Aster DM Healthcare IPO Review

Aster DM Healthcare IPO

Hospital operator Aster DM Healthcare IPO comprises fresh issue of ~381 Lac shares and offer for sale of  ~134 shares to mobilize ~980 crore. The proceeds will be used to repay debt and buy medical equipment, the company said. The valuation of  Rs 9,600 crore which will make it  second most valued  hospital chain in the country just behind Apollo Hospitals.

Related Post: Aster DM Healthcare IPO: Brokerage Views & More 
Aster DM Healthcare IPO details:
Issue Period Monday, Feb 12, 2018- Thu, February 15, 2018
Issue Details Fresh Issue  of Equity Shares aggregating upto Rs.725 Cr
  Plus  Offer for Sale of 13,428,251 Equity Shares
Issue Size (Rs. Cr) Rs.980.14 Cr (at upper band)
Price Band Rs.180 – 190
Bid Lot 78 Equity Shares and multiple thereof
Issue Structure :  
QIB 50% of the offer ( 25,793,072 Equity Shares  ( Rs. 490.07 Cr)
NIB 15% of the offer (up to  7,737,922 Equity Shares) (Rs. 147.02 Cr)
Retail 35% of the offer ( 18,055,151 Equity Shares) (Rs. 343.05 Cr)
GCBRLMs Axis Capital, Kotak Mahindra Capital, Goldman Sachs
BRLMs ICICI Securities, JM Financials, Yes Securities 
Registrar Link Intime India Pvt. Ltd.
About Aster DM Healthcare:
  • Aster DM Healthcare is  one of the largest private healthcare service providers which operates in Gulf region in multiple GCC states  i.e. the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait and Bahrain. It also operates in Jordan,  India and Philippines.
  • Its gulf operations are headquartered in Dubai and Indian operations are headquartered in Kochi.
  • Aster DM Healthcare operates in multiple segments of the healthcare industry, including hospitals, clinics and retail pharmacies
  • The compnay 17,408 employees as of September 30, 2017, including 1,417 full time doctors, 5,797 nurses, 1,752 paramedics and 8,442 other employees (including pharmacists). In addition, it had 891 “fee for service” doctors working across various specialties in its hospitals in India as of September 30, 2017.
  • In the six months ended September 30, 2017, our subsidiaries in the UAE generated 65.44% of our revenue while our subsidiaries in Oman, Saudi Arabia, Qatar, Kuwait, Jordan and Bahrain generated 5.37%, 5.25%, 3.62%, 0.61%, 0.74% and 0.33% respectively.
Aster DM Healthcare: Financials:
Rs. In  Crores
Particulars HYFY18 FY17 FY16 FY15 FY14
Revenue from Operations 3,122.60 5,931.20 5,249.80 3,875.80 2,871.15
Revenue Growth (%) 12.98% 35.45% 34.99%
EBITDA 193.4 364.2 473.1 514.2 529.2
EBITDA Margin (%) 6.10% 6.10% 9.00% 13.27% 18.43%
Profit/(Loss) Before Tax -66.1 288.5 37.6 306.2 310.29
Profit/(Loss)  -82.7 266.7 8.2 272.1 283.57
Net Profit Margin -2.60% 4.50% 0.20% 7.02% 9.88%
Share Capital 403.2 403.2 403 388.6
Reserves 1,409.80 1,472.10 16.5 1,095.70
Net worth 1,813.00 1,875.40 419.6 1,484.40
Long Term Borrowings 2,149.90 1,890.50 2,577.40 611.8
Short Term Borrowings 720.5 830.4 584.1 289.3
Net Asset Value (Rs.) 39.1 40.5 9.6 37.8
RONW(%) -4.20% 10.50% -14.00% 8.90%
EPS (Rs.) -1.6 4.2 -1.3 3.3
Post Issue Equity 505.23
IPO Price 190
Face Value 10
Price/Book Value 4.86
EPS Post Issue ( Fy17) 5.71
PE – (fy17 Earnings) 33.27
CAGR Sales 3 Yrs 27.36%
CAGR Net Profit 3 Yrs -2.02%
Market Cap 9599.37 crore
Market cap / Sales 11.56
Objectives of Aster DM Healthcare  IPO

 Repayment and/or pre-payment of debt ( Rs. `564 crore)
 Purchase of medical equipment (Rs. 110 crore) 
 General corporate purposes

Aster DM Healthcare IPO: Rationale for Investment
  • Starting from one Hospital Aster DM Healthcare today has a  diversified portfolio of healthcare facilities, consisting of 9 hospitals, 90 clinics and 206 retail pharmacies in the GCC states, 10 multi-specialty hospitals and 7 clinics in India, and 1 clinic in the Philippines as of September 30, 2017.
  • Its hospitals in India are located in Kochi, Kolhapur, Kozhikode, Kottakkal, Bengaluru, Vijayawada, Guntur, Wayanad and Hyderabad and are generally operated under the “Aster”, “MIMS”, “Ramesh” or “Prime” brands. The clinics in India are located at Kozhikode, Eluru and Bengaluru.
  • It has entered into an operation and management services agreement with Rashtreeya Sikshana Samithi Trust in Bengaluru to provide operation and management services. In August 2014, the compnay launched Aster Medcity in Kochi, Kerala, a multi-specialty hospital with a 670 bed capacity, to be positioned as a destination for medical value travel.
  • Aster DM Healthcare has  323 operating facilities, including 19 hospitals with a total of 4,754 installed beds, as of September 30, 2017.
  • In the GCC states, the number of its  clinics increased from 41 as of March 31, 2013 to 90 as of September 30, 2017, and the number of its retail pharmacies increased from 98 as of March 31, 2013 to 206 as of September 30, 2017.
  • To meet the increasing demand, the company is in the process of building or expanding 10 Hospitals which are expected to add a total of approximately 1,727 beds
Risks & Concerns:
  • Aster DM Healthcare revenues are  highly dependent on its operations in the GCC states. 
  • There are significant foreign ownership restrictions, financial, economic and political developments affecting the GCC states.
  • Company’s results have not been consistent in the past and there are considerable receivable from Saudi Arabia.
Aster DM Healthcare IPO: Assessment
    • Aster DM Healthcare has established presence across multiple geographies, multiple healthcare delivery verticals and serve multiple economic segments. In term of valuations, the company is likely to end up at No. 2 Position after Apollo Hospitals.
    • The Company intends to leverage its acquisition experience to successfully identify, execute and integrate new opportunities that may arise in the future
    • Aster DM Healthcare dependence on Gulf states is quite high. In HY2018, Aster DM Healthcare generated 65.44% of the revenue from UAE while Oman, Saudi Arabia, Qatar, Kuwait, Jordan and Bahrain generated 5.37%, 5.25%, 3.62%, 0.61%, 0.74% and 0.33% respectively. 
    • As in the past, the results of operations may be affected by foreign ownership restrictions and alliances which company has formed to circumvent these. Also financial, economic and political developments in Gulf region and uncertainty in Oil prices plus ongoing tensions between some states may result in economic issues. 
    • On January 25, 2018, the rating agency CRISIL downgraded Aster DM Healthcare ratings on the bank facilities from ‘CRISIL A-. /Negative’ to ‘CRISIL BBB/Negative’ (longterm rating) and from ‘CRISIL A2+ to CRISIL A3+’ (short term rating). The rating agency noted that this was due to pressure on  the group’s financial risk profile including due to its aggressive capital structure and operating leverage and weakened debt protection measures, including in particular due to the receivables from our operations in Saudi Arabia.
    • While the company’s promoters, are offering 13.428 million shares for sale, private equity backer Olympus Capital and other private equity investor True North too will not be selling its shares in the IPO. This gives some confidence.
    • Though Aster DM Healthcare has made a loss in HY18, based on FY17 figures the PE is in range of 33-34 which is lower than that commanded by Apollo, Narayana etc.
    • At this stage I am nit inclined to  apply in the Aster DM Healthcare IPO due to complex rules under which it operates in gulf  which contributes about  70% of its revenue.  Due to Budget proposals, Hospital stocks could get a boost and Aster may be able to capitalize on these opportunities & it may also in near future plug its losses in Gulf. But the risk in applying for IPO remains bit high.  I shall keep a watch and update here in case of any further input.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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