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Aster DM Healthcare IPO

Apurva Joshi
/ Categories: Mindshare, IPO Analysis
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IPO Rating - 42 (Risky)*

About the Issue 

Aster DM Healthcare is coming out with an IPO which will remain open from February 12-15, 2018. The issue consists of fresh issue of Rs 725 crore and offer for sale (OFS) of 1,34,28,251 equity shares, thereby aggregating the issue size to Rs 980 crore. The issue price band is Rs 180-190 per equity share having face value of Rs 10. The minimum lot size is of 78 shares. The company will get listed on both BSE and NSE. 

Purpose of the issue 

The net proceeds from the fresh issue would be utilised towards –

- Repayment and/or pre-payment of debt
- Purchase of medical equipment and
- General corporate purposes

The company will not receive any proceeds from the OFS. 

Company Background 

Aster DM Healthcare is a healthcare service provider operating in multiple segments of the healthcare industry, including hospitals, clinics and retail pharmacies and provides healthcare services to patients across economic segments in several GCC countries through its various brands, such as ‘Aster’, ‘Medcare’ and ‘Access’. It mainly operates in GCC countries comprising the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait and Bahrain. It also has operations in India and Philippines. In India, the hospitals are located in Kochi, Kolhapur, Kozhikode, Kottakkal, Bengaluru, Vijayawada, Guntur, Wayanad and Hyderabad. The GCC operations are headquartered in Dubai, UAE and the Indian operations are headquartered in Kochi, Kerala. 

The company generates 84% of the revenue from the GCC countries and only 16% is generated from India. As on  September 30, 2017, it had 323 operating facilities, including 19 hospitals with a total of 4,754 installed beds as against 149 operating facilities, including 10 hospitals with a total of 1,419 installed beds as on  March 31, 2013. 

Most of its hospitals and clinics provide secondary and tertiary healthcare services to patients. In addition to providing core medical, surgical and emergency services, some of its hospitals provide complex and advanced quaternary healthcare in various specialties, including cardiology, oncology, radiology, ophthalmology, neurosciences, paediatrics, gastroenterology, orthopaedics and critical care services. 

It intends to capitalise on the increasing demand for healthcare services in the GCC countries by building or expanding four multi-specialty hospitals in the UAE, for a total additional capacity of 286 beds. These hospitals are in the process of construction and are expected to be completed within the next 1 to 2 years. It is also planning to build or expand five hospitals in India within the next four years to add 1,372 beds to the total bed capacity, with a focus on building and expanding facilities in tier-I and tier-II cities such as Bengaluru, Trivandrum, Kannur and Kozhikode.

Financial Performance 

As we can see, the company's revenue is growing in double digits on a YoY basis. However, profits are not consistent and margins are too low. In fact, till Sept 2017, the company has incurred losses for the six-month period. 

Valuation and peer comparison 

On the upper price band of Rs 190 with EPS of Rs 4.29 for FY17, the company’s P/E works out at 44.3x. The industry’s average P/E is 67.5x. As compared to the listed peers and industry’s average P/E, Aster DM Healthcare is fully priced. RoNW is better than the peers. 

Our View 

The company’s financial performance has been inconsistent over the last five years. Its profits have not been consistent and in H1FY18, the company has incurred losses. The margins are also too low. Moreover, the valuations are not too attractive at this level. The recent Union budget laid focus on the healthcare sector, which might help the sector gain some traction going forward. Aster DM Healthcare needs to stabilise and improve its margins. Also, the company’s major revenue is generated from outside India. Looking at the recent volatility in the markets, it is risky to invest in IPOs now. At this level, investors may not get to benefit much from the investment and hence, one can avoid this IPO. 

*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment 

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