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Aster DM Healthcare IPO opens

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Mumbai: Aster DM Healthcare, one of the largest private healthcare service providers, is coming out with its initial public offering (IPO) to raise Rs 966.7-980.1 crore. The issue is scheduled to open on February 12, and close on February 15, 2018.

The price band of the issue is Rs 180-Rs 190 per equity share of the company of face value of Rs 10 each.

The IPO consists of a fresh issue of equity shares aggregating up to Rs 725 crore and an offer for sale of up to 1,34,28,251 equity shares of the company by the promoter, union investments.

The company will use the amount raised through the IPO for repayment and/or pre-payment of debt, purchase of medical equipment and for general corporate purposes.

Kotak Mahindra Capital Company, Axis Capital and Goldman Sachs (India) Securities are the global co-ordinators and book running lead managers to the offer and ICICI Securities, JM Financial & YES Securities (India) are the book running lead managers to the offer. The registrar to the offer is Link Intime India.

The bids can be made for a minimum of 78 equity shares and in multiples of 78 equity shares thereafter.

Aster DM Healthcare operate in multiple segments of the healthcare industry, including hospitals, clinics and retail pharmacies and provide healthcare services to patients across economic segments in several GCC states through its various brands Aster, Medcare and Access.

Aster DM Healthcare's business looks attractive but losses in H1FY18 with weak financial performance in FY17 & high valuation at current level fails to infuse optimism in company, hence recommend Avoid on issue.

On its upper band of price of Rs 190, the issue is priced at PE ratio of 28.7x of its FY2017 EPS of Rs 6.6. Most of its revenues comes from UAE and hence

Aster DM Healthcare fortunes are directly related with oil. With lower oil prices Aster DM Healthcare will face pressure on margins. Hence, recommend to Avoid the IPO.

The broking house believes that, the high geographical concentration in GCC countries, higher attrition of reputed doctors and increase in competition from other players are the risks for the company.

Over the past two years the company has incurred a capex of Rs 870 crore with which the company plans to expand its presence in GCC (with 4 hospitals and 355 beds) and India (with 5 hospitals and 1300 beds). The revenue from this capex is expected to be recognised in next two years.

The company is trading at a FY17 EV/Sales of 1.9x. We recommend SUBSCRIBE to the issue from a long term perspective.

According to the SMC, the revenue of the company is highly dependent on its operations in the GCC states. Its growth strategy depends significantly on the construction or development of hospitals clinic and standalone retail pharmacies, which may be subject to delay and cost overruns.

Also the company has reported net losses in certain years on consolidated and standalone basis. However, as healthcare sector is poised for better prospects considering announcements in the recent union budget.

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