How Aster DM’s GCC separation deal will spur its growth in Indian market, analysts say

The Aster DM Healthcare board’s approval of the GCC separation deal is fairly valued, as anticipated, and is expected to enhance Aster’s presence in India through dedicated resources, fundraising, and expansion initiatives, indicated sector analysts. Additionally, the deal, analysts said, should strengthen the company’s balance sheet by reducing debt with the dividend payout remaining a key factor.  

Shares of Aster DM Healthcare climbed over 12 per cent intraday on Wednesday after the company on November 28 informed the bourses of the board approval. The scrip traded at Rs 374.70 at around 12.05 pm on Wednesday, up Rs 42 against the previous close of Rs 332.65. However, on Thursday the stock was trading 3 per cent lower at Rs 381 apiece.

Aster DM Healthcare India has already experienced a significant Ebitda surge, with a significant 30% compound annual growth rate (CAGR) from FY20 to FY23. Projections from the analysts suggest a continued growth trend, with an estimated 23% EBITDA CAGR for the India business from FY23 to FY26. 

“This growth is attributed to margin scaling, a robust Average Revenue Per Occupied Bed (ARPOB), and strategic bed additions, leading to an upward revision of 1-3% in estimates for FY24E/25E India business Ebitda,” said Param Desai and Sanketa Kohale analysts with Prabhudas Lilladher Pvt. Ltd. 

Adjusted for the GCC stake, the India business is currently trading at 19x and 15x EV/EBITDA for FY25E and FY26E, respectively, representing a significant 15-30% discount compared to listed peers, as per the Prabhudas Lilladher.  In light of these developments, Desai and Kohale recommended maintaining a 'Buy' rating with a revised Target Price (TP) of Rs.430 (previously Rs.345). The TP is based on a multiple of 20x (up from 18x) EV/Ebitda on the estimated Ebitda for September 2025.  

Unraveling the deal: Understanding its significance and impact 

In a strategic move set to redefine the healthcare landscape in both the GCC region and India, Aster DM Healthcare has secured board approvals for the separation of its businesses. Affinity Holdings Private Limited, Aster’s subsidiary, has inked a definitive agreement with a consortium led by Fajr Capital, a UAE-based sovereign-owned private equity firm. 

Founded by Dr. Azad Moopen in 1987 with a single clinic in Dubai, Aster DM Healthcare provides integrated healthcare services across the GCC and India. The company has an extensive network that includes 19 hospitals, 13 clinics, 226 pharmacies, and 251 patient experience centers in South India. In the Gulf, Aster operates 15 hospitals, 118 clinics, and 276 pharmacies across key markets. 

After the separation, the India and GCC entities will emerge as distinct regional healthcare champions. Each will operate under dedicated management teams and benefit from a specialised investor base. Dr. Azad Moopen will continue as Founder & Chairman, overseeing both entities, while Alisha Moopen will take the reins as Managing Director and Group CEO of the GCC business. Dr. Nitish Shetty will continue to lead the Indian entity as Chief Executive Officer. 

India Business to get boost 

Dr. Azad Moopen, Founder and Chairman of Aster DM Healthcare, stated that the decision to separate India and GCC operations aims to establish fair value for both entities. This strategic move creates two geographically focused entities to capitalize on growth opportunities in their respective markets. Dr. Moopen emphasized the Promoters' commitment to growth plans in India, evidenced by the increased stake to 42%. Institutional shareholders, expressing confidence in the company's India business model, continue to remain invested across all healthcare segments. 

Aster DM Healthcare's growth strategy aligns with the unique dynamics of each market. In India, the company plans to add over 1500 beds by FY27, addressing the robust demand for quality healthcare. Simultaneously, in the GCC, Aster DM Healthcare FZC will expand its footprint in key markets such as the UAE and Saudi Arabia. 

“The outlook for India remains stable, driven by the planned addition of approximately 1,450 beds by FY27. The outlook is further supported by margin expansion resulting from improved operating metrics, including Average Revenue Per Occupied Bed (ARPOB), increased occupancy rates, and the maturation of the existing network,” said Mehul Sheth and Sudarshan Agarwal  from Axis Capital. 

The move also opens avenues for Aster India to expand its institutional investor base, focusing on businesses mandated for Indian investments, the company said in a statement. Shareholders of the India business stand to benefit from improved reporting of operational and financial parameters, the company said in a statement. The transaction, subject to shareholder approval in India, regulatory compliance, and customary closing conditions, is anticipated to conclude by March 2024.  

Despite concerns about the fairness of the valuation due to it being a related party transaction, the valuation is seen as a positive surprise. The analysis from Kotak Institutional Equities indicated that the India business is currently valued at around 18 times the FY2025E pre-Ind AS 116 EV/Ebitda. “Any potential rerating is contingent on further improvements in margins and disciplined expansion. Taking into account the steady progress in existing hospitals and the addition of new beds, we anticipate Aster DM to report robust India sales/Ebitda CAGRs of 19% each from FY23 to FY26,” said the Kotak report.