 months, it gave a positive return of 13.08%. The stock over the past 1 year gave a positive return of 11.3% and in the past 3 years, it gave a positive return of 82.83%, respectively.
Q1FY23 Result
Consolidated margins were subdued; down 80bps YoY to 11%. Other income came in higher at Rs373mn. PAT came in lower at Rs 685mn, vs our est of Rs900mn. Revenue grew by +12% YoY to Rs26.6bn. GCC hospital biz reported OPM of 14.6%; down by 90 bps YoY and 555 bps QoQ while India hospital biz reported OPM of 15.8% (up 50 bps YoY and down 35 bps QoQ). ARPOB for India business was flat QoQ to Rs 36.3K per day. Segment wise, pharmacy reported EBITDA growth of 32% YoY while clinics reported 9% YoY EBITDA decline given high base. In GCC, contribution of Covid testing revenue reduced to 4% vs 16% in Q1FY22. Net debt increased by Rs.410mn to Rs18.5bn; of which India debt amounted Rs.3.6bn.
Key con-call takeaways
(1) GCC biz was impacted by seasonality in Q1. Further losses from new hospitals commissioned in GCC were at Rs160 mn during Q1.
(2) Guided EBITDA margins to improve to 17-18% for GCC hospitals by Q4 while in case of India hospital biz guided for 18% and 20% OPM by FY23 and FY24, respectively.
(3) Delay in launch of 145-bedded Aster Royal Hospital in Muscat was due to regulatory approvals. Aster DM Healthcare had soft launched of 110 beds in Sharjah.
(4) Commissioned 140 bedded Aster Mother hospital in Kerala, taking the total bed count to 4033 in India.
(5) Guided to explore minority stake sale for Saudi operations. Earlier, Saudi exit was planned due to high capital requirement but post restructuring, profitability has improved.
(6) Expects 200 bps decline in GCC clinics margins in FY23 given high COVID base which was about 33% in FY22.
(7) Mgmt sees a huge demand-supply gap in Trivandrum and expect an early break-even of this project.
(8) Reiterated capex plan of Rs. 6bn for FY23 of which Rs. 3bn for India expansion.
(9) India Labs and wholesale Pharmacy biz reported revenues and EBITDA loss of Rs. 420mn and Rs. 80mn, respectively.
Outlook
According to the brokerage, “Aster DM Healthcare reported consolidated EBITDA of Rs 2.9bn (up 4% YoY; down ~37% QoQ) was below our estimate. GCC hospital business reported moderate EBITDA growth of 2% YoY to Rs1.3bn, while India hospital business reported healthy EBITDA growth of 18% YoY. Aster DM Healthcare has a unique business model with presence in India and an established business with strong returns in GCC. We expect 9% EBITDA CAGR over FY22-24E, as margin in its India business will gradually improve with brownfield expansion and new hospitals ramp-up in GCC.”
Brokerage suggests buy for a target price of Rs 234 apiece
The brokerage said, “At current market price, the stock trades at an attractive valuation of 8x FY24E EV/EBITDA, which is at 25-50% discount to Indian peers. We believe such high discount reflects Aster DM Healthcare’s lower contribution from India region and higher capital outlay outside India. Also, such steep discount is unwarranted given stable profit trajectory and reduction in leverage. We maintain our estimates and ‘Buy’ rating with Target Price of Rs234/share based on 15x FY24E EV/EBITDA to India business and 7x EV/EBITDA to GCC.”
Disclaimer
The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.
