Aster DM Healthcare Ltd. may improve its stock performance if the company sells its Gulf business, according to HSBC Global Research.
The gulf business would turn over good profit in the company's balance sheet should the sale happen, the brokerage said in a note on Tuesday. In the event of a sale, the board will also return some part of the profits to the shareholders, according to its management.
Aster DM has been looking to sell its Gulf Cooperation Council countries business for over a year. The company's group Chief Financial Officer, Sreenath Pocha Reddy, had resigned earlier this year.
HSBC has maintained a 'buy' on the stock, with a price target of Rs 330 per share, implying an upside potential of about 17.8% from Monday's close.
HSBC Global On Aster DM Healthcare
Maintains a 'buy' rating, with a price target of Rs 330 apiece.
The company is discussing the sale of its Gulf business, which includes several Saudi hospitals, and binding bids are expected soon.
Aster's share price has increased as investors have started factoring in the probable sale of the GCC business and the improved valuation of healthcare sector in general.
The brokerage said that Aster's loss increased in the second quarter of 2023 due to the addition of a low-return hospital in Muscat.
However, revenue growth improved in the last quarter of 2023 on the signing of a new operations and management agreement in Kerala, and the opening of new hospitals in Tirupati and Vijayawada.
Despite a year-on-year revenue growth of 16% in fiscal 2023, Aster's operating profit fell 7% year-on-year, due to loss from the new hospitals.
The company's announcement of the development of a 150-bed facility in the Grand Cayman Island for medical patients in the Americas is a poor investment, according to HSBC.
Key risks are the pending restructuring of the company, capital allocation and the complexity of modelling within the healthcare company.
Shares of Aster DM Healthcare rose 14.55% to reach a record high of Rs 328.70 apiece, compared to a 0.49% uptick in the benchmark Nifty 50.
Of the nine analysts tracking the company, eight maintain a 'buy' rating and one recommends a 'hold', according to Bloomberg data. The average 12-month price target implies a downside of 2.9%.
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