After separating from GCC, funds will fuel Rs 1,500–2,000 crore inorganic growth over 3-5 years: Dr Azad Moopen

Aster DM Healthcare recently separated its India and GCC (Gulf Cooperation Council) businesses, and the latter was sold to Alpha GCC Holdings for $1.01 billion. Aster Founder and Chairman Azad Moopen’s family now has a 35% stake and manages the GCC business, while Fajr Capital’s consortium holds 65%. Dr Moopen talks to BT about the separation, market response, and the ambitious three-year expansion plan. Edited excerpts: 

BT: What factors led to the undervaluation of the GCC business, prompting the decision to separate it? 

AM: The rationale behind the deal was centred on the GCC business, which had been listed in India for the past five years. However, despite our hopes, the GCC business did not receive the expected value over time. We patiently waited for one, two, and three years, but by the fourth year, it became evident that the anticipated value was not materialising. 

Our Indian business demonstrated significant growth compared to the slower-paced GCC business. Recognising the distinct characteristics and metrics of each geography, including differences in patients, customers, and investors, we realised the need for a strategic shift. 

The decision to segregate the two businesses stemmed from a desire to unlock value for our shareholders. The varying landscapes of India and the GCC, coupled with the limited familiarity that analysts and investors in India had with the GCC operations, led to an undervaluation of the latter. Our aim was to provide shareholders a clearer understanding of each business’ potential, leading to the pursuit of a pure-play India business and a pure-play GCC one.

BT: What caused the rise in the Indian business’s stock value after the separation announcement?  

AM: As for the Indian business, it witnessed a notable uptick in stock value following the announcement of the segregation eight months ago. And it continued to rise after the board’s approval and disclosure of the GCC business’ value on November 28. This signifies market confidence in the segregation and suggests a correction to a higher valuation for the India business, which had been comparatively lower earlier. 

BT: What is your strategic plan for the next three years? 

AM: Over the next three years, we have outlined strategic plans for our operations in India. The key components of this plan include the development of 1,500 beds, with a significant portion allocated to our primary market in Kerala. Specifically, we have a 500-bed hospital underway in Thiruvananthapuram, the capital of Kerala, and another 200-bed hospital in Kasargod, located in the northern part of the state. Additionally, expansions are planned, including a hundred-bed extension to our existing hospital in Kochi and another hundred-bed expansion to Kannur Hospital. We are also actively expanding one of our hospitals in Bengaluru and exploring opportunities for the expansion of another facility. In total, these initiatives will contribute to the addition of approximately 1,500 beds over the next three years, marking a major aspect of our strategic growth plan in the region. 

BT: What factors do you attribute to the strong positive response from both the market and shareholders to the strategic decision? 

AM: The market and our investors have positively embraced this decision. Upon the announcement, there was an immediate and significant surge in our stock price, further reinforcing the market’s confidence in our strategic move. 

Beyond the market response, during our courtesy meetings with shareholders, we have received overwhelmingly positive feedback. Shareholders express that this strategic decision was long overdue and are pleased that it has finally been implemented. Their vote of confidence is a testament to their support for this move. 

The rationale behind their support lies in the recognition of the value associated with a pure-play India business. Comparable peer groups and even smaller players in the industry have demonstrated high multiples for their India-focused operations. Given our robust growth—20 to 25 per cent CAGR in both top and bottom lines—there is a shared anticipation that our India business will yield substantial value, adding to the excitement among our stakeholders. 

BT: How does the demand-supply gap in India’s healthcare sector align with the financial benefits post-GCC business exit?

AM: In India, there exists a substantial demand-supply gap, particularly pronounced in the north and northeast regions compared to the south. 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. The demand is further amplified by government initiatives like Ayushman Bharat and various state schemes, covering individuals across income groups, both insured and those paying out of pocket. 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. 

Financially, post-exit of the GCC business, our balance sheet is robust, especially considering that a significant portion of our debt is associated with the GCC operations. At the consolidated level, the debt-to-EBITDA ratio will be very comfortable, around 1:1.2, creating a favourable position. This financial strength allows us to utilise accrued profits and leverage from banks for expansions without external funding. 

Additionally, there is an opportunity for strategic partnerships with like-minded private equity firms, as we have received inquiries from several. While open to collaboration, it is emphasised that maintaining control of the business is non-negotiable. The intention is to lead strategic decisions and the future direction of the business, even if supported by other players. 

BT: How will the separation of India and GCC businesses unlock growth opportunities for each? Additionally, what are your investment plans for the hospital chain expansion after the separation? 

AM: The separation of the two businesses will be beneficial for both. Similar to a tree or a family, organisations must undergo separation and segregation for optimal growth. As a large organisation, it is essential to identify fertile ground for better development. 

In this context, the India business is poised for significant growth, with the support of stock market investors in the country. In contrast, the GCC business will benefit from a new partnership with a strong presence in the region. Unlike before, when the GCC business lacked such a supportive partnership, this strategic move addresses that gap. 

Looking at the overall impact, I don't foresee any significant negative consequences. The separation is viewed as a positive step, unlocking growth potential. In terms of investments, we have plans to allocate approximately Rs. 1,500 crore for expanding the hospital chain. Once the GCC business separates, the generated funds will further facilitate inorganic growth, with an estimated investment ranging between Rs 1,500 and 2,000 crore over the next 3 to 5 years. 

BT: What are your growth drivers going forward? 

AM: The primary growth drivers for us include brownfield expansions, which unlock value swiftly compared to greenfield initiatives. We are actively identifying opportunities to increase bed capacity in every existing hospital. Simultaneously, we are focused on enhancing operational efficiency. A material cost reduction programme, in collaboration with a Big Four firm, has already resulted in a decrease of 200 to 250 basis points over the past two years. We anticipate further reductions by another 100 to 150 basis points. Efforts to improve margins and boost profitability involve controlling HR costs, with a targeted reduction of 300 to 400 basis points. Despite an overall margin of 16%, our hospital margin stands at 20%. Over the next two to three years, we aim to significantly increase our margins, leveraging these strategies. While I cannot provide specific guidance, these initiatives serve as levers to enhance our overall financial performance.

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