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

Aster DM Hospitals

Aster DM Hospitals – After separating its India and GCC (Gulf Cooperation Council) businesses, global hospital chain Aster DM Healthcare is looking to double down on the Indian market and plans to expand into the north Indian market. The hospital chain’s current presence is concentrated in south India, particularly Kerala, where six of its 19 Indian hospitals are located.

The company sees a significant demand-supply gap in India’s healthcare sector, owing to the country’s estimated population of more than 1.4 billion people. “In India, there is a significant demand-supply gap, which is especially pronounced in the North and Northeast regions.” The organized sector has less than 100,000 hospital beds, while the actual requirement is estimated to be ten times higher.”

Moopen believes that government initiatives such as the Pradhan Mantri Jan Arogya Yojana (PM-JAY), a national health insurance scheme, and various state health schemes that cover people of all income levels have increased demand. “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 said.

Aster intends to invest approximately Rs 1,500 crore in expanding the chain in India. Furthermore, once the GCC business is separated, an estimated Rs 1,500-2,000 crore of the total sale proceeds will be used for inorganic growth over the next three to five years.

Analysts see the separation as a positive step that will allow both companies to grow. According to Jainil Shah, pharma and healthcare analyst at JM Financial Research, Aster intends to increase bed capacity by 30%, 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,” Shah said.

Aster DM Hospitals

Moopen sees the magnitude of the opportunity. He claims that even if the number of those who can afford healthcare is estimated to be 300 to 400 million, this is equivalent to the entire population of the United States.

According to Moopen, the significant interest of investment firms, which see a lucrative opportunity, validates this viewpoint.

According to Shah of JM Financial, the focus for the time being will be on improving margins. “Aster anticipates a two-point margin increase over the next two to three years.” “Mature assets like [in Kerala] already have margins of 30% or higher, indicating potential margin improvements in other assets,” Shah says. “Better performance in Andhra Pradesh and Telangana, as evidenced by (Andhra Pradesh-based) Ramesh Hospital’s margin increase to 14-15 percent.”

Aster has implemented a material cost reduction program, which it claims has already resulted in a 200-250 basis point reduction over the last two years. “We anticipate additional reductions of 100-150 basis points.” Efforts to improve margins and boost profitability include reducing HR costs by 300-400 basis points, according to Moopen.

Other opportunities are also seen by the company. It is also considering expanding into the pharmacy and diagnostic services sectors. “We are expanding our labs and pharmacies, creating an ecosystem around our existing hospitals, rather than aiming for a widespread chain across the country,” Moopen said.