Aster DM Quality Care Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Core business momentum masked by startup losses: Consolidated EBITDA grew 15% YoY when adjusted for losses from three newly commissioned hospitals, while reported EBITDA was weighed down by these temporary drags.
• GCC restructuring is now a live process: Investment bankers have received indicative bids for the GCC business, with binding bids expected in Q1 FY24, setting up a complete segregation between GCC and India entities.
• India is scaling fast, with a capital-light engine: India revenue grew 25% YoY, the O&M model is targeting 500 beds per year at higher ROCE, and the pharmacy network plans 125–150 annual additions, all tied together by the upcoming myAster ecosystem.
• New hospital empanelment delays are the near-term friction: Intense insurer negotiations in the UAE’s med-free market have stretched timelines for Sharjah and Oman facilities, pushing breakeven on these assets to Q3/Q4 FY24.
• What to watch next quarter: Binding bid reception for the GCC sale, progress on empanelment for the three new GCC hospitals, and the pace of India’s O&M bed additions and pharmacy rollout.

GCC Restructuring: The Separation Catalyst

• Process is in motion: Investment bankers have received interest and indicative terms from potential buyers of the GCC business; binding bids are likely to be received in Q1 FY24, after which the Board will review proposals upon final evaluation.
• Clean break design: The Board has decided on complete segregation between GCC and India, structured as a sale of the GCC business by the India-listed company, with no cross-holding between the two entities and a complete clear cutoff.
• Proceeds usage undecided: Management declined to specify whether sale proceeds would be dividended out or used for India expansion, stating the Board has not yet decided.

Dr. Azad Moopen: "If this is going ahead, as the board has decided that or going ahead, it will be a complete segregation between the GCC and India. So it will be a sale of the GCC business by India listed company."

GCC Performance: Core Strength, New-Hospital Drag

• Headline vs. underlying: GCC business EBITDA excluding operational losses from new hospitals was Rs. 468 crores, representing 15% growth; reported numbers include the weight of three recently opened facilities in Sharjah, Muscat, and Areekode (India).
• Hospitals grew 22% YoY in revenue, with adjusted EBITDA margin (ex-new hospitals) at 18.1%; the core performance was strong even as new assets await empanelment.
• Clinics normalized post-COVID: Headline revenue grew only 4% YoY due to a high PCR-revenue base in the prior year, but core business (excluding PCR) grew 35%, and per-patient collection is recovering as the mix shifts back to usual consultations and procedures.
• Pharmacies accelerated to 36% YoY growth, driven by same-store growth, assortment changes, own-product sales in supermarkets and duty-free, and the myAster platform, not primarily new store additions. EBITDA grew 29% with margin at 11.9%, though some dilution is expected as investments in free deliveries and platform build-out continue.
• Riyadh turnaround: Aster Sanad Hospital in Saudi Arabia has turned profitable with 10% EBITDA margins this financial year after earlier struggles.
• Empanelment is the bottleneck: Negotiations for new facilities in Sharjah and Oman have been more extended and delayed than anticipated due to intense negotiation in a med-free insured market; management wants the right contracts and rates for the large infrastructure being built.
• Loss reduction timeline: Assuming empanelment happens between Q4 FY23 and Q1 FY24, losses are expected to start reducing, with breakeven on these three hospitals targeted by Q3 or Q4 FY24.

Alisha Moopen: "The empanelment of the new facilities has been a little bit more extended and delayed than we had anticipated. This is the intense negotiation that is a reality of a med-free insured market that we are facing. We want to make sure that we get the right contracts and the right rates in place for the large facilities and big infrastructure that we are building up."

India Business: Scaling with Discipline

• Revenue grew 25% YoY to Rs. 771 crores, with hospitals and clinics revenue up 20% YoY; 9M PAT (Post NCI) grew 104% YoY to Rs. 99 crores.
• Profitability trajectory: India EBITDA margin reached 15% in Q3; some large hospitals are near 30% margin, many around 20%, and management expressed confidence in driving better profitability going forward.
• O&M model is the growth engine: Already reached 390 beds through the O&M model this year, targeting around 500 beds per year with at least 15–20 projects under consideration; one more hospital expected this year or early Q1 next financial year.
• O&M economics: Target margin around 15%, lower than owned hospitals (20–25%+) but higher ROCE due to low capex of Rs. 5–10 lakh per bed; full revenue and profitability booked by Aster, with revenue share to landlord treated as rent on the EBITDA line.
• Pharmacy strategy is ecosystem-driven, not store-count-driven: Targeting 125–150 pharmacy additions per year, focused on geographies where hospitals already exist, tied together via the myAster app; emphasis on white-label products from GCC for better margins, deliberately avoiding cutthroat discount competition with larger players.
• myAster India launch: The app, now live in GCC, is expected to launch in India within 6–8 months, tying up patient requirements across hospitals, pharmacies, labs, and home care.
• Andhra-Telangana cluster recovering: Margins have slowly grown from 7% to around 10% in Q3; with Aarogyashree schemes restarting, outreach clinics being established, and implant centers being created, the target is around 15% margin next financial year, with hopes to go beyond, but ramp-up will be slow.
• New hospital losses contained: Mother Hospital Areekode (O&M model) losses are not expected to continue next year; Aster Whitefield’s new 275-bed block going operational next year will incur losses but is the only major new hospital coming up immediately; other additions are O&M projects where no major losses are expected.

Dr. Azad Moopen: "So strategically, what we thought is that unlike other players who are much larger and much bigger, we are not looking at catching up on these numbers. What we are looking at are 2 things: one, an ecosystem to be created between our hospitals, pharmacies, labs and home care."

Digital & Platform Build-Out

• myAster app traction: Ranked #1 free medical app in UAE across both App Store and Play Store; net downloads reached approximately 220,000, up from 86,000 in the prior quarter.
• Transaction volumes scaling: About 38,000 appointments booked through myAster in Q3, with nearly 18,000 in December alone; nearly 0.1 crore transactions on the app combining appointment bookings and pharmacy orders.
• e-Pharmacy surge: e-Pharmacy orders increased 150% month on month; non-prescription orders on digital channels grew 2x versus the prior quarter.
• Home delivery at scale: Home delivery business continues to trend above AED 1 crore on average per month.
• Talabat partnership: Aster Pharmacy entered a strategic partnership with Talabat (UAE’s largest online food delivery and q-commerce platform) for prescription medicine delivery in Dubai, beginning February 1, 2023.
• Platform improvements: Rolled out smoother appointment booking flows, quicker search, and conversion-focused product listing and detail pages based on consumer research and pilot feedback.

Bed Expansion & Capex Pipeline

• India brownfield and greenfield: Work has begun on a new 200-bed Aster Hospital in Kasaragod; adding 100 beds each at Aster Hospital Kannur and Aster Medcity Kochi; Phase-II 275-bed Aster Whitefield Hospital Bengaluru is nearing completion; construction soon starting on Phase-I 350-bed Aster Capital Hospital Trivandrum.
• GCC bed additions in FY24: Incremental beds of close to 220 planned: approximately 59 beds in the Saudi Annex building, plus a fully fitted-out multispecialty facility in Dubai.
• New hospital commissioning timeline: One FY24 hospital is an extension of an existing facility requiring no empanelment; the other will be commissioned only by Q4 FY24 (around January next year), so no losses are expected from that unit in the coming year.
• Saudi Arabia entry: Working on regulatory approvals to set up a JV with Al Hokair Group; expecting to set up first facilities in Q1 FY24, with a plan to roll out 50 pharmacies in the first year.
• Net debt guardrail: Net Debt to EBITDA ratio (excluding lease liabilities) expected to be kept below approximately 2x going forward, considering the 1,800-bed pipeline and Rs. 250–300 crores of annual capex.
• Strategic discipline on beds: Management emphasized that bed additions are strategic decisions taken only when confident of a decent return on investment without much delay; large parts of the 1,800-bed pipeline are in geographies like Kerala where hospitals fill up immediately due to brand trust, with Kannur Hospital reaching cash breakeven within 8 months.

Alisha Moopen: "One of them will not have this insurance issues because it's already an extension -- it's an extension of existing facility. So, there is no empanelment that is required for that. The other hospitals will only be commissioned by Q4 of '24, around January time next year. So we again do not see losses of that unit for this coming year."

UAE Market Context & Margin Outlook

• Saturation headwinds: The UAE market is experiencing demand-supply issues in healthcare due to saturation, reducing growth; the introduction of Corporate Tax and insurance-related issues are expected to impact business profitability.
• GCC pharmacy margin stabilization: Margins are expected to stabilize at 9–10%, with current slight dilution attributed to investments in the myAster platform and free deliveries to drive adoption and scale-up.
• Labs restructuring: Previously run as a vertical across geographies, labs have been realigned with individual hospital clusters, producing increased awareness, sales, and cost reduction; breakeven is targeted within 6–9 months, with the hope of reaching breakeven by Q3 next year.

Dr. Azad Moopen: "UAE continues to be a preferred destination for businesses and people, but the saturation is producing demand supply issues in healthcare sector, reducing growth. The introduction of Corporate Tax as well as the insurance related issues also shall have an impact on the profitability of businesses."

Guidance & Commitments

Key Metrics