Aster DM Healthcare's (Aster) Q2FY21 performance was above our estimates with decent recovery from COVID-19 impact and pent-up demand. Overall occupancy improved by 11% QoQ to 58%, similar to Q2FY20. Consolidated revenue grew 8.7% YoY to Rs22.7bn (I-Sec: Rs19.8bn) led by 11.9% growth in GCC segment. EBITDA margin improved 30bps YoY to 12.0% (I-Sec:10.0%) with higher revenue and effective cost control. We expect overall business to stabilise in Q3FY21 as the quarter benefited from one-time pent-up demand and gradual growth would ensue in coming quarters. We believe the company's approach of asset-light expansion and an improving margin trajectory (140bps over FY20-FY23E) would aid positive FCF generation. Maintain BUY.
- Revenue growth led by recovery in GCC hospitals: Revenue grew 8.7% YoY and 28.8% QoQ driven by recovery across segments. GCC segment grew 11.9% YoY and 26.8% QoQ while Indian hospitals grew 38.8% QoQ but it declined 3.7% YoY. Easing of restrictions in GCC and India aided the sequential improvement. GCC hospital revenue grew 24.9% QoQ (partly aided by pent-up demand) with ARPOB normalising to pre-COVID levels by improving 28.9% QoQ. India hospital also witnessed increased footfall with easing of restrictions resulting in higher occupancy at 58% vs 44% QoQ. GCC Clinics and Pharmacy business grew 51.1% and 11.4% QoQ respectively with growing footfalls. However, the decline continued on YoY basis in India hospitals and GCC pharmacy businesses.
- Higher revenue helped in margin beat: Overall, the consolidated EBITDA margin expanded 30bps YoY and 390bps QoQ to 12.0% against our estimate of 10.0%. Higher revenue in GCC hospitals business along with effective cost control on staff expenses aided the margin improvement. We expect the company to return to normal EBITDA margin profile Q3FY21 onwards and estimate EBITDA margin to rise to 15.8% in FY23E. Pre IND-AS EBITDA would improve from 11.1% in FY20 to 12.5% in FY23E.
- Outlook: We expect Aster to report 11.0/14.3/35.0% revenue/EBITDA/PAT CAGRs, respectively, over FY20E-FY23E largely driven by the hospital business while clinics and pharmacies would continue their steady growth. Reduced capex requirement and improving margin would aid positive FCF generation. We expect RoE/RoCE to gradually improve to 16.6%/10.5% by FY23E. The company reduced net debt by Rs3.1bn in H1FY21 from internal accruals.
- Valuations: The stock is attractively valued at 7.1xFY22E and 5.7xFY23E EV/EBITDA. We marginally alter our estimates to reflect the quarter and maintain our BUY rating on the stock with a revised SoTP-based target price of Rs175/share (earlier: Rs166/share). Key downside risks to our call: Regulatory hurdles, delay in recovery post CVOID-19 and delay in turnaround of new hospitals.
Shares of Aster DM Healthcare Ltd was last trading in BSE at Rs.164.7 as compared to the previous close of Rs. 159. The total number of shares traded during the day was 32235 in over 937 trades.
The stock hit an intraday high of Rs. 166.05 and intraday low of 155. The net turnover during the day was Rs. 5186408.