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Thursday
Thursday, February 08, 2018
CM RATING 27/100

Aster DM Healthcare
Catering to GCC countries

India accounts for only19% of the total revenues. Rest comes from GCC states. Even Indian revenues largely come from catering to medical tourism from GCC states

Incorporated in 1987 and promoted by Dr Azad Moopen and Union Investments Pvt Ltd (UIPL), Aster DM Healthcare (Aster) is a Kochi-, Kerala, based healthcare service provider, with operations in Gulf Cooperation Council (GCC) states of the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait and Bahrain and India and Philippines.

There is presence in multiple segments of the healthcare industry including hospitals, clinics and retail pharmacies, diagnostic centres, educational institutions, and healthcare management and healthcare support systems. A majority of hospitals and clinics provide secondary and tertiary healthcare services. In addition to providing core medical, surgical and emergency services, some of the hospitals provide complex and advanced quaternary healthcare in various specialties including cardiology, oncology, radiology, ophthalmology, neurosciences, pediatrics, gastroenterology, orthopedics and critical-care services. In addition to core services, some hospitals also provide advanced quaternary healthcare services in various specialties

Healthcare services are provided to patients across economic segments under brand names Aster, Medcare and Access. Aster and Medcare cater to the upper and middle income segments, while Access offers affordable services to blue-collar expatriate workers and the lower-income segment

 Healthcare facilities is nine countries consisted of nine hospitals, 90 clinics and 206 retail pharmacies in the GCC states, 10 multi-specialty hospitals and seven clinics in India, and one clinic in the Philippines end September 2017. 

The largest provider of healthcare services in GCC countries had bed capacity of 4,754 end September 2017. There were 17,408 employees including 1,417 full-time doctors, 5,797 nurses, 1,752 paramedics, and 8,442 other employees (including pharmacists). India accounts for 19% of the total revenues. Rest comes from GCC states.

Although a large portion of the revenues come from GCC states, listing is in India being home base in India. Hospitals in India are located in Kochi, Kolhapur, Kottakkal, Bengaluru, Vijaywada, Guntur, Wayanad and Hyderabad. Built across 40 acres, with capacity of 670 beds, the Kochi hospital is positioned as a key destination for medical value travel, particularly for patients in the GCC, Middle East and North Africa (Meena) and South Asia.

The Indian operations are run under the brands Aster, MIMS, Aster Aadhar and Aster CMI. Operations in India facilitate sourcing of doctors, nurses and medical professionals for GCC There were 891 service doctors from India in GCC countries end September 2017.

From the fiscal years ended March 2013 (FY 2013) to FY 2017, patient volumes in India recorded a CAGR of 105% and the average revenues per occupied bed (ARPOB) a CAGR of 26%.

So far, 41 facilities (one hospital, one clinic and 39 pharmacies) have been acquired in GCC countries and eight hospitals in India. Going forward, there are plans to add five hospitals, with total bed capacity of 355 in GCC countries, and five hospitals, with total bed capacity of over 1,372 in India.

The Offer and the Objects

The offer comprises initial public offering of Rs 725 crore. At the lower price band of Rs 180 per share, the issue size works out to 402.78 lakh equity shares. At the higher price band of Rs 190, the issue size works out to 381.58 lakh equity shares. The offer also comprises offer for sale of Rs 134.28 lakh shares. At the lower price band of Rs 180 per share, the issue size works out to Rs 241.70 crore. At the higher price band of Rs 190, the issue size works out to Rs 255.13 crore. The selling shareholders comprise promoters UIPL.

The minimum bid lot is 78 equity shares and in multiples. The issue is to be made through the book-building process. It will open on 12 February and close on 15 February.

The objects of the issue are to repay certain borrowings of Rs 564.16 crore and to purchase medical equipment worth Rs 110.31 crore. The balance will be for other corporate purposes apart from the benefits of listing the equity shares on the BSE and the NSE and to enhance visibility and brand image and provide liquidity to the existing shareholders.

Strengths

Well diversified mix of services offering across geographies. Presence across multiple verticals of healthcare services: clinics, pharmacies and hospitals across multiple geographies. Hospitals account for 49% of total revenues: 26% of revenues come from clinics and balance 25% from pharmacies.

Present across multiple segments of healthcare delivery services. Caters to diverse demography across income segments through multiple brands.

Has capitalized on the mandatory insurance in GCC states, ex-Saudi. The mandatory insurance is one of the strong key drivers of growth.

Well placed to benefit from the increase in medical tourism in India, particularly in South India. Aster Medicity in Kochi is positioned as a medical value travel destination. Will continue to leverage existing GCC network to attract medical value travellers to hospitals in India.

Increasing presence and revenues in India. India accounted for 19% of the revenues in the fiscal year ended March 2017 (FY 2017) compared with 3% in FY 2013. As per Crisil, the healthcare delivery market size in India will record CAGR of 14% from FY 2017 to FY 2022 to reach around Rs 9.4 trillion.

Seeks underpenetrated markets in India through strategic investments and acquisitions.

Weaknesses

Significant revenue dependency on GCC countries.

Revenues in India are dependent on medical tourism from GCC countries.

Significant dependency on insurance companies in GCC. Revenues from insurance companies stood at 46.4% of the total revenues in FY 2016, 47.9% in FY 2017 and 50.9% in the six months ended September 2017. Any change in insurance policies adopted in GCC countries or any changes made in arrangements with these insurance companies can materially affect the business.

Presence in GCC countries is bound by legal structure of GCC, restricting ownership. Has entered into weak or difficult to enforce agreements and understandings to control hospitals in GCC countries.

Any adverse political developments, changes in regulations on shareholdings and taxation and such regulations in GCC countries and global oil turmoil can significantly affect the revenues and prospects.

Continues to aim for acquisitions and green-field expansions. The exercise might require capital, either debt or equity. Capital expenditure stood at Rs 760.26 crore in FY 2016,RS 931.9 crore in FY 2017 and Rs 230.7 crore in the six months ended September 2017. Total debt was Rs 2926.30 crore end September 2017.

While occupancy rates in the Indian operations are increasing, these have been falling continuously in GCC countries. The occupancy rates stood at 63.3% in FY 2016, 60.1% in FY 2017 and Rs 50.9% n the six months ended September 2017.

More than 80% of the revenues come in AED currency. AED is not fully convertible. Its currency exchange rate with US dollar is fixed. Any revision in policy can affect the financials.

Change in policies can materially impact operations. For instance, had to take a hair cut on receivables and change the business strategy from working with government hospitals to private players in Saudi Arabia.

Valuation

Net sales were up 13% to Rs 5931.29 crore and the operating profit margins (OPM) declined 290 basis points to 5.6%, resulting in fall in operating profit (OP) 25% to Rs 332.11 crore in FY 2017. Other income (OI) rose 45% to Rs 36.62 crore. Interest cost was 87% higher to Rs 353.60 crore, while depreciation increased 33% to Rs 322.44 crore. Thus, loss at the profit before tax (PBT) level stood at Rs 307.31 crore. There was an extraordinary item (EO) of Rs 596.07 crore, representing sale of non-core assets, leading to profit before tax after EO spurting 651% of Rs 288.76 crore. After paying total tax of Rs 22.01 crore and minority interest (MI) of Rs 68.05 crore, consolidated profit after tax (Pat) was Rs 198.70 crore.

Net sales stood at Rs 3122.59 crore, with OPM of 5.7%, resulting in an OP of Rs 178.15 crore in the six months ended September 2017. OI stood at Rs 18.79 crore. Interest cost was Rs 89.27 crore and depreciation stood at Rs 173.60 crore, resulting in loss at the PBT level of Rs 65.93 crore. After providing for total tax of Rs 16.78 crore and MI of Rs 6.28 crore, consolidated loss stood at Rs 76.43 crore. Due to seasonality of business, half yearly earnings cannot be annualised.

Around 45% of the revenues are derived in H1 and 55% in H2. H1 accounts for 25-30%, while H2 70-75% of Pat. GCC profit generally accrues in H2. H1 is lean.

There has been consistent fall in OPM due to provisioning for Saudi Arabia receivables. Interest cost and depreciation have remained high due to expansions and acquisitions. Operations in Saudi Arabia have been scaled down and shifted to private insurance players from government insurance players earlier. Further, start up of new clinics and hospitals also resulted in lower margins.

The diluted equity share capital stands at Rs 505.23 crore of face value of Rs 10. Since there are no profit in core operations in FY 2017, EPS is negative. There are no listed peers for comparison.

Aster DM Healthcare: Issue highlights

Fresh Issue ( in no of shares in lakhs)  
- On lower price band 402.78
- On upper price band 381.58
Total Issue size for fresh issue ( in Rs crore) 725.00
Offer for sale ( in Rs crore)  
- On lower price band 241.70
- On upper price band 255.13
Total Issue size for fresh issue ( in no of shares in lakhs) 134.28
Price Band (Rs) 180-190
Bid size ( in no of shares) 78.00
Post issue share capital (Rs crore) 505.23
Post-issue Promoter & Group shareholding (%) 37.3%
Issue open date 12-02-2018
Issue closed date 15-02-2018
Listing BSE, NSE
Rating 27/100

 

Aster DM Healthcare: Consolidated Financials

  1303(12) 1403(12) 1503(12) 1603(12) 1703(12) 1709(06)
Net Sales 1921.74 2871.15 3875.84 5249.89 5931.29 3122.59
OPM (%) 13.3% 15.7% 13.1% 8.5% 5.6% 5.7%
OP 255.20 450.83 505.99 445.57 332.11 178.15
Other in. 17.02 18.42 23.21 25.27 36.62 18.79
PBDIT 272.22 469.25 529.20 470.84 368.73 196.94
Interest 44.90 47.84 79.05 189.41 353.60 89.27
PBDT 227.32 421.41 450.15 281.43 15.13 107.67
Dep. 76.46 111.12 143.96 243.00 322.44 173.60
PBT 150.86 310.29 306.19 38.43 -307.31 -65.93
EO 0.00 0.00 0.00 0.00 596.07 0.00
PBT after EO 150.86 310.29 306.19 38.43 288.76 -65.93
Tax (including Deferred Tax) 5.53 26.72 34.09 30.21 22.01 16.78
PAT 145.33 283.57 272.11 8.21 266.75 -82.71
MI -53.55 -105.79 139.42 67.23 68.05 -6.28
PAT after MI 91.78 177.78 132.69 -59.02 198.70 -76.43
EPS (Rs)* 1.8 3.5 2.6 - - #
*EPS is on post issue equity capital of Rs 505.23 crore of face value of Rs 10 each
# EPS not annualised due to seasonality of business
Figures in crore
Source: Capitaline Database