Kochi based Aster DM Healthcare IPO would open for subscription on 12th February,2018. Aster DM Healthcare is one of the largest private healthcare service providers which operate in multiple GCC states. Its consolidated revenues grew at 1.5 times in the last 3 years. It generated consolidated margins of 4.5% in FY17. What are the positive factors in Aster DM Healthcare Ltd IPO? What are some of the hidden factors in Aster DM Healthcare IPO? If you are planning to invest in this IPO, you should read complete review of Aster DM Healthcare IPO and then take a call. I still do not understand on how loss making /low margin companies can still ask for a high issue price. IPO Investors should read the analysis.
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About Aster DM Healthcare Ltd
They are one of the largest private healthcare service providers which operate in multiple GCC states based on numbers of hospitals and clinics, according to the Frost & Sullivan Report, and an emerging healthcare player in India. They currently operate in all of the GCC states, which comprise the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait and Bahrain, in Jordan (which they classify as a GCC state as part of our GCC operations), in India and the Philippines. Its GCC operations are headquartered in Dubai, United Arab Emirates and its Indian operations are headquartered in Kochi, Kerala.
They operate in multiple segments of the healthcare industry, including hospitals, clinics and retail pharmacies and provide healthcare services to patients across economic segments in several GCC states through its various brands “Aster”, “Medcare” and “Access”. They believe that “Aster” and our other brands are widely recognised in the GCC states both by healthcare professionals and patients. They commenced operations in 1987 as a single doctor clinic in Dubai established by its founder, Dr. Azad Moopen. company was incorporated in 2008 in a reorganisation to facilitate the growth of our operations, subsequent to which operations in the GCC states and India were consolidated under company. Its “MIMS”, or Malabar Institute of Medical Sciences, hospital in Kozhikode, Kerala, India, commenced operations in 2001.
Aster DM Healthcare IPO Issue details
IPO opening date: 12-February-2018
IPO closure date: 15-February-2018
Face Value: Rs 10 per share
Issue price band: Rs 180 to Rs 190 per share.
Issue size: Approx Rs 980 Crores on higher price band
IPO Lot size: 78 shares and 78 shares there-off
Minimum investment: Rs 14,820
Leading Managers: ICICI Securities, Yes Securities and JM Financials
Listing: BSE / NSE
Download Aster DM Healthcare IPO RHP Prospectus at this link.
Objects of the Aster DM Healthcare Ltd IPO issue
Below are the objects of this IPO.
1) Offer for Sale: The Promoter Selling Shareholders propose to sell Equity Shares held by them. Company will not receive any proceeds from the Offer for Sale.
2) Company proposes to utilise the Net Proceeds from the Fresh Issue towards funding the following objects:
a) Repayment and/or pre-payment of debt
b) Purchase of medical equipment
c) General corporate purposes.
Dr. Azad Moopen and UIPL (Union Investments Private Limited) are the Promoters of the Company.
Company Financials (reinstated-consolidated)
The company generated revenue of Rs 3,899 Crores for the year ended Mar-15 and Rs 5,967.9 Crores for the year ended Mar-17.
The company posted a profit of Rs 272.1 Crores for the year ended Mar-15 and profit of Rs 266.7 Crores for the year ended Mar-17.
Its FY17 EPS is Rs 4.29 and 3 years average EPS is Rs 2.26.
Company Financials (reinstated-standalone)
The company generated revenue of Rs 93.2 Crores for the year ended Mar-15 and Rs 410 Crores for the year ended Mar-17.
The company posted a loss of Rs 77.8 Crores for the year ended Mar-15 and profit of Rs 46.7 Crores for the year ended Mar-17.
Its FY17 EPS is Rs 1.01 and 3 years average EPS is negative.
What are the key strengths of Aster DM Healthcare Limited?
Here are the key strengths of the company.
1) Long standing presence across GCC states and India with strong brand equity.
2) Well diversified portfolio of service offerings to leverage multiple market opportunities.
3) Provision of high quality healthcare service.
4) Ability to attract and retain high quality medical professionals.
5) Ability to identify, adapt to and capitalise on market developments, conditions, trends and opportunities.
6) Track record of operating and financial performance and growth.
7) Experienced core management team.
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What are the Strategies of Aster DM Healthcare Ltd?
Here are the key strategies of the company.
1) Continue to grow within its existing centres.
2) Increase its presence by way of greenfield expansions
3) Pursue inorganic growth opportunities to expand into newer service offerings or new markets.
4) Capitalise on mandatory health insurance in GCC.
5) Implementation of initiatives to improve existing operational efficiencies and profitability.
Reasons to invest in Aster DM Healthcare IPO
It has posted strong revenue (consolidated) growth in the last 3 years. Its revenues grew by 1.5 times in 3 years.
Risk Factors / Reasons not to invest in a Aster DM Healthcare IPO
1) They have incurred losses in consolidated numbers for 6 months ended Sep-2017. They have incurred losses in standalone numbers for FY2015, FY2016 and for 6 months ended Sep-2017. Investors should invest in consistent performing companies that would reward investors.
2) Their ownership structure in most of the GCC states is subject to risks associated with foreign ownership restrictions and the shareholder arrangements with local shareholders might be violative of the local laws of the jurisdictions.
3) Certain licenses required to operate their businesses in the GCC may be held to contravene legal requirements.
4) Certain nominee arrangements lack certain provisions of a protective nature commonly used in similar structures, which may adversely affect their business.
5) Their revenue is highly dependent on their operations in the GCC states. Further, their results of operations are, and are expected to continue to be, significantly affected by foreign ownership restrictions, financial, economic and political developments in or affecting the GCC states.
6) Their performance depends on their ability to recruit and retain high quality doctors and other healthcare professionals, such as nurses, pharmacists and technicians.
7) Their Promoter, Dr. Azad Moopen, has been named as one of the respondents in a criminal proceeding. Further, one of their Directors, Harsh C. Mariwala has been named as a party in criminal proceedings instituted against Marico Limited, and action has been initiated by SEBI against L&T Finance Holdings Limited of which Harsh C. Mariwala is a director.
8) One of their Subsidiaries, MIMS, has compounded past violations of Section 67(3) of the Companies Act, 1956.
9) Their growth strategy depends significantly on the construction or development of hospitals, clinics and stand-alone retail pharmacies which may be subject to delay and cost overruns.
10) They are subject to risks associated with potential acquisitions and their expansion strategy.
11) The success of their expansion strategy is dependent on their ability to maintain their relationships with their partners following strategic acquisitions and to continue to operate their existing hospitals, medical centers or retail pharmacies, including the businesses which they acquire.
12) Their business is dependent on obtaining and maintaining governmental licenses necessary to operate their healthcare facilities.
13) They face competition from other hospitals and healthcare providers, which may result in a decline in their revenues, profitability and market share.
14) Company has reported net losses in certain recent years on a consolidated and standalone basis.
15) They have experienced negative cash flows in the prior years.
16) There are various proceedings pending against company, certain Subsidiaries and their Directors, their Promoters and certain Group Entities, which if determined against them, may have an adverse effect on their business.
17) They may be subject to liabilities and negative publicity arising from the risks of providing medical services including those resulting from claims of malpractice and medical negligence.
18) Their operations could be impaired by a failure of their information technology or cooling systems.
19) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
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Recommendation / Investment strategy – Aster DM Healthcare Limited IPO
On the upper price band of Rs 190 and on consolidated restated FY17 EPS of Rs 4.29, P/E ratio works out to 44x. Even based on last 3 years restated consolidated EPS of Rs 2.26, P/E ratio works out to 84x. Means, company is asking higher price band of Rs 190 in the P/E ratio of 44x to 84x. There are listed peers like Fortis Healthcare trading at P/E of 17x, Narayana Hrudalaya P/E of 72x, Apollo Hospitals 75x, Healthcare Global P/E of 103x. Hence Aster DM Healthcare IPO Price of Rs 190 is fully priced compared to its peers.
Company consolidated revenues grew at 1.5 times in the last 3 years. However, its profits are inconsistent. It incurred losses for 6 months ended Sep-17. Its standalone numbers indicate that has incurred losses for 2.5 years out of 3 years. Its issue price is also fully priced. Personally, I would like to stay away from such loss making fully priced IPOs, as investors would not get any thing as of now. In future if the performance of the company improves in terms of net margins, I may review again.
Update on 13-Feb-2018 – 26% subscribed on Day-1
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
Readers, what is your view on this IPO? Do you still feel one would still get listing gains?
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Aster DM Healthcare IPO – Should you subscribe?
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Ain't you giving too much importance to profit? May be company is incurring heavy investment to fund its growth. It would be better to analyze cash flow from operating activities.
Excellent analysis with very simple and understandable language
thank you Ahmedali
Superb analysis. Thanks. You could have better summed up by saying “keep away”
ha ha. I agree
Excellent and Excellent deep dive. Thanks a lot.