Aster DM value unlocking - is the Gulf entity sale near?
The projected EV/EBITDA calculation
Aster DM, India listed company, is in the business of hospitals, clinics, diagnostics, pharmacies, etc across India and some of the gulf countries. For almost two years now, the promoters have been saying that the valuation of Indian listed entity is not truly reflecting GCC business’ worth. In Nov 2021, company initiated a move to separate out the Gulf business and in last month’s Q3FY23 results conference call, it was indicated that binding bids should be received in the April-June quarter.
Yesterday, there was a news flash about two potential buyers being shortlisted, which the company clarified, was not necessarily an accurate reporting and they would update exchanges as per listing requirements. There was also news yesterday that Dubai’s FAJR Capital being in talks for the buyout.
Here is my ball park calculation, on the initial assumption that it is a wholly owned subsidiary of Indian listed entity. The management has clarified a few times that all the money from sale will flow to the listed arm and there are no complications in the holding structure. But I suggest this to be confirmed by readers on their part.
CMP: 228
MCAP: 11400 cr
Net Debt (excluding lease liabilities): 2132
Net Debt (including lease liabilities): 5111
EV (including lease liabilities): ~ 16500 cr
Ball park, GCC is 75% of overall business, but India business is growing at around 20% in terms of revenue and EBITDA.
FY23 Projected EBITDA (annualizing 9M numbers above):
GCC: 1000 cr
India: 450 cr
India FY24 EBITDA = 1.2X 450 = 540 cr (20% growth assumed to continue)
Now, of the top 8 hospitals listed in India by MCAP, excluding Aster DM, the lowest EV/EBITDA multiple is ~18 as per the screener table below.
That projects the FY24 EV for India business to 540 X 18 = 9720 cr.
There is an expectation that the GCC sale may go through at least at an EV/EBITDA of 10 plus, and the biggest risk to my calculations is if that is not the case. So taking a multiple of 10, the expected sale value of GCC business comes to ~10000 cr (FY23 EBITDA of 1000 cr as shown earlier).
Since this will be a UAE transaction it will be tax free even when the amount is repatriated to India. Assuming not very high administrative costs for the transaction, this Rs 10000 cr cash should make its way to India.
EV post transaction = 16500 - 10000 = 6500 cr.
Potential upside in EV = projected FY24 India EV - 6500 cr = 9720 - 6500 = 3220 cr
That is a 50% potential upside. If the transaction goes at a higher multiple, there would be more upside. I reiterate, the biggest risk is the transaction taking place at single digit EV/EBITDA multiple or taking longer. Also how the money is planned to be utilised or distributed, will also determine how markets value the company ahead.
The above is a pure EV/EBITDA based derivation, it does not factor corporate governance track record, return ratios, asset heavy or light model compared to peers, various business components, and basis that what relative valuation market gives to Aster.
Do go through the latest presentation from the company at the link below and listen to the latest conference call which is available on youtube.
https://www.bseindia.com/xml-data/corpfiling/AttachHis/a11be681-cd0d-4a42-ae14-ae9b273a19f7.pdf
You can reach me @stocks_populi on Twitter and I keep sharing the latest developments in my investing landscape there.
This is not an investment advice as I am not a registered stock analyst, let alone a healthcare sector analyst.
Thanks for reading!