Target: ₹532
CMP: ₹414.65
After the merger of Aster DM Healthcare with Quality Care India Ltd, the company is set to become one of the top 3 hospital chains in India in terms of bed capacity. Despite this positive development, the stock has seen a decline of about 24 per cent year-to-date due to a broader market correction. However, like its peers, the company is expected to achieve strong revenue growth driven by a double-digit increase in bed capacity and improving ARPOBS.
Two-thirds of the new bed additions are brownfield projects, which are expected to boost EBITDA margins for the combined entity. Additionally, synergies from the merger are projected to result in a 2-3 per cent improvement in operational efficiency.
As a result, EBITDA per occupied bed is forecasted to increase from ₹32 lakh in FY25 to ₹40 lakh by FY27. With an increasing presence in metro cities, expanding EBITDA per occupied bed, and improving RoIC, the company is likely to attract a higher multiple. This presents an attractive opportunity for investors to acquire the stock at 16x EV/EBITDA (adjusted for both Minority interest and lease) for FY27. Overall, the merger will allow the company to expand into new markets, benefit from cost synergies, and accelerate EBITDA growth.
Therefore, we are upgrading the stock to Buy from Hold with a price target of ₹532 by March 2027, representing a 34 per cent upside potential.
[Note: For the sake of brevity, the share-article-section with sharing options has been omitted in this rewrite. The original publish date remains the same: March 5, 2025]
