Target: ₹532
CMP: ₹414.65
Following Aster DM Healthcare merger with Quality Care India Ltd, the company will ascend to become one of the top 3 hospital chains in India in terms of bed capacity. However, its stock has experienced a decline of about 24 per cent YTD, amidst a broader market correction. Similar to its peers, the company is expected to achieve a robust revenue growth driven by double digit increase in bed capacity and improving ARPOBS.
Two-thirds of new bed additions are brownfield projects, which are anticipated to boost EBITDA margins for the combined entity. Additionally, synergies from the merger are expected to contribute to a 2-3 per cent improvement in operational efficiency.
Consequently, EBITDA per occupied bed is forecasted to rise from ₹32 lakh in FY25 to ₹40 lakh by FY27. We believe that increasing presence in metro cities, expanding EBITDA per occupied bed and improving RoIC will drive a higher multiple for the company. This presents a compelling opportunity for investors to acquire the stock at 16x EV/EBITDA (adjusted for both Minority interest and lease) for FY27. Overall the merger will enable the company to expand its presence in new markets, benefit for cost synergies and accelerate EBITDA growth.
Consequently, we upgrade the stock to Buy from Hold with a Mar’27 TP of ₹532 (34 per cent upside).
