BackAster DM defers IPO plans over valuation concerns of overseas operations
Aster DM Healthcare was looking to raise close to $300 million from the IPO, valuing the company at around $2.5 billion
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Mumbai: Aster DM Healthcare Ltd, which runs hospitals in India, the Philippines, and the Middle East and North Africa (MENA) region, is likely to defer its proposed initial public offering (IPO) because of concerns over valuation of its overseas operations from which the company derives a large part of its revenues, two people aware of the development said on condition of anonymity.
Aster DM had filed for an IPO in June last year and had received approval from the Securities and Exchange Board of India (Sebi) in November. According to the people cited above, the company was looking to raise close to $300 million from the IPO, valuing the company at around $2.5 billion. The IPO was planned for early this year, before the end of the March quarter.
“The key reason for the delay in the IPO is the current market condition of its overseas business, especially in Saudi Arabia, which has been badly hit by the fall of oil prices," said one of the two people.
“As a result, the company has decided that going ahead with the IPO will adversely impact its valuation. It has asked bankers involved in the IPO process to go slow till further notice," the person added.
Responding to an email query, a spokesperson of Aster DM said, “There is no change in IPO plans and we will look to launch the IPO at an appropriate time, subject to market and business considerations." The company did not disclose any timeline for the proposed IPO.
In contrast, mattress maker Sheela Foam Ltd, which received Sebi approval for its IPO around the same time as Aster DM, listed successfully in December, raising around Rs510 crore.
In its draft red herring prospectus (DRHP), Aster DM disclosed that its overseas revenues might be impacted due to fall in oil prices globally. The company said that in Saudi Arabia, where a substantial portion of its revenues are derived from patients referred and funded by the ministry of health, a decline in oil prices and the overall economic conditions have had a direct impact, resulting in an increase in receivables from the ministry of health.
In order to counter this, the company said it was exploring other business opportunities in Saudi Arabia, including increasing its share of private insurance and walk-in patients. “However, there can be no assurance that we will be able to successfully secure alternative sources of revenue in Saudi Arabia, or at all," the company disclosed in the draft prospectus.
Aster DM has a diversified portfolio of healthcare facilities, consisting of six hospitals, 83 clinics and 180 retail pharmacies in the Gulf Cooperation Council states, seven multi-speciality hospitals and three clinics in India, and one clinic in the Philippines as of 31 March 2016. Aster’s hospitals in India are located in Kochi, Kolhapur, Kozhikode, Kottakkal, Bengaluru and Hyderabad and are operated under the Aster, MIMS or Prime brands. Its clinics in India are located at Kozhikode and Bengaluru.
Aster DM’s operations in India, which primarily consist of hospitals, accounted for only 12.52% of the company’s total revenues in the nine months ending 31 December 2015, according to the draft prospectus. For the financial year 2014-15, GCC (Gulf Cooperation Council) countries contributed Rs3,447.8 crore to revenue, compared with a contribution of Rs427.9 crore by the Indian operations.
The company has received investments from PE funds Olympus Capital Asia Investments Ltd and True North (previously known as India Value Fund Advisors). Both PE funds were expected to dilute a part of their stake along with the promoters in the IPO.
Since December 2016, four healthcare services firms have tapped the primary markets to fund their expansion plans and provide an exit to their PE investors. Collectively, these firms—Dr Lal Pathlabs Ltd, Narayana Hrudayalaya Ltd, HealthCare Global Enterprises Ltd and Thyrocare Technologies Ltd—have raised almost Rs2,375 crore. In December, a Mint report citing Investec, a global specialist banking group, said that India’s healthcare sector will see investors looking to exit close to $3 billion of primary investments in the next two-three years through secondary sales and public market listings.
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