Brokers’s call: Aster DM (Outperform)

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Target: ₹665

CMP:₹ 483.35

On November 29, Aster DM Healthcare announced it intention to merge with Quality Care India Ltd (QCIL), a hospital platform backed by private equity firm, Blackstone. Under the platform, QCIL has two hospitals brands, ie. Care Hospitals and KIMS Health in India. Note that Blackstone has a majority stake in QCIL in 2023.

Aster DM Healthcare has announced its intentions to merge with QCIL. The merged entity will operate under the brand Aster DM Quality Care Ltd and have a bed capacity of c10,150 beds. The locations of existing hospitals are well diversified.

Aster DM values QCIL at 25.2x FY24 EV/EBITDA, which we believe is reasonable when compared to the average valuation of listed hospitals at 35x and recent deals with the sector. Furthermore, with FDI inflows in hospitals at record levels and private equity investors looking to own Indian hospitals, we expect valuations to remain elevated for the sector.

The proposed merged entity could be the largest hospital chains in India, with bed capacity of 13,250+ vs APHS 12,700+ by FY27. We believe the proposed merged entity should command a premium valuation to other small/mid-sized listed hospitals and see potential for re-rating.

Our sensitivity analysis of the proposed merged entity suggests a TP range of ₹631-837. We await more details and regulatory clearance before revising our numbers.