Aster DM Healthcare Ltd. - An Undervalued Healthcare Growth Stock

Established in 1988 under the leadership of Dr Azad Moopen, Aster DM Healthcare is a leading private integrated healthcare service provider in APAC, operating in the Middle East and in India.
Based on the underlying fundamentals and growth prospects of the business, we would like to give a BUY recommendation with a price target of INR 208.64 over a 1-year time horizon.

Company Overview

Company Highlights

• Leading private integrated healthcare service provider in the Asia Pacific, operating in the Middle East and in India.
• Offers multispecialty Primary, Secondary, Tertiary and Quaternary Care.
• Operates 27 hospitals, 118 clinics, 323 pharmacies, and 66 laboratories under the brands – Medcare, Aster, and Access.
• Geographical presence in the United Arab Emirates, Saudi Arabia, Oman, Qatar, Bahrain, Jordan, and India.
• Human capital (as of FY21) consists of 2,970 doctors, 6,512 nurses, 9,840 support staff, and 2,611 outsourced staff.
• Has the largest chain of pharmacies in the UAE and the largest number of medical centres or polyclinics in the GCC.

Key Segments

• GCC Hospitals
  • The company operates 13 multispecialty hospitals under the Aster and Medcare brands.
  • Hospitals accounted for 34.39% of 9M FY22 revenues with an EBITDA Margin of 16.10% and ROCE of 8.40%. ARPOB from GCC Hospitals was INR 188,200.
• GCC Clinics
  • The company operates 109 clinics under the Aster and Access brands.
  • GCC Clinics accounted for 23.64% of 9M FY22 revenues with an EBITDA Margin of 19.10% and ROCE of 25.60%.
• GCC Pharmacies
  • The company operates 233 pharmacies under the Aster and Access brands.
  • GCC Pharmacies accounted for 21.74% of 9M FY22 revenues with an EBITDA Margin of 10.90% and ROCE of 21.60%.
• India Hospitals, Clinics, Pharmacies and Labs
  • The company operates 14 multispecialty hospitals, 9 clinics and 9 labs under the Aster brand. 
  • India Hospitals, Clinics, Pharmacies accounted for 20.23% of 9M FY22 revenues with an EBITDA Margin of 16.60% and ROCE of 6.60%. ARPOB from India Hospitals was INR 32,500.

Business Model

• Patient Lifecycle Management – The GCC Primary and Secondary healthcare network and telehealth services offer initial touchpoints to patient’s who are recommended to hospitals in India for advanced care.
• Resource Talent Management – The company sources its human capital for the GCC operations from its Indian operations due to the abundance of qualified healthcare professionals.
• Digital Healthcare – The company has a robust digital healthcare infrastructure to scale up outpatient numbers.
• Innovation – Promotes entrepreneurship and innovation through XHealth Innovation Labs, the company’s incubator and accelerator.

Operation Metrics

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Management Profile

Dr Azad Moopen

• Dr Azad Moopen is the Founder, Chairman and Managing Director of Aster DM Healthcare.
• Holds an MD in General Medicine and MBBS from the Calicut Medical College where he was a Gold Medalist in Medicine. He also holds a Postgraduate Diploma in Tuberculosis and Chest Diseases.
• Responsible for the Company’s overall business operations and handles overall corporate strategy at the Group level.
• Has 30+ years of experience in operating and managing hospitals, clinics, pharmacies, etc.

Alisha Moopen

• Alisha Moopen is the Deputy Managing Director of Aster DM Healthcare.
• Holds a Bachelor’s in Business Administration from the University of Michigan and is currently enrolled in a Postgraduate programme from Kennedy School of Government, Harvard University.
• Responsible for implementing and overseeing the company’s digital initiatives.
• Has been associated with Aster and the healthcare industry for 10+ years.

Shareholding Pattern

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Industry Overview

Middle East Healthcare Market

• The Total Addressable Market in 2026 is expected to be USD 1.7 Bn growing at an 18.95% CAGR. (Source: Market Data Forecast)
• Increased fiscal expenditure on healthcare (5.5% of GDP in 2015 v. 4.0% in 2011) has resulted in tailwinds for the healthcare sector in the region.
• Lower taxation levels (or higher incentives) and the cost of raising funds continue to attract direct investment creating indirect tailwinds.
• Increased instances of chronic diseases have created demand for robust healthcare infrastructure.
• Telehealth services and healthcare digital analytics continue to drive growth in the sector.

India Healthcare Market

• The Total Addressable Market in 2026 is expected to be USD 1.1 Tn growing at a 29.79% CAGR. (Source: Research and Markets)
• Growing penetration of medical insurance across the country continues to drive demand for healthcare services.
• Medical tourism, Telehealth and the adoption of digital analytics in healthcare would be major drivers of growth for the sector.
• Changing consumption patterns combined with a significant proportion of the ageing population and higher incidence of chronic diseases create long-term tailwinds.
• Higher incomes and an increased propensity for healthcare expenditure create opportunities for growth in the sector.

Investment Thesis

Thesis #1 – Expansion and Value Creation

Massive Growth Opportunity

• The management’s focus is on expansions without compromising on quality with an emphasis on comprehensive healthcare services.
• The company is expected to add 1,850 beds by FY26. This would mean a 36.42% increase from the current bed capacity.
• The expansion would translate into an INR 2,629 Cr p.a. revenue opportunity for the company post FY26 at the current ARPOB and at a 60% occupancy level.

Management’s Growth Strategy

GCC

• Expand telehealth and digital health operations
• Backend integration supported by Shared Services Centres in Bengaluru and Calicut. 
• Centralized cost optimization strategies to ensure higher profitability. 

India

• Continued expansion of large-format hospitals in high margin Tier-I cities.
• Shift to asset-light and retail business models and verticals.
• Expand revenue generation to de-risk revenue portfolio.

Project Pipeline

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Thesis #2 – Operational Synergies

Middle East Operations

• The company has an integrated network of healthcare facilities with decades of experience and strong brand equity in the GCC.
• The average ticket size in the GCC is far higher (as reflected in the ARPOB) than that of India which can be used to organically expand GCC and India operations.
• GCC is a 100% insurance-driven market. Legislation on mandatory medical coverage ensures that collections happen in a timely manner.
• The company can leverage lower levels of taxation and the cost of financing.

India Operations

• Availability, sourcing and retention of highly qualified medical professionals in Indian hospitals with the ability to transfer human resources to the Middle East operations.
• The fast-growing industry with major growth drivers such as increased penetration of medical insurance, higher incomes, and government initiatives.
• The company has significant operations in the State of Kerala which is celebrated worldwide for its exceptional healthcare facilities.
• Growing presence in Tier-I cities through large-format hospitals.

Thesis #3 – Digitization and Medical Tourism

Positioned to Leverage on Medical Tourism

• The India Total Addressable Market in 2027 is expected to be USD 207.2 Bn growing at a 21.10% CAGR. (Source: Ministry of Tourism)
• According to the Medical Tourism Association, India is ranked 10th among the top 46 countries for medical tourism due to the robust healthcare infrastructure and high quality of medical professionals.
• Aster’s network of hospitals and clinics act as the first touchpoint in the patient’s lifecycle.
• Complex tertiary and quaternary care cases are recommended to the hospitals in India. 
• Thus, the company is well-positioned to leverage its expertise and facilitate medical tourism.

Digital Initiatives

• The MEA Total Addressable Market in 2026 is expected to be USD 6.4 Bn growing at a 10.80% CAGR. (Source: Market Data Forecast)
• The India Total Addressable Market in 2027 is expected to be USD 4.4 Bn growing at a 22.31% CAGR. (Source: Research and Markets)
• The first private player in the UAE to enter into the teleconsultation space.
• Ability to expand medical services into Tier-II and Tier-III cities while complementing physical capital expansion in Tier-I cities.
• Telemedicine vertical engages 800+ doctors offering  Cardiology, General medicine, Ophthalmology, ENT, Pulmonology, Neurology, Endocrinology, Urology, teleconsultation services among others.
• One Aster App and homecare services were launched in FY21 to offer comprehensive patient health management services.

Investment Risks

Risk #1 – Concentration in the GCC

High Degree of Concentration

• GCC Hospitals, Clinics and Pharmacies have historically accounted for more than 80% of the company’s topline.
• This makes the company highly susceptible to idiosyncratic risk factors from operating in one primary region wherein countries share similar macroeconomic dynamics.
• The GCC is also subject to seasonality as the 2nd quarter usually sees lower footfall in comparison to the other three quarters.
• To counter this risk, the company has been reinvesting proceeds from its GCC operations into its India operations.
• The management intends to de-risk the revenue mix and limit GCC revenues to ~75% in the medium term.

Ownership Constraints

• Some of the geographies that the company operates in are subject to a high degree of foreign ownership constraints.
• In UAE, Kuwait, Qatar, and Jordan, domestic owners are required to have a majority stake in the business and are paid annual fees with little or no profit-sharing.
• In Oman, the domestic owner is required to own 30% under a similar structure.

Risk #2 – Operational and Regulatory Concerns

Operational Risks

Nature of Business

• The business is highly dependent on the skills and expertise of its doctors, nurses and support staff.
• The business cannot be fully mechanised and will have some degree of human intervention which makes it susceptible to human error.

Business Model

• Even though the company has adopted asset-light retail models, a bulk of their expansions requires the construction of structures and heavy capital expenditures.
• This exposes the company to the risks associated with the construction of healthcare facilities.

Competitive Environment

• The healthcare industry is one that has seen limited consolidation and is usually dependent on one “superstar” doctor in each establishment.
• The highly fragmented and localised nature of the business makes consolidation a challenge.

Regulatory Risks

Healthcare Regulations

• The healthcare industry is subject to many domestic and international regulations.
• The company is exposed to the future regulatory risk associated with changing healthcare laws in the GCC and in India.

Licensing and Regulatory Approvals

• For the provision of healthcare services, medical establishments such as hospitals and clinics are subject to receiving different types of government licenses and approvals.
• While the company has been filing for approvals, the likelihood of receiving the same is uncertain which may create regulatory hurdles in the completion of the current project portfolio.

New Geographies

• The company is trying to expand in new countries and states in India. Lack of timely approvals will put a hold on the company’s expansion plans.

Valuation and Price Target

DCF Valuation

Relative Valuation

Price Target

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