Despite falling over 8 percent just in June so far, brokerages see a huge upside in the healthcare stock Aster DM Healthcare and expect it to surge up to 55 percent in the next 12 months. The expected rise in the scrip is mainly on the back of its stellar financial performance in the March quarter.
Domestic brokerage house Elara Capital has a Buy rating on the stock with a target price of ₹285, indicating an upside of 55 percent. Meanwhile, ICICI Securities also upgraded the stock to Buy and has a target price of ₹213 on the scrip.
In the March quarter (Q4FY22), the hospital chain reported a two-fold surge in its net profit at ₹246 crore versus ₹117 crore in the year-ago quarter. Its total income rose nearly 23 percent to ₹2749.77 crores in Q4FY22, as compared to ₹2240.69 crore during the same period last year. Aster DM's EBITDA margins also surged 44 percent year-on-year (YoY) at ₹463 crore, led by robust growth across segments. Meanwhile, its India's business grew 26.2 percent YoY.
Both the brokerages noted that the company's Q4 earnings performance exceeded expectations with strong growth in GCC (Gulf Cooperation Council) hospitals. However, ICICI Securities said that the uncertainty about the firm's restructuring plan is likely to weigh on its near-term performance. The recent correction of over 8 percent in June does provide additional comfort in valuations, added the brokerage.
"Aster DM is improving its presence in India by adding beds in key hospitals and leveraging its brand strength to foray into pharmacy and diagnostics segments. It also has taken strategic decisions to slow capex in GCC while the momentum in Gulf pharmacy and clinics is expected to sustain. Further divestment and restructuring of the GCC business also will unlock value," stated Elara Capital.
Meanwhile, ICICI Securities expects the overall business and margins to continue improving with higher occupancy and case mix. It believes in the company’s strategy of asset-light expansion, especially in India, as it would not only support growth for the company but also lift margins.
"Company is aggressively expanding its bed capacity in India. Management expects to be able to update on business restructuring by the next quarter," added ICICI.
Post the Q4 earnings, the company informed that it expects to add 500-1,000 beds in India in FY23. It added that it envisaged spending ₹175 crore for digitalization activities across India and GCC and has an annual capex of ₹580 crore for the next 2-3 years. Management also expects 33 labs and over 400 experience centers by FY23-end
Elara Capital expects a 15 percent EBITDA CAGR over FY22-24E and believes that at the current price, the stock trades at an attractive 5x FY24E EV/EBITDA at a significant discount to peers.
However, ICICI has cut its revenue and EBITDA estimates by 3-5 percent and 2-3 percent for FY23E and FY24E to factor-in low growth in the GCC clinics business and expenses towards digitalization. It expects Aster to report 10 percent/17.9 percent/38.3 percent Revenue/EBITDA/PAT CAGRs over FY22-FY24E driven largely by the hospital business.
RoE is expected to improve to 19.2 percent while RoCE is expected to rise 11.6 percent by FY24E," ICICI forecasts.
Regulatory hurdles, additional waves of covid in India, and delays in a turnaround of new hospitals are key downside risks, it added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
