Target: ₹670
CMP: ₹635.40
We recently interacted with Varun Khanna, group MD of Quality Care Hospital (soon to merge with Aster DM; Khanna will be MD and group CEO for merged entity) and senior management of Aster DM.
The key highlights from the meeting were: the focus of Quality Care (QCIL) Hospital business to remain on organic growth in near term, strategic addition of brownfield beds across key existing network with focus on clinical outcomes, expanding therapy offerings (particularly in oncology), and filing demand gap in select hospitals, cost optimisation in exiting business of QCIL to improve the EBITDA margin, focus on improving case and payor mix, and leveraging recent restructuring of the business with cluster-based approached and delegation of management cluster-wise to improve the operational focus.
The merger process of Aster DM and QCIL is on track to be completed by Mar’26. The management retains its expectation of 10-15 per cent EBITDA synergies benefits after merger and is preparing for integration process. It indicates to have better corporate governance with three directors from Aster DM promoters and Blackstone each.
We expect Aster to see 22/28 per cent sales/EBITDA CAGRs over FY25-28E and a 21.5 per cent margin in FY28E (18.5 per cent in FY25).
We maintain Add and roll forward the TP to ₹670, based on 25x Q2FY28E EV/EBITDA. We have not factored QCIL into our estimates.