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Home >Markets >Mark To Market >Aster DM Healthcare cuts capex, but stock may be in the slow lane

MUMBAI: Hospitals are seeing the impact of covid-related disruptions during March, while clinics are going through tougher times. Aster DM Healthcare Ltd did well on the revenue front, but growth slowdown was visible. Nevertheless, the Street was fine with the results, with the stock inching higher by about 2% on Thursday.

Aster DM’s revenues grew 5% year on year in Q4, which, given the covid-19 related disruption, is pretty decent. The March quarter has been impacted due to lower inflow of patients to a large extent. But analysts were expecting a much better revenue beat, and that's been a disappointment.

While the company managed to keep other operating costs in check, higher employee expenses and doctor fees took a toll on the operating performance. Its adjusted Ebitda fell about 10% y-o-y. Ebitda is earnings before interest, tax depreciation and amortisation.

Of course, a diversified revenue stream is an advantage as the firm’s pharmacy chain has done well. The chain was among the better performing segments in GCC countries registering 6% y-o-y growth on the back of a 2% volume growth. “Aster is relatively better-placed among hospital chains on account of (1) diversified revenue streams across geographies and segment with the pharmacy segment partially offsetting impact on hospitals and clinics," said analysts at Kotak Institutional Equities in a client note.

But revenue growth will be impacted in FY21. Analysts have noted that a faster recovery is expected in the Gulf region. But they note that the India region could continue to see the impact of covid-19 throughout FY21, which could keep cash flows muted. The company also saw a considerable increase in financing costs, which will further impact cash flows in the near term.

Like many other companies, Aster DM has deferred some of the capital expenditures and is rationalising costs to ease the covid-19 impact.

But that will take some time to play out. For now, while the Street reckons that FY22 earnings will show a sharp improvement, profitability expectations for FY21 have been scaled back. The stock may be in the slow lane as it appears that hospital chains may take some time to nurse themselves back to full recovery.

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