Aster DM Quality Care Ltd Q2 FY2023 Concall Summary

Key Takeaways

• New hospitals dragged earnings into the red: Consolidated PAT fell to ₹46 crore from ₹107 crore YoY, entirely because commissioning losses at new GCC and India hospitals added costs without revenue; excluding those losses, PAT was ₹88 crore.
• GCC hit by a triple headwind: Operational losses from Sharjah and Oman hospitals, a collapse in high-margin PCR testing, and an unprecedented post-Covid vacation exodus combined to push GCC EBITDA down to ₹192 crore from ₹241 crore YoY.
• India delivered a clean 24% growth story: Revenue grew 24% YoY and EBITDA grew 24% YoY, with occupancy jumping from 63% to 72%, and PAT more than doubling to ₹50 crore.
• Restructuring is live but details are withheld: Investment bankers have received indicative terms from potential investors for segregating GCC and India businesses; the Board is evaluating options, but management refused to discuss use of proceeds.
• What to watch next quarter: Whether the new GCC hospitals begin converting empanelment into revenue, the pace of the Andhra/Telangana margin climb into double digits, and any concrete Board decision on the restructuring structure.

GCC: The New-Hospital Drag

• Commissioning losses are structural and unavoidable: In GCC, hospital commissioning takes 6–8 months after building completion for authority approvals and insurance empanelment; insurers require doctors and staff to be onboarded before granting empanelment, so salary and rental costs accumulate with zero offsetting revenue and cannot be capitalized.
• Sharjah and Oman are the two loss-makers: Aster Hospital Sharjah (101 beds, inaugurated October 2022 after a May soft launch) and Aster Royal Hospital Muscat (181 beds, soft-launched next to the existing Al Raffah facility) are the primary drag on GCC profitability.
• Constant-currency hospital revenue was flat despite more beds: GCC hospital revenue grew 0% in constant currency because new hospitals operated at only ~3% occupancy, ALOS increased, and elective surgeries dropped in July and August as residents took their first post-Covid vacation. Revenue picked up only in September.
• The core GCC business is healthy: Excluding Covid testing, the core GCC business grew 21% YoY; hospital revenue rose 8%, retail revenue rose 34%, and clinics core revenue rose 14%. The Saudi Arabia hospital has delivered steady performance for three straight quarters.
• PCR testing evaporated and took clinic margins with it: PCR revenue fell from 26% of clinic revenue to just 6%, compressing clinic EBITDA margins from 16.6% to 12.4% because PCR was a high-margin business.
• The population that left during Covid stayed away: Large numbers of expatriates who departed during the pandemic did not return on time; many are only coming back after Q2, which management identified as a material drag on performance.

Dr. Azad Moopen: "The insurance companies insist on doctors and staff being onboarded for giving empanelment, which adds huge cost which can't be capitalized. This has led to significant additional losses, as there is salary and rental cost without any revenue."

India: Occupancy and Margin Ramp

• Occupancy jumped nine percentage points QoQ: India occupancy moved from 63% in Q1 to 72% in Q2, with Kerala at ~80% and Karnataka improving from 55% to 60%+.
• Andhra/Telangana cluster is the margin recovery story: Occupancy improved from 44–45% in Q1 to 55–56% in Q2, and EBITDA margin reached 12–13% by end-September, though the full benefit was not yet visible in the Q2 print because the improvement was back-end loaded.
• India margin profile by cluster: Kerala cluster operates at 20%+ EBITDA margin; Karnataka at 15–16% (EBITDAR upwards of 19% due to O&M leases); Andhra cluster at ~8%, with a clear path to double digits in Q3.
• Strategy is shifting from volume to value: Management is focused on increasing conversion from OP to IP, driving more referrals, and raising case complexity so that ARPOB grows even if occupancy plateaus; Dr. Somashekhar has been onboarded in Bangalore to drive oncology as a new high-end vertical.
• Labs and pharmacy are still loss-making: Labs are expected to reach breakeven in FY24 after a restructuring to cluster-based management; pharmacy breakeven is targeted for FY25.

Dr. Azad Moopen: "We are now trying to see how we can increase the conversion from OP to IP, more of referrals coming in as well as the complexity of cases going up so that the ARPOB goes up in spite of the occupancy not going up, we want to increase ARPOB and thus the profitability."

O&M Asset-Light Expansion

• Two to three more O&M hospitals targeted this fiscal year: Management expects to add another 300–400 beds combined via the O&M model before the end of FY23, following the Tirupati Narayanadri Hospitals agreement already signed.
• The financial model is deliberately low-capex: Investment is ₹5–10 lakhs per bed, plus an interest-free refundable security deposit of ₹5–10 crores; contracts run 15–20 years with less lock-in than metro O&M deals.
• O&M serves as a hub-and-spoke referral engine: The model lets Aster extend services to peripheral tier-2/3 markets without capital-intensive construction, offload long-term and medium-care patients from flagship hospitals to reduce ALOS, and deploy specialist doctors to new locations.
• Margins will dilute but ROCE will rise: O&M hospitals carry lower margins because of lower affordability in tier-2/3 markets and a 5–8% revenue share paid to asset owners; management explicitly frames this as a trade-off where EBITDA margin declines but ROCE significantly increases.

Dr. Azad Moopen: "Many of our hospitals, for example, in Kerala, we have the issue of almost full capacity in some of the hospitals. So, this helps in having some of these patients who are not requiring our treatment to be kept in such places or even after discharge, they can be looked after little long-term care or medium-term care that can be done in the hospital."

Restructuring: Process Is Moving, Answers Are Not

• Investment bankers have received expressions of interest: Indicative terms from various potential investors are being evaluated; the Board Sub-Committee will review options for segregating GCC and India businesses and submit them to the full Board.
• Promoters want to stay on both sides: Dr. Azad Moopen stated explicitly that the promoters' preferred option is to remain invested in both the GCC and India entities post-restructuring.
• The Saudi Arabia hospital sale is deferred: Earlier plans to sell or bring in a minority partner have been paused because the business has performed well in the last six months and is moving into profitability; management wants the incoming restructuring partner to have a say in any decision.
• Use of funds is an unanswered question: When asked directly what any restructuring proceeds would be used for, management declined to answer, calling it a question they "wouldn't like to answer now" and refusing to "delve on that."

Dr. Azad Moopen: "The preferred option from the promoter side is to remain on both sides. So that's what we have given as our preference. So, we'll be there on both sides is what as promoters we have mentioned."

Digital and New Ventures

• myAster app is the GCC ecosystem play: The rebranded app (formerly OneAster) is almost ready for rollout and will tie together e-pharmacy, hospitals, clinics, and home care into a single ecosystem; non-prescription orders doubled month-on-month in Q2, and patient registrations rose 74%.
• Pharmacy migration is a deliberate LTV strategy: Management is actively moving pharmacy home-delivery customers (AED 1 crore/month in revenue) onto the myAster platform to improve purchase frequency and lifetime value through real-time tracking and better service.
• Saudi Arabia pharmacy is a 250-store, 5-year buildout: Launched via a tie-up with Al Hokair Holding Group, starting in Riyadh; Phase 2 aims for pharmaceutical manufacturing.
• Medcare is experimenting with the Metaverse: Medcare Women & Children Hospital partnered with BIOMETAVERSE to launch the first Metaverse hospital on October 11, aimed at giving medical tourism patients an immersive preview of the facility.
• Bangladesh pharmacy is a franchise, not an investment: A franchise arrangement with a local group will roll out Aster Pharmacy branded stores in Bangladesh with no capital commitment from Aster.

Alisha Moopen: "We are actively promoting the movement of these customers over to the myAster platform in order to be able to serve them better with the real time tracking technologies, as well as improve their purchase frequency and increase the overall lifetime value."

Guidance & Commitments

Key Metrics