Aster DM Hospitals eyes expansion in North India with war chest from sale of its GCC business

After global hospital chain Aster DM Healthcare separated its India and GCC (Gulf Co-operation Council) businesses, it is looking to double down on the Indian market and plans now to expand into the north Indian market. The hospital chain’s presence is currently concentrated in south India, especially Kerala—six of its 19 Indian hospitals are located in the state.

The company sees a substantial demand-supply gap in India’s healthcare sector, thanks in part to the country’s population, estimated at more than 1.4 billion. “In India, there exists a substantial demand-supply gap, particularly pronounced in the North and Northeast regions. The shortage of hospital beds is evident, with the organised sector having less than 100,000 beds, while the actual requirement is estimated to be ten times higher,” Dr Azad Moopen, Founder & Chairman of Aster DM Healthcare, tells BT.

The demand, Moopen believes, has been amplified by government initiatives like the Pradhan Mantri Jan Arogya Yojana (PM-JAY), a national health insurance scheme, and various health schemes of states, covering individuals across income groups. “People are increasingly seeking high-quality tertiary and quaternary care closer to home and are willing to pay for it, either in cash or through insurance,” Moopen says.

The reorientation of Aster DM Healthcare, which in FY22–23 posted an annual turnover of Rs 11,933 crore, is the result of a windfall of $1.01 billion it received from the sale of the GCC business to Alpha GCC Holdings, a consortium led by Dubai-headquartered Fajr Capital. After that sale, the Moopen family retains a 35 per cent stake and manages the GCC business, while the Fajr Capital consortium holds 65 per cent. The current market capitalisation of the combined businesses is approximately $2 billion, with the GCC business’s enterprise value pegged at $1.7 billion.

Aster plans to allocate about Rs 1,500 crore for expanding the chain in India. Besides, once the GCC business’s separation is completed, an estimated Rs 1,500-2,000 crore from the total sale proceeds will be used for inorganic growth over the next three to five years.

Analysts view the separation as a positive step, unlocking growth potential for both entities. Jainil Shah, pharma and healthcare analyst at JM Financial Research, says Aster plans to increase bed capacity by 30 per cent, or 1,500 beds, by FY27. “We do note that a large part of Aster’s expansion is justified in Kerala, as occupancies there have surpassed 80 per cent,” says Shah.

Moopen concurs that the focus was on south India, but thanks to the proceeds of the sale of the GCC business, the chain will explore “opportunities for inorganic growth, especially in north India, given its large population”.

In Moopen’s eyes, the size of the opportunity is clear. He says even if the numbers of those who can afford healthcare is pegged at 300 to 400 million, that’s equivalent to the entire population of the US.

Validation of this view, says Moopen, also comes from the significant interest of investment firms, which see a lucrative opportunity.

Shah of JM Financial says the focus for now will be on improving margins. “Aster anticipates a two-percentage-point margin enhancement over the next two to three years. Mature assets like [in Kerala] already operate with 30 per cent plus margins, indicating potential margin improvements in other assets,” Shah says. “Enhanced performance in Andhra Pradesh and Telangana, as seen with (Andhra Pradesh-based) Ramesh Hospital’s margin improvement to 14–15 per cent, will contribute to overall growth.”

Aster has instituted a material cost reduction programme that it says has already resulted in a decrease of 200-250 basis points over the past two years. “We anticipate further reductions by another 100-150 basis points. Efforts to improve margins and boost profitability involve controlling HR costs, with a targeted reduction of 300-400 basis points,” says Moopen.

The company sees other opportunities, too. It is looking at expanding in the pharmacy and diagnostic services spaces as well. “We are expanding our labs and pharmacies, creating an ecosystem around our existing hospitals, rather than aiming for a widespread chain across the country,” says Moopen.

Shah expects Aster Labs to break even in the second half of 2023–24. “Aster Pharmacy is expected to achieve optimal margins gradually, targeting FY25 for breakeven,” he says.

It also plans to launch an app—My ASTER—in India in the next six months. “This app, already successful in the GCC, will connect patients with Aster for various needs, providing information, appointments, results, reminders, and advice. These technological investments aim to create a comprehensive ecosystem for our patients,” says Moopen.

Investors of Aster DM Healthcare will keep a close watch on the developments, no doubt.

@neetu_csharma