Asarfi Hospital Limited SME IPO (Asarfi Hospital IPO) – My analysis

Update on Asarfi post Q2FY25 results as well as some of my own thoughts:

1. Occupancy rate is at 60%. Ideally occupancy should be higher due to lack of hospitals in Jharkhand (they have some competitors in place). And they also face competition from West Bengal which is a medical tourism hub. Company has increased their catchment area to 10 districts.
2. Receivables being high in comparison with other hospitals –

• Company has made a dedicated team to bring down the debtor days but it depends on the govt institutions (Coal India, Railways, Ayushman Bharat) as split is 50:50
• Don’t need immediate equity dilution but this can become a constraint down the line

3. Cancer hospital – 74 Cr invested till date

• FY25: 20 Cr sales (Sep run rate: 1.59 Cr)
• FY26: 35 Cr sales. Management has also said that they want to achieve 6 Cr MRR in 2-2.5 years
• Company will increase bed capacity to 150 in next 2 years with 1-2 Cr investment to primarily be eligible for subsidy of 12.5 Cr from Jharkhand govt under their scheme. This subsidy is yet to be received but application is processed
• The additional 100 beds would primarily be added like general beds to gain the subsidy and the company will keep adding equipment from internal accruals over the years. Seems like this would impact ARPOB

4. ARPOB:

• Multi-speciality – 19,958. Target over next 2 years – 25,000 (seem too ambitious)
• Cancer hospital – 16,748. Target over next 2 years – 30,000

5. Land dispute for cancer hospital

• Land taken on lease from govt. High court said that land is not the governments to give and awarded the land back to a private party.
• The Supreme Court has ordered for fresh adjudication but as per management they have been removed as party to the suit and then it will take 10-15 years to resolve the case
• However, here I am a a little skeptical. I read the SC judgement and the case has just been disposed of for re-adjudication. Nowhere is it mentioned that Asarfi won’t have to fight the case.

6. Land for Health research institution

• Will be used for running allied courses like nursing
• Primarily used for talent generation once they expand their hospital capacity
• Limited revenue generation capabilities (looking at Kovai). But they aim to approach the govt in the future to allow them to create a medical college

7. Vision for next 10 years

• 400 own beds (main hosp + cancer) + 100 (new hospital acquisition) + 500 (O&M mode) = 1000
• 4% sales commission to be paid to hospital partner for O&M
• Sales – 400 Cr with PAT – 50 Cr (30% PAT CAGR is very ambitious) → But then management clarified that they’re targeting 400 Cr revenue in next 4 years

8. Guidance from H1FY25 to FY26

• Beds – 300 to 380
• ARPOB – 19,524 to 19,823 (but this is not in line with their above guidance?)
• Revenue growth – 18% (last 3 years, check if FY24 or H1 Wise) to 29% (next 2 years)
• EBITDA margin – 21.4% to 23.7%
• PAT margin growth – 7.7% to 11% → Essentially they’re claiming a PAT CAGR of ~87% over FY24!!
• ROCE – 9% to 15%

9. Red flags or Areas of concern:

• 18 Cr Loans Disbursed in H1 FY25: I have written to the company secretary regarding this but so far haven’t received any response back.
  • To whom were the loans amounting to ₹18 crore disbursed?
  • What is the tenure of these loans?
  • Are these loans interest-bearing? If yes, what is the applicable rate?

2. Company has claimed to increase ARPOB by 25-30% over next two years in the concall but in the investor ppt they have hardly shown any expected growth.

• One reason could be that management is expecting ARPOB on existing beds to increase but overall no. would decrease due to addition of 100 cancer beds for getting subsidy which would have minimal impact. The numbers make sense