Aster DM Healthcare GCC stake sale unlocks value, say analysts; shares rally 11%
Aster DM Healthcare share price jumped over 11% to hit a fresh 52-week high of ₹424.00 apiece on Friday. In the past one week, Aster DM Healthcare shares have risen 20%.
The rally in Aster DM Healthcare shares comes on the back of the company’s move to sell its GCC (Gulf Cooperation Council) business for over $1 billion.
The hospital chain Aster DM Healthcare on Tuesday announced the long-awaited sale of its GCC business for an Enterprise Value (EV) of $1.3 billion, which was higher than analysts’ estimates.
As per the transaction, a consortium led by United Arab Emirates (UAE) government-backed Fajr Capital will own 65% of the Gulf entity, while Aster’s promoter Azad Moopen will own 35% stake.
Read here: Aster divests Gulf business for $1 bn
Analysts believe the deal is positive for the company and unlocks value.
“While there had been concerns among investors on whether GCC would get a fair valuation, given this being a related party transaction, the GCC valuation comes as a positive surprise. In our view, the India business is now trading at ~18X FY2025E pre-Ind AS 116 EV/EBITDA and any rerating hereon will be contingent on further margin improvement coupled with disciplined expansion,” Kotak Institutional Equities said.
Factoring in steady progress in the existing hospitals along with the addition of new beds, the brokerage expects Aster DM to report healthy India sales/EBITDA CAGRs of 19% each over FY2023-26E.
It retained ‘Add’ rating on the stock and raised the target price to ₹415 per share from ₹350 earlier.
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As per the deal, Aster DM will receive $903 million on closing and balance on certain contingent events. The consideration received will be primarily used for dividend payout and partly for expansion.
“While the deal is positive and unlocks value, the quantum of dividend payout, promoter exit and capital allocation remain key uncertainties, in our view. Aster has performed well in its India hospitals segment and plans to add 1,500 beds (~30%) by FY27. Aster labs, pharmacies and O&M hospitals have dragged India margins but are expected to turn around gradually,” JM Financial said.
It values GCC at ₹165 per share (based on ₹82.15 billion cash consideration) and India at 17x Dec’25 EV/EBITDA to derive a target price of ₹410. The brokerage has maintained a ‘Buy’ rating on the stock.
Also Read: Aster DM Healthcare share price jumps over 14% to a fresh 52-week high on sale of Gulf business
Param Desai – Research Analyst, Prabhudas Lilladher Pvt Ltd. estimates 23% EBITDA CAGR from India business over FY23-26E aided by scale up in margins, healthy ARPOB and bed additions.
“Our FY24E/25E India business EBITDA stand increased by 1-3%. At current market price, adjusted for GCC stake the India business is trading at 19x and 15x EV/EBITDA on FY25E and FY26E respectively which is at 15- 30% discount to listed peers,” Desai said in a note.
The brokerage maintained a ‘Buy’ rating and raised the TP to ₹430 per share from ₹345 earlier, valuing India hospital segment at 20x (18x earlier) EV/EBITDA on Sept 2025E EBITDA.
Timely closure of GCC divestment and utilization of proceeds will be key monitorable in near term, he added.
At 12:25 pm, Aster DM Healthcare shares were trading 5.34% higher at ₹402.20 apiece on the BSE.
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 01 Dec 2023, 12:28 PM IST