HSBC Securities has downgraded Aster DM Healthcare Ltd. to 'hold' from 'buy', citing uncertainties around the potential sale of its business in the Gulf Cooperation Council's countries.
This move came despite the healthcare sector attracting positive interest from brokerages and investors on the back of a strong growth story.
However, HSBC slightly raised its target price to Rs 337 from Rs 330 apiece due to increased peer multiples, implying an upside of 3.6%, according to its report on Thursday. "Although the pending restructuring is a positive, uncertainties around the deal dynamics leave us cautious."
Key Highlights
With regards to sale of its GCC business, the management said in its first-quarter earnings call that the process was taking longer than expected due to the complexity of the transaction.
This is partly driven by key shareholders' desire to own a stake in the GCC business along with the bidder.
It does mean that the GCC business will be held privately.
Minority shareholders may miss out on any multiple rerating of the business.
Aster DM Healthcare's share price has run up as investors factor in the probable sale of the GCC business along with healthy multiples for the healthcare sector.
The stock is trading at a 65% premium to the five-year average 12-month forward price-to-earnings.
Company reported a strong start to financial year 2024.
The June-quarter revenue grew 21% due to an increase in the number of beds and average revenue per occupied bed.
Ebitda margin improved 1.1% year-on-year on cost improvement initiatives.
This was despite continuing losses from new hospitals and non-recurring restructuring costs of Rs 6 crore.
Mature hospital margin in both India and GCC improved.
Aster Whitefield's new 275-bed block in India and the 59-bed annex building in Saudi Arabia are due to open in the second quarter.
Whitefield will likely lead to a drag on margin.
But the annex building in Saudi Arabia should have a limited impact on margin as it is next to an established site.
Medcare Royal hospital will be launched in the UAE from next January.
Losses from these expansions as well as continued losses from hospitals launched last year will weigh on margin.
Restructuring and expansion are positives, but the lack of GCC listing leaves us cautious.
Shares of Aster DM Healthcare were trading 0.29% higher at Rs 331.90 apiece compared to a 0.11% decline in the benchmark S&P BSE Sensex at 11:04 a.m.
Of the nine analysts tracking the stock, seven have given a 'buy' rating, while two have a 'hold' rating. Average of the analysts' price targets imply an upward return potential of 0.6%.
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