Aster DM healthcare

My Opinion

Aster Healthcare started from GCC and all through times they are vocal about GCC getting low valuation multiples (also present in this thread).

Developments in UAE: Abudhabi which is the capital of UAE is pushing all the companies in their country to list on ADGM (Abudhabi global markets).

If Indian markets give a very cheap valuation to the company, why not buy the shares(62% of GCC) of Aster in “slump sale” (according to the CFO) and list it in ADGM where a real valuation is given to Aster GCC.

I think this is the primary reason for the slump sale. To complete this they will engage with some PE firms to buy out their stake and list it separately in time in ADGM.
Aster selling GCC stake to PE firms

Aster GCC single handedly could get interest at low rates(6-7%) and build the whole India business from scratch starting from Kerala, today they have close to 15 centers and all Multi-speciality and not clinics. I think the primary motivation to ‘slump sell’ is the lack of valuation given in Indian Markets and attractive offerings that can be got in ADGM.

To give you a perspective
Apollo Assets according to their books is 13000 crores and their valuation is 61588 crores.
Apollo is into (Hospitals, Clinics and Pharmacy). Apollo is audited by Deloitte and Haskins

and

Aster is into the same and if you visit Dubai or Abudhabi, you will find their pharmacies every nook and corner just like Apollo and they have Clinics and Hospitals as well which are proportionate to the population in UAE, Deloitte and Haskins audits Aster DM Healthcare books.

The only exception is Apollo realises most of its money on the go and Aster gets it a little late because all its money including from Pharmacies is from insurance.

Important part is what is the fair value of the company or GCC business. For me, it is rational to have a valuation which is similar to Apollo

1. Common assumption is because India is place where there is a lot of scope to grow and aster GCC cannot command such valuations
2. However doing operations in GCC is not easy at all where there are so many constraints like cost of operations, high attrition, importantly meeting regulations and bypassing common perceptions about Indian doctor, paying high salaries to British docs etc., and they were able to bypass them and they also expanded to Saudi, Bahrain, Qatar and Oman where there is still a lot of scope to expand in Pharmacy/ Clinics or Multi-speciality Hospitals which is their core moat.
3. Almost all insurance providers give a leverage of getting IP(inPatient) outside of UAE and reimbursing the expenses in full(minimum of up to 12 Lakhs in as basic insurance policy). This gives so much leverage to Aster in terms of medical tourism. You can also look up in terms of which countries actually visit India on the name of Medical tourism, this offers a unique advantage to Aster where they can leverage their hospital chain India.

When i went through the thread i found that few management changes happened abruptly. These things happen, generally a venture capitalist or any family owned business starts operations in a country they will try to have their men(family/primary stakeholder employees) in Finance, in board where they can have over sight on the operations. If they see fraud they are immediately terminated. I think so management terminations happened that way.

But for the readers perspective(who might not have a good understanding of doing business in GCC) lets assume prospects are mediocre and get into valuations.

Numbers could vary a little because i some mental math to add last 4 quarters based on their investor presentations(1,2)

Indian Operations (last 4 Quarters)
Operating Profit is at 407 Crores
Apollo is valued at 80PE and 30 times operating profit.
Fortis/Rain bow at 20/22 times operating profit
lets assume Aster is equivalent to Fortis so the valuation would be
20 * 407 == 8000 crores

GCC operations (last 4 Quarters)
Operating Profit is at 1116 Crores
Operating Margin is ~14%
If i value them with companies like US or less than them at 12 times operating profit(40% less than Indian business valuation)
12 *1116 = ~13400 crores

(Healthcare companies in US.
United Health group 13.5 times operating Profit 10-11% opm 22PE
Elevance health 10.5 times operating Profit 7-8% opm No PE)

Based on these assumptions if i value them it would be
operating profit based
8000 +13400 = 21400 crores which is 75% above current market capitalization.

To bring this to perspective a mediocre valuation would mean a share price of 240 *1.75 = Rs.420

Other Notes:
I don’t want to value by PE because the GCC operations posted -40% profit for last 9 months.
Aster has a total Assets of 13600 crores which is same as its market capitalization and Apollo has an assets of 13900 crores.

Let me know your thoughts, if i missed anything or didn’t consider anything.

Disclosure: Bought for ~8% of PF yesterday at 240