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Here's why ICICI Direct Research sees 36% upside in this pharma stock

Updated : December 16, 2019 12:02 PM IST

So far this year, Aster DM Healthcare has been mildly positive by 0.68 percent and the one-year return on the stock is 3.5 percent.

At 9.29 am, Aster DM Healthcare ltd's share price quoted at Rs 156, up 2.33 percent on NSE.

Aster DM Healthcare's Q2 revenue from operations recorded an increase of 14 percent reaching Rs 2,087 crore.

ICICI Direct Research has recommended a 'buy' rating on Aster DM Healthcare with a long-term price target of Rs 210 per share. The target price is 36 percent higher from the pharma firm's market price of Rs 154 apiece on December 10.

At 9.29 am, Aster DM Healthcare ltd's share price quoted at Rs 156, up 2.33 percent on NSE. The broader Nifty50 traded 18.50 points higher at 12,105. The benchmark 30-share BSE Sensex traded 72 points higher at 41,081. So far this year, Aster DM Healthcare has been mildly positive by 0.68 percent and the one-year return on the stock is 3.5 percent.

"We are positive on Aster’s integrated business model and expect a gradual improvement in margins and RoCE on the back of higher occupancy and capacity optimisation in new assets from FY20E onwards. At the current level, we envisage a favourable risk-reward matrix. Hence, we initiate coverage on the company with a BUY recommendation and target price of Rs 210 (SOTP basis)," analysts at the ICICI Direct Reserach wrote in a report last Tuesday.

It said, Aster has a "unique business model among Indian healthcare service providers with a strong established presence in GCC and India".

The company derives around 81 percent of revenues from the Gulf Cooperation Council (GCC) countries and India.

"Of the total revenues from operations for H1FY20, the hospital segment accounted for 52%, clinic segment accounted for 22% while the retail pharmacy segment accounted for 26%. The company’s operations in India, which primarily consists of hospitals, accounted for 19% of total revenues

from operations for H1FY20," the report said.

Aster DM Healthcare's Q2 revenue from operations recorded an increase of 14 percent reaching Rs 2,087 crore. It registered a profit after tax (PAT) of Rs 27 crore in Q2 of FY20.

Among key risks cited by the ICICI Direct Research report, the overall improvement of the company's financial metrics will depend on the performance of its Indian assets.

"Indian market dynamics are far more complex than GCC with a longer gestation period, stiff competition and frequent regulatory interventions by government agencies. We have observed that most of the successful Indian corporate hospitals have flourished in at least two specified regions before growing pan-India. Being a late entrant in India, the task is already cut out for Aster," the report said.

Aster DM Healthcare was established in 1987 by Dr Azad Moopen as a single clinic and now includes 25 hospitals with bed capacity of almost 4800, 231 pharmacies and 115 clinics across GCC countries and India.

In India, it has a network of 13 hospitals and eight clinics, mainly n Tier 2 and Tier 3 cities with the company looking to expand its network in metros and Tier 1 cities as well.

Aster DM Healthcare has a market capitalisation of Rs 7786 crore, as per the report. The company's debt for FY19 stands at Rs 2788 crore.

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Here's why ICICI Direct Research sees 36% upside in this pharma stock

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