Aster DM Healthcare Ltd
BSE:540975
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Aster DM Healthcare Ltd
Earnings Call Analysis
Q2-2024 Analysis
Aster DM Healthcare Ltd
Aster DM Healthcare has embarked on a transformative venture by deciding to segregate its India and GCC businesses, aiming to streamline its operations and focus on the distinct market dynamics of each geography. The decision follows careful deliberation, considering the unique economic, political, and technological landscapes that affect both segments differently. To enhance transparency and operational focus, the company is establishing two separate entities: Aster GCC and Aster India, which will independently optimize their growth strategies.
In a significant endorsement of its growth potential, Aster DM Healthcare's Board approved the sale of a 65% stake in its GCC business to a consortium led by Fajr Capital. The transaction values the business at an enterprise value of $1.65 billion and an equity value of $1.02 billion. The agreed price, reflecting a multiple of 11.9x, underlines investor confidence in the value this partnership will bring.
From the sale, the company is set to receive $1.02 billion, consisting of $903 million at closing, and up to $98.8 million thereafter contingent on the business achieving certain EBITDA targets for the fiscal year ending March 2024. Reinforcing their belief in the business, the promoters have elected to retain a 35% stake in the GCC operation, underscoring a continued dedication to its success. Proceeds from the transaction are intended to be partly distributed as dividends to shareholders, with the remainder ring-fenced to fund growth and explore inorganic opportunities in India.
Aster DM Healthcare's India operation has demonstrated impressive growth, with revenue increasing at a 20% CAGR and EBITDA at an even more robust 35% CAGR over the past five years. Non-COVID revenue specifically increased by 40% in the last two years. The first half of fiscal year '24 saw even stronger growth, with a 26% rise in revenue, and 30% and 31% growth in EBITDA and PAT respectively. The company's operational efficiency efforts have paid off, yielding an EBITDA margin of 19.4% for hospitals, and an even higher 21.3% for matured hospitals. On the back of this performance, the company plans to expand its capacity to over 6,300 beds by fiscal year '27, reinforcing expectations of continued growth.
Aster DM Healthcare is not only growing in scale but also focusing on the operational excellence that has elevated its hospital business ROCE from 1% in FY 2018 to 20.1% currently. The company has made headway in diversifying its healthcare ecosystem with the inclusion of labs and pharmacies, which now contribute 7% to India's revenue. Further, to strengthen patient connections, the company is moving towards digitalization by rolling out a digital app, building on the success of the myAster app in the GCC region. This step reaffirms the company's commitment to digital innovation and improved patient experiences.
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Good morning, everyone. I welcome you to Aster DM Healthcare's Investor Conference Call. With us, we have the senior management of Aster DM Healthcare, namely, Dr. Azad Moopen, Chairman and Managing Director; Ms. Alisha Moopen, Deputy Managing Director; Mr. T.J. Wilson, Non-executive Director; Mr. Nitish Shetty, CEO of India; Mr. Amitabh Johri, joint CFO; Mr. Sunil Kumar, joint CFO; and Mr. Hitesh Dhaddha, Chief of Investor Relations and M&A.
The main agenda of this conference call is to discuss the segregation of Aster India and GCC business. I would like to inform everyone about how we will conduct this call. All external attendees will be in the listen-only mode for the entire duration of the call. We will start the call with opening remarks by management, followed by an interactive Q&A session. During the Q&A session, you will get a chance to ask a question by raising your hand by clicking on the raise hand icon on the Zoom application at the bottom of the window. We will call out your name, after which your line will be unmuted and you will be able to ask your question. We request you to please limit your questions to 2, but definitely not more than 3 per participant at a time.
Certain forward-looking statements may be discussed in this meeting and such statements are subject to certain risks and uncertainties like government actions, local political or economic developments, technological risks and many other factors that could cause the actual results to differ materially. Aster DM Healthcare Limited will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.
Before handing over to our esteemed Chairman, I apologize for any inconvenience caused due to rescheduling of the investor conference call, and thank you for your understanding.
With this, I will ask Dr. Moopen to start the opening remarks. Over to you, sir.
Thank you, Bala. Good evening, everyone. First of all, again, let me extend the apology from Bala because we were supposed to have this yesterday due to the delay in the Board meeting -- completing of the Board meeting that couldn't happen. As well as we also should apologize you because after the announcement of results also, we couldn't meet you. We thought that this is going to happen at least 2 weeks back. But at least -- at last, we are ready with what you were all looking forward to. So I'm extremely happy to announce a major milestone in history of Aster DM Healthcare, which has been accomplished with the Board of Directors approving the sale of GCC business to a consortium of investors. We believe that this is a transformative event shaping the future of the business in both India and GCC, given the distinct market dynamics in both geographies.
While acknowledging that the process has taken more time than initially anticipated due to the complexity and size of the transaction. I'm finally delighted to announce that the segregation, which is now approved by the Board is expected to be accomplished by March 2024, subject to necessary shareholders and regulatory approvals.
With a large presence in India and GCC, Aster has been providing quality health care at affordable cost to 20 million patients a year in both the geographies through services of over 30,000 committed employees in 7 countries. We have observed that both of these markets have significant differences in their business models with which they have grown differently in these regions. One of the reasons may be the huge population and demand supply gaps in the 2 geographies, along with the different mix of services and business models.
While the existing GCC business is mature, the India hospital network is growing exponentially due to the huge demand-supply gap, increasing affordability of the population and the insurance coverage. While still there are opportunities in countries like Saudi Arabia and GCC, we feel there is a higher runway for growth in India in the coming years. This has led to the realization by Aster DM Healthcare Board that's separating the GCC business and creating an independent management team for developing their own strategies and leading execution in each geography shall help to create unlock value for investors in the future.
This transaction will result in separation of Aster India and GCC business, creating 2 distinct geographically focused entities, each with its own management team and governance framework as well as its unique strategic road map for growth and capital allocation.
Let me just come to the transaction condos. We have reached an agreement with the consortium of financial investors, led by Fajr Capital to acquire 65% of the shares of GCC business as at the completion of the transaction at an enterprise value of USD 1,651 million, equivalent to INR 13,540 crores, and equity value of USD 102 million (sic) [ $1.02 billion ] equivalent to INR 8,215 crores. The multiple of 11.9x signifies a strong endorsement of our growth potential and the value this partnership will bring.
The consideration receivable from the transaction is USD 102 billion (sic) [ $1.02 billion ] of which USD 903 million, subject to customary adjustments is payable at closing and up to USD 98.8 million may be received subsequently subject to certain contingent events. This includes an earnout of up to USD 70 million based on EBITDA achieved by GCC business for the financial year ending 31st March 2024. Due to the fact that the promoters have been strategically running GCC business for over 35 years, it was one of the precondition by the shortlisted financial investors, including Fajr that promoters remain with operational control of the business, if they have to come in. Hence, the promoters decided to own 35% of the GCC business, reaffirming our commitment to the future of the GCC business also along with India.
Out of the transaction proceeds, part of the amount proceeds will be distributed as dividend subject to various required approvals, and the balance proceeds will be retained as reserves and to pursue inorganic growth opportunities from time to time. The time and quantum of this shall be decided by the Board after looking at the requirement for growth capital in India. I want to assure the shareholders that we will treat you well like our patients and our employees. Our India business will remain an integral part of Aster DM Healthcare Limited, reflecting our dedication to providing exceptional health care services to the country. The strategic rationale and value creation possibilities, let me touch upon this. This transaction marks a significant step in unlocking value and sharpening of our focus by creating 2 separate entities, we aim, want to strengthen operational and strategic focus in both the GCC and India markets, allowing each entity to optimize its growth potential and deliver better value to our patients and stakeholders.
Dedicated management team with regional expertise and the ability and bandwidth to focus on their respective entities and craft independent strategies, create distinct capital allocation strategies, ensuring that the cash flows of each entity are efficiently deployed to drive growth and innovation and provide the company with an autonomy to pursue its own independent capital allocation strategy. This will also enable exploring investment and fundraising opportunities through new private equity investments or pursuing the new growth opportunities in India for pursuing the new -- pursuing new growth opportunities in India entity.
As an India-focused business, Aster DM Healthcare is now well poised to fully leverage the immense growth potential and address the needs of the Indian health care market. Many domestic and foreign institutional investors are currently invested in Aster DM Healthcare. And as the part of strategy, this segregation will bring new opportunities and prospects for our valued shareholders, one by enhancing transparency and understanding for investors and their health care community as it will enable better reporting of operating and financial parameters for the listed entity. Transaction also offers Aster an opportunity to potentially expand its institutional investor base to also include investors who are mandated to invest in India only or in India majority business.
Last but not the least, this transaction is expected to lead to potential dividend distribution to shareholders, subject to relevant corporate approvals rewarding them for their continued trust and investment in the company.
Positioning of the India business, I would just like to touch upon that. In the lead up to this segregation, our focus has become razor sharp towards the expansion of India business. This has not only strengthened our operations but also paved the way for our India business -- growth of our India business. India's growth journey looks highly promising and convincing based on robust performance across financial and operating metrics over the span of last 5 years. From 10 hospitals, we had in '19, '18, we have significantly expanded to reach a milestone of 19 hospitals, 226 pharmacies, and 215 labs. A substantial capital expenditure of INR 1,000 crores invested in India business over the last 5 years propelled our bed capacity to expand from 3,700 beds to 4,855 beds currently.
Over the last 5 years, we have solidified our position to become the second largest hospital network in South India with highest number of capacity beds in Kerala, second highest in Andhra Pradesh and third highest in Karnataka. We have taken steps to use our resources and capacity more efficiently, focusing on expansion of existing hospitals and improving our specialty mix with more than 50% of revenue coming from niche specialties like cardiac, neuro, onco, nephrology, et cetera. Liver care and orthopedics also is included. This has led to significant improvement across key metrics such as ARPO, manpower per occupied bed and occupancy, all while keeping our commitment to delivering excellent patient satisfaction.
On the back of the capacity expansion strategy endeavors -- strategic endeavors combined with the digital interventions and cost optimization initiatives, we are among the fastest-growing hospital chains in India over the last 5 years, with revenue growing at 20% CAGR and EBITDA growing at 35% CAGR. In fact, the non-COVID revenue has grown even higher at 40% over the last 2 years. In fact, our growth in first half of '24 was even stronger with a 26% year-on-year revenue growth, EBITDA growth at 30% and PAT growth at 31%, further solidifying our strong position in the health care space.
The deliberate focus on operational efficiency has enabled us to accomplish hospital EBITDA margin at 19.4% and matured hospital EBITDA margins at higher than 21 -- at a higher 21.3%. The combination of efficient capital allocation and solid financial performance has resulted in exceptional improvement in India hospital business ROCE from 1% in financial year '18 to 20.1% currently.
Our dedication to building a robust health care ecosystem is reflected by our progress towards the establishment of new businesses, including labs and pharmacies. Their contribution of total revenue in India increased to 7% in financial year '23, reflecting a substantial 72% year-on-year growth, its revenue from the new businesses. Many of our hospitals have accredited such as JCI and NABH, all are by NABH, affirming our commitment to the highest standards of health care excellence. While explaining our performance, it brings great satisfaction to share the several of our hospitals have earned prestigious ranking among the top 10 hospitals in India by Outlook, Times of India, The Week, et cetera. Many of the media have included us among the first 3 to 5 hospital -- private hospital chains in India, and ET bestowed upon Aster, the esteemed title of Hospital Chain of the Year.
We strongly believe in the future of our India business. India's vast population with one of the lowest hospital bed densities provide significant headroom for growth. Recognizing this opportunity, we have planned significant capacity expansion to reach a total capacity of over 6,300 beds by financial year '27 by adding 1,450 beds approximately. The addition of our asset-light model has not only acknowledged the ramp-up also shortened the breakeven period for our -- some of our hospitals. This strategic approach has been designed to also elevate our return on capital employed by optimizing capital utilization and ensuring judiciously resource allocation. .
Emphasizing our commitment to digitalization, we are also gearing up to connect with patients through the digital app, leveraging our experience from successful implementation of the myAster app in GCC. This initiative aims to make our service more accessible. Additionally, we are increasing our focus on virtual care to enhance the overall patient experience in the future. Separately, we have also taken multiple initiatives to ensure that all dependencies between both entities have been managed and that all synergies will not only be maintained, but enhanced via mutual cooperation between the 2 entities. .
Now finally, I must admit to you that we did a mistake by listing GCC business in Indian stock market 5 years back, and we are not able to get the value of the full business being recognized. I'm happy that we are today undoing that mistake as unanimously advised by our investors, advisers, analysts and, of course, our Board to unlock the value of both businesses. We are trying to put a square, we are trying to -- we were trying to put a square peg into a round hole actually, but we are now changing that.
As we enter into the new chapter in the history of Aster with geography-focused pure-play businesses, I extend my heartfelt gratitude to all stakeholders who have been an integral part of the journey so far and request your continued support. I'm confident that this segregation will enable both entities to thrive each with its own distinctive vision, growth and trajectory. Together, we will continue to make a positive impact on the health care landscape and improve the lives of those we serve.
I'll now request Alisha to talk about the transaction in more detail. Thank you very much.
Thank you, Chairman. Good morning, everyone. As Chairman mentioned, today really marks a very significant milestone in the journey of Aster DM Healthcare. It is with great pleasure that we gather here to reflect on a strategic decision that will reshape our organization's future.
Over the years, Aster DM Healthcare has grown and evolved, establishing a strong presence in both the GCC region and India. Our commitment to providing exceptional health care services remains unwavering. And today, we celebrate a step forward that enhances our capabilities and streamlines our operation for even greater success. As the Chairman has already announced, I am pleased to reiterate that announcement of segregation of Aster DM Healthcare Limited into 2 independent entities that is Aster GCC and Aster India. This decision has been carefully considered and is driven by the need to align our operations with the unique dynamics of each market. Our vision is to enable each entity to flourish independently, leveraging on its strength and its market expertise to deliver the most optimal outcomes.
The GCC business has consistently showcased remarkable performance, and I'm delighted to share that its equity value currently stands at over USD 1.02 billion, equivalent to INR 8,215 crores. The enterprise valuation of the GCC business is a testament to our commitment to excellence, reaching an impressive USD 1,651 million equivalent to INR 13,540 crores. These figures not only reflect the dedication of our team but also demonstrate how we hopefully have outperformed the market expectations. As previously disclosed, while the disclosures made in July 24, 2023, the company has had received a request from the bidders during the bid process for the continued promoter participation in the GCC business to ensure its sustainability following the segregation of the 2 businesses. .
The promoters had also expressed their interest in continuing to participate in the GCC business. The promoters have decades of experience and goodwill in the GCC region, and their involvement is core to the intrinsic value of the business itself. Accordingly, the promoters agreed to have a shareholding in the GCC business and will, at the completion of the transaction, pulled the 35% stake in the GCC business, valued at approximately INR 2,875 crores. The remaining 65% stake, which is valued at INR 5,340 crores will be held by a consortium of marquee financial investors led by Fajr Capital for a distinguished private equity investor in the Middle East and Southeast Asia, bringing with them a wealth of experience that aligns perfectly with our vision for growth and innovation. .
The consideration receivable from the transaction is USD 1.02 billion, of which $903 million, subject to any customary adjustments is payable at closing and up to USD 98.8 million may be received subsequently subject to certain contingent events. This includes an earnout of up to USD 70 million, which is based on the EBITDA achieved by the GCC business for the financial year ending 31st March 2024. .
We have engaged the following external advisers, both EY and PwC as our independent valuer, and we had ICICI Securities for the fairness opinions for the valuation guidance, which is broadly in line with recent transactions in the health care sector -- health care services sector in the region. We arrived at this particular transaction structure and the consortium of investors for the GCC business after careful and several months of deliberation and evaluating multiple options for unlocking values such as demerger of the GCC business at the listed entity level and delisting of the GCC business. We also looked at demerger of the India business from the company. And then third was the segregation of the entire GCC business. Out of all these 3 options, the segregation of the GCC business was determined as the most suitable approach. .
Just for the sequence of events, in June 2022, the Board approved the appointment of investment bankers to explore the potential options for the segregation, which present an opportunity to unlock value for the company and its stakeholders. November 2022, the Board was updated about the progress on the respective exercise by the investment bankers. The investment bankers informed the Board that they are in receipt of interest from various potential investors. Then in February 2023, the Board noted that the investment bankers received indicated terms from potential buyers of GCC business. The bank has subsequently engaged with such potential buyers and advisers of their potential buyers conducted the due diligence on the GCC business. Upon submission of the final valuation by the investment bankers, the Board decided to review the proposals for sale. .
After the extensive due diligence and further shortlisting, the company received confirmatory bids from recognized bidders and subsequently, the Board been granted exclusivity to Fajr Capital recognizing their alignment with our vision and values. The successful closing of this transaction is subject to approval of our shareholders as well as regulatory authorities and is expected to close by end of FY '24. The key milestones. There is a significant step in our segregation process, which involves seeking shareholder approval at the next step for the proposed transaction of Aster DM Healthcare Limited, which will separate the GCC business from the India business. .
We will also diligently work towards completing other conditions precedent, the CPs, which are essential for the successful implementation of the segregation plan. This, as Azad mentioned, includes obtaining necessary regulatory approvals, ensuring compliance with legal requirements and fulfilling any contractual obligations relevant for the segregation process. Additionally, we will focus on securing antitrust regulatory approval to ensure that the proposed segregation fully compliant with the antitrust and competition laws safeguarding the process from any potential legal challenges. .
Out of the net transaction proceeds, part amount of the proceeds, net of the transaction costs will be distributed as dividend subject to various required approvals, and the balance proceeds will be retained as reserves for contingent liabilities and to pursue inorganic growth opportunities from time to time.
Now let us talk about the immense benefits that this segregation will bring to both the GCC business and the India business. By allowing each of these entities to operate independently, we really are paving the way for tailored governance and strategic direction, specifically aligned with the nuances of their respective markets. This means that the GCC business can focus on further expanding its leadership position, capitalizing on its strengths and seizing new opportunities within the GCC region. On the other hand, the India business will have the autonomy to harness the immense potential of the Indian health care market and explore new organic as well as inorganic growth opportunities and raise capital as and when required to fuel the further growth.
As shareholders of this company, you will now be part of this growth story fully leveraging the dynamism and the immense growth opportunities presented by the India market as well as Aster established yet ever expanding presence in this market. One of our foremost priorities during this process is to ensure that the synergies that exist between the GCC business and the India business are not just preserved but also enhanced. We plan to foster collaboration by facilitating the cost-sharing of technology, expertise and services between these entities. This strategic approach will allow us to -- will enable us to leverage the strength of both the businesses and provide even better health care service to our valued patients. .
As we move forward, we remain steadfast in our commitment to delivering exceptional health care services, advancing medical excellence and making a positive impact on the lives of millions. Our journey might be taking a new direction but our core values and dedication to excellence remains unchanged. I extend my gratitude to our incredible team, our partners, our stakeholders who have supported us throughout this journey. Today, we are embarking on an exciting chapter that promises growth, innovation and prosperity. Thank you.
[Operator Instructions] The first question is from Sanjay Shah.
Dr. Moopen, now congrats after hard work, you have achieved the required strategy decision. So my question, which I've already sent to you, which you have already replied in your opening remarks. So now the question was regarding the Aster DM GCC equity valuation. So the rationale, what we understand from our point of view, and I would love to have your reply on that, that you valued it at INR 8,215 crores and EV at INR 13,540 crores, which includes the debt of that lease liability of INR 5,325 crores. The GCC has an EBITDA of INR 1,100 crores. So valuation is at 12.3x EBIT to EBITDA and equity valuation at 7.5x EBITDA and less than 1x revenue multiple. And when we compare with some UAE like Burjeel trading at 4x revenue multiple, and 20x EBIT to EBITDA. Even if UAE hospitals fetch higher value, the discount currently is at 40% compared to Burjeel. Can you please throw a highlight -- share some -- your view on that and why -- what's the rationale of our valuation?
That's a very important question. And so I'll start off, and then, of course, Alisha and Amitabh, will then further take it forward. When you look at the value of the GCC business, there are various ways in which you can look at it. One of the ways in which you can look at it is that what is that people are ready to pay for that. So as has been mentioned by Alisha, we have gone around in the last 1 year with multiple investors who are ready to invest into the business for the GCC business and sought initially 42 people came forward. And then it came down, shortlisted, 16, then 8 and 4 people actually were shortlisted finally and had long discussions came down to 2, Fajr Capital and other and they were allowed to do the [indiscernible].
On the basis of that, they submitted the nonbinding bids. And finally, Fajr submitted the bid. So this value is what we are seeing now. So what I wanted to tell you is that this is the value, which is seen by the market as the value for Aster. This has gone over a period of 6 months, both the investment bankers have gone around and got the best possible value. So that's one. Second thing is that there is a way in which we make sure that this value is what actually the value is by looking at the valuation by 2 of the very reputed bankers. One is the EY, another one is PwC. So they both came with their own values. And of course, there was a range, but it was around this is what came out. And then there was a fairness opinion by ICICI Securities, which is approved by SEBI. I understand. And on the basis of that only the Board has decided to -- I mean Board decided, and we were not involved in that because you know that there is a clear conflict of interest in this transaction.
And so we were -- we, ourselves, volunteered, and the Board also didn't want us to participate and this whole thing was decided on the basis of that. Now how did these people reach the valuation is what your question is that what was the basis of that? While there are comparables in GCC, it's entirely different when you look at our business and their business. And Alisha and Amitabh will go deeper into it. We have a mix of hospitals, clinics, pharmacies, which has got its own challenges. The valuation of each 1 of this is different, whereas the other people, especially in Saudi Arabia, the valuations are different. So this is the basis of the value which has been discovered. And so I request Alisha and also Amitabh and also Hitesh to join because we have been deeply involved and we wanted to get the maximum value for that. So Alisha, if you can just add to -- because that's a very important question. Many people will have this question better to we put that into rest. And if you can elaborate further, that will be very good.
Sure. Thank you, Chairman. Yes, Sanjay. So as Chairman mentioned, they were the 2 independent valuers had looked at 2 different ways of valuing the business. One was the discounted cash flow looking at what our next 5 years plan and 7 years plan will look like and using the discounted cash flow method as well as the comparable market peers, the CCM method.
So when we look at the comparable, we realized that there are very few comparables for our Aster GCC business because most of the listed entities are in Saudi, which is a very deep market. In UAE itself, we don't have any comparable. You did allude to Burjeel. So there are some differences again between Burjeel and Aster. Burjeel has a large part of their business that comes from just hospitals. We have a 1/3 split pretty much between our hospitals, our clinics and our pharmacies, which have different margin profiles and slightly different value -- I mean quite different valuations as well. So as a blended, I don't think it is very comparable.
Also Burjeel as we understand, I mean it has been listed recently in the Abu Dhabi market. Again, we do know that it's very little liquidity that is there in trading that happens in that market at this point in time. It's a fairly new asset that's been listed. I'm not sure if you have looked at Mediclinic that was another asset, which was a little bit closer, which again was in the Dubai market where we have a larger presence similar -- whereas Burjeel has a larger presence in Abu Dhabi. Mediclinic was delisted. Of course, they do have a combination of geos like South Africa and U.K. and Middle East. But they got delisted at 11.2 multiple.
One thing I also wanted to kind of add is, over the last 6 months, 1 major thing that has happened in UAE market has been the corporate tax announcement. The corporate tax was announced almost a year ago. So initially, when we had received our first bid, we thought we were in the Pillar 1 company, and we assume that our tax bracket would be a 9% tax bracket. But over the last 4, 5 months, we realized that because of our size as well as the different geos that we operate in, we are a pillar 2 company. So our tax bracket goes up to about 15%, which actually had has a significant impact in the valuation of our business as well, which had to be adjusted for this transaction. .
We believe that this does not exist in countries like Saudi because they already have a tax that has been running for many years right now. So there have been some of these nuances which have been time-sensitive happened in the last 1 year. which has affected our valuation as well. But as Chairman mentioned, we believe that with the private transactions that's happened in health care, we're looking at our portfolio and the balance of businesses that are sitting in our portfolio with 1/3 of them being pharmacies, another 1/3 being the clinics and then 1/3 of the hospitals. We do believe that we have got a very fair valuation for our GCC business. I will ask Amitabh also to add on to.
Thank you, Alisha. So Sanjay, I think between Mr. Chairman and Alisha, they have fairly covered the reason for that, but I'll probably touch upon a few numbers that will help us align in the discussion. So if you look at it, the enterprise value pre-IFRS for the business is around INR 10,666 crores, which is equivalent of the $1.3 billion that we talked about.
Now if I look at the last year reported EBITDA, which is the pre-Ind AS reported EBITDA, that was INR 751 crores, an imputed EV-to-EBITDA comes to almost 14.2. Obviously, once we go to the post IFRS, the numbers assume different multiple, which is also around 11.9x. While I state this number, Sanjay, the fact is also that GCC as a market, and there are reports available, has enjoyed a CAGR of 5.6%, 5.7%. Now that is something which is perhaps not comparable to India, if you were to look at it.
And if one looks at Aster's business, 51% of our revenue comes from the hospital business. We just operate in the range of 18-odd percent, but another 33-odd percent comes from pharmacies with the margin profile, as we reported in our various earlier disclosures, is around 9.5%. So the blended margin is very different. But when you compare that to Burjeel which don't have the pharmacy or the clinic business, it's not an apple-to-apple comparison. And Alisha rightly called out, there are certain new nuances of GCC that are coming in specifically UAE where the corporate tax is coming in. When we run the models from an [indiscernible] basis, which was further validated by the valuers as they run independently. This has impacted the valuation given the fact that on a DCF basis, once you factor in the taxes going forward, it impacts the free cash flows of the company and thus the discount and cash flow get in.
Hitesh, you wanted to add anything?
Yes. I think fairly between Chairman, Alisha and Amitabh, I think a lot of relevant aspects have got covered. Just Sanjay, if you look at from the external market perspective, and as Alisha also explained, the differences there also in the model, how we are structured versus some of the peers that you're talking about. And hence, when you see the impact of change in the model, on the performance part of it. There are differences in the performance on revenue growth, EBITDA margins as well between the entities, and I would request to have a look at that because that will help you to kind of understand the differentiation and the valuation as well that you're asking. .
The next question is from [indiscernible].
I just wanted to ask the funding for the holding company for GCC, so I wanted to ask some clarity on how are the promoters thinking on funding the 35% part there? Will there be a raise for them? Or how are they going to fund that?
Yes. . Thank you for that question. So this 35%. One, we have our own resources, which is there in GCC as well as we hope that the dividending out of the profits in India, which comes to India. We will be getting 42% of that. And we have to find ways to fund 35% of the transaction value here. So we hope a large part of the money, which we get as dividend can be utilized for that.
The next question is from Harith.
The $70 million earnout, which you have mentioned, which is based on the FY '24 EBITDA for the GCC business. So what kind of EBITDA growth will the GCC business have to achieve for this $70 million earnout to actually be achieved. So just trying to understand the probability of this $70 million proceeds actually coming through.
Yes. Amitabh, you would like to answer that? .
So thank you very much for the question. So if you look at Harith, the last year performance, the last year performance has 2, 3 very peculiar items. One was the fact that we have opened 3 new hospitals. There was Oman, there was Sharjah, and there is -- there was also [indiscernible] we have gotten into operations. Further to that, we also had certain significant investments on the digital side that we have made. And this was also 1 of the years where we were getting out of COVID, the quarter 1 of FY '22 and quarter 1 of FY '23 had this impact of COVID revenue not being there, plus there was a lot of revenge travel, more advance that COVID had gone off had come. Now if we look at, are we pretty much ended around the number for $91.6 million of an EBITDA for FY '23.
But as we look at the financial year '24, those 3 hospitals that I talked about are into operations. From a negative number, it has gone into a much better number in terms of return, and we're seeing better trends. Similarly, the investments that we had made on the digital side are not paying results given the fact of our e-pharmacy revenue going up and other revenues going up. So we do expect that this could be in the range of anywhere between 25% to 30% or maybe a little more than that as something that is required for the earnout. And at least the current trends are almost different.
Alisha, you want to add?
Yes. Chairman. So I think the only point I will add to what Amitabh said is also, we seem to be trending on target for the first 7 months. Of course, in GCC, we -- it's quite geared towards the H2, where a large part of our business, I mean, almost 65% of our profitability comes in H2. So all our efforts are to ensure that we are able to kind of make sure that we hit our targets. Last year was very, very peculiar. We don't have those 2 new hospitals, at least 1 of them have stabilized quite nicely and the digital investments are also in breakeven. So we are making all efforts to make sure that we are able to enable the earnout to come through at least in [ push ].
Okay. That's helpful. My second question is on the proposed dividend. So net of the transaction costs, and you also mentioned that you've retained some of the amount for future -- for funding future growth. So can you give some ballpark percentage of how much of this $1 billion proceeds that will actually get dividended out because from a shareholder perspective, some broad color on this will be very helpful. .
Thank you, Harith, for that question. So I will wear 2 hats here; one as the I'm a shareholder who has 42% and second as the Board Chairman. So as a shareholder, my interest is to get the maximum possible dividend due to many reasons, including that we have to take this money back and utilize in GCC for securing our position. Otherwise, we have other means, but we'll have to use this funding. So our interest is for that, and we will push for that at the board level. Board has to decide this. You know that I can't -- we can't -- nobody can unless the board decides to say that how much is going to be dividended out.
But 1 thing which I can tell you after discussion with the Board members, they are also positive. If we have a plan for India, where whatever is seen as a requirement for the next 3 years is being funded from this as well as from whatever is available from the accruals and the leverage that can be taken. I think they should be fine to provide a large part of this as dividend to the shareholders. They have been waiting for 5 years. So I very honestly and passionately request in our Board meetings that when we were discussing about this transaction that this has to be given to the shareholders. So I hope that, there will be a significant portion.
India luckily -- see, this transaction helps India in such a way that the debt which was sitting on the consolidated balance sheet, large part of it goes away because this was in GCC. What is coming back to India, that it is the equity value, which is coming into India. So India, that is very minimal for us. It's as low as maybe onetime -- one year's EBITDA. So we won't have an issue for getting funding from the banks as well as the further growth happening, we will have good profits coming in. So I think that we'll be able to convince the board and to get a large part of this dividended out. That's my bow, but I can't give you any percentage or amount .
Harith, just to add on what Chairman mentioned. If we look at India financials, which have been also published in the presentation that was released yesterday, you would see and maybe Sunil can also elaborate, is that India is generating pretty healthy returns in form of EBITDA and profitability. So that money would be pretty much self-sufficient for the CapEx plan that we have going forward. And hence, the need for additional funding, from this proceed, I don't think we will need as much. But maybe I would also have Sunil to kind of elaborate on that part. .
Yes. Thanks, Hitesh. Yes, as we have mentioned in the presentation, currently, the September ending quarter, our gross debt is around INR 650 crores and net debt is around INR 615 crores. And if you look at the net debt to -- excluding the lease liabilities to EBITDA, it's around 1.2, 1.3. And looking at the growth trends, what we have, we are comfortable. We are coming up with almost 1,450 beds, and we require investment of additional INR 850-odd crores. And that is very much sufficient to do with the internal accruals of the majority amount and to certain extent leverage. But even with leverage, you are not going beyond 1.5x EBITDA. So I think we'll require a very limited amount of money from this $1 billion, which we want to receive. .
Okay. And last 1 from my side with the permission. Dr. Moopen, slightly broader question. I believe that you mentioned that you will continue to oversee both the businesses post this transaction. So from a Aster India shareholder perspective, how should one think about your time being allocated to a business that is outside Aster DM Healthcare, the listed company and the 2 business, which is significantly larger than Aster India. So any thoughts around.
No, no, that's a very important question. So the good thing is that in the last 5 years. So we have been able to have very strong robust teams on both sides with Alisha, leading GCC and now becoming the Managing Director and the CEO as well as new partners coming who are -- the reason why we have selected those partners also is because there are people who can help us in the different GCC countries. So that I am confident that they will be able to take it forward with the support. We didn't have in GCC, anybody as a partner who can support us. So my burden of looking after GCC comes down significantly with Alisha herself doing. And along with that, we have a very strong partner who has got partners, who has got their constituents, the consortium members who are in different countries. So it becomes much more easier. As you know, it's all contacts, which is important in GCC unlike in India. And so this will definitely help us a lot. .
Fajr Capital, Iqbal Khan as well as Atif. There are all people who are seasoned and they'll be able to help Aster GCC. India, Nitish has done a fantastic work in the last 1 year. We have grown significantly. So the results speak for itself and with Farhan and other team members. And of course with Sunil in the finance, they have really stabilized. But I have to support that. I have been involved deeply but gradually over a period of 3 to 5 years, I think I can take my hands off, but until that time, I'll be actively involved if Nitish feels that it is time for me to retire and Alisha also feel so. Nitish, you wanted to add something?
No, sir, we don't expect you to retire very soon. You bring in that expertise and experience, which is -- we can't evaluate at this moment of time. But like you alluded earlier, we have these strong [indiscernible]. Aster journey has been 10 years to lead India, running the business. I mean in the last 5 years, we have put up a team -- robust team and our strategy has worked in terms of what we have kind of structured in terms of cluster approach and now the attrition rate in the senior management has been very minimal. So all the team has kind of come together well, and we are at an inflection point. This was a very much needed event which has happened for good reasons that it has happened. And now with the renewed focus and the Chairman focusing most of his time on India, we are very, very confident of carrying forward good work what we had done in the last 5 years. And in fact, we are hoping to do better.
And the next question is from [ Rishab ].
Just wanted to understand on some questions on the India business. So we have currently 19 hospitals and our EBITDA margin would be close to 18%, 18.5%, if I'm not wrong. So can you just help me understand on which of these are mature hospitals? I believe mature hospitals make 21% kind of margin so which of these are mature hospitals, which of these are on the cusp of reaching maturity? And how should we look at the blended EBITDA margin for these 19 hospitals in the India business in the next 1 to 2 years?
Yes. Sunil, if you can come out with those details, no.
Yes, Chairman. Thank you, Rishab, for that question. So when you look at our numbers for the quarter 2, right, we have close to INR 934 crores revenue and almost with a 16.8% blended EBITDA. But when you look at your own hospitals and clinics, right, excluding the O&M Asset. Now we have given a breakup also in this segment reporting slide. Excluding O&M Asset specifically the hospitals under the O&M Asset Light model, we already hit the revenue of INR 31 crores, and a breakeven there. So excluding that, when we're looking at only the hospitals and clinics, wherein we're already generating a [ INR 855 ] crores revenue and almost a 20% EBITDA margin, right? And you can see a good growth which has happened quarter-on-quarter. And that is basically because of the good ARPOBD increase, which we are able to do around 9 to 10 percentage every year, and also with the added measures on the cost optimization, specifically in the area of materials and other manpower costs also. So that is 1 of the reasons we achieved around 20% EBITDA margin.
And stabilized when we look at the mature profile, see, when I look at the new assets, the new assets are basically the Whitefield Hospital A&B Block. And all the O&M Asset Light basically the Aster Mother Hospital Areekode, Aster Narayanadri - Tirupati, Aster G Madegowda Hospital in Mandya and Aster PMF Hospital which recently started in Kollam. So these are the 4 hospitals, which are new hospitals below 3 years. And excluding our EBITDA margin, it is almost 22% on the mature profile, which is above 3 years. And we see that on hospitals and clinic side, excluding O&M, we should be around -- we don't want to give guidance, but the trend which goes on is very clearly around 20%, 24% is something which is possible under the ARPOBD of INR 39,000 which we are achieving in India. I hope that answers your question.
Yes. Sunil, you can also mention about the hospitals, the large matured hospitals like Aster Medcity and all.
Under the flagship hospitals, the major hospitals are above 500 beds, we have Medcity, Kochi which is again more than 30% EBITDA margin if we do, ARIS COE Hospitals Bangalore, in the North Bangalore, that's also again 500 bed hospital, EBITDA is more than 30 percentage. And another big hospital, what we have is our Calicut Hospital -- Aster MIMS Calicut. That is EBITDA in the range of 22, 23 percentage. So you can expect that we are going to stabilize the margin. And also when you look at cluster approach, Kerala cluster already is doing at a 21% plus; Karnataka cluster again at 22%, an operating EBITDA we are able to do. And Andhra cluster, which we struggled last year, we are seeing ray of hope and Ramesh Hospital, specifically, now they're clocking in somewhere between 14% to 15%. And we see a good exit in the FY '24 period.
Okay. Sorry, if I correctly understand the owned hospitals that we have, which are majority in the Kerala cluster, those hospitals, those 6 hospitals are doing 21% kind of a margin right now. The majority of the -- when the hospitals are in the Karnataka and the Maharashtra cluster, if I'm not wrong. I just -- I think just one of them is owned in the Maharashtra cluster. Apart from that all are O&M, and they are doing some 22% margin. And the Andhra and the Telangana cluster is doing 14% to 15% kind of margin. Is that understanding correct as of now?
Yes, yes, you are very much right. We have all Kerala Hospitals are owned hospitals and also the Maharashtra Kolhapur is the owned hospital. You are very much right. And all the Bangalore hospitals, which is in the Aster CMI and Aster RV and Aster Whitefield Hospital are under the O&M model, you're very right. But in terms of margins because these have a different maturity profile, right, within Bangalore. Aster CMI is more than 6 to 7 years old. RV is around 4 years old, and Whitefield is just a year. Recently, we started A&B Block. But if you remove the Aster Whitefield Hospital which is a new hospital, Aster CMI and RV put together, blended it's more than 25 percentage operating EBITDA.
Okay. So sir, in terms of number of -- just 1 last question. So in terms of number of beds how many of these hospitals who are making this 22%, 23% kind of margin, how much number of beds would it cover from that 4,800 beds that we have?
I would say fairly 75% beds.
Okay. So 75% of our hospitals are already in the mature stage.
Exactly.
The scope to improve there would be close to 1% or 2%? Is that understanding correct?
Yes, at least more than 200 basis points, we can do that.
I think you also need to focus on the new CapEx plans that we have, which intends to add another 1,500 beds. So capital we keep adding to the capacity. So I think it's important to see the journey where we started, as Chairman was talking 5 years back when we got listed, you should see where the margins were and how those have improved every year. So I think Raven focusing more on owned versus leased or O&M. I think you should see the trajectory for the overall company and I think we are on a fairly good trajectory with CapEx plan as well as the growth in the revenue and the EBITDA margins every year.
Rishab, I just wanted to add, while people have spoken about that. One of the things which we have done is we have started this. Even if you look at our O&M, there are 2 models in that. One is O&M model where we take up the equipping and all, invest some significant amount of money, while the building is not owned by us. It's on a rental basis. That is 1 model, which is the ones in Karnataka. What we have done recently is that the asset-light O&M model where we are going it even into the Tier 2 and 3 cities and taking up hospitals, which are already functioning and adding a few equipments and all where the CapEx cost is very low. But we are, one, able to take the services to the periphery.
Second, most importantly, with very low CapEx, we are able to get even maybe very low EBITDA also. So this will seem that when you look at the EBITDA margin, you will see that. You may feel that the margins are low for those beds. But when you look at the ROCE, this will be very high. So in the presentation, it was mentioned that we have some -- if you look at the hospitals, 20% ROCE over a period of time, we have reached that. That is something which will be differentiating us because of these beds which are coming.
The next question is from Nitin.
Just wanted to understand, since you are paying out -- we're going to receive close to $1 billion, I think $900 million first, right. And what would the taxability be for the India entity and post the taxes or capital gains, which will be there, what is that amount that the India entity will receive and also paying it out as dividend may not be very tax efficient for the Indian shareholders. And just wanted to get a sense on that. And since you yourself said the India business is where the growth and the prospects are much larger than GCC business. Wouldn't it have been wise for you to keep powder dry in India to grow the India business because you could potentially do M&A or grow it more rapidly. So just your thoughts on that.
I'll answer the third question. But the first and second questions I'll ask first part of it, how much is that money being lost from GCC to India. And second, how much is that in the hands of the shareholders, what is it going to be the tax liability and then the last part. So Amitabh, if you can answer that. The first part and the second part, if possible.
If you look at it, the sale for the transaction is being affected from Affinity. Affinity is a Mauritius entity, and that is where the decision for the sale has been affected. This enjoys a double taxation avoidance benefit -- treaty benefit between India and GCC. And as a result, the sale transaction plus the upward streaming of dividend, and this will be probably in 2 parts. There are some redeemable preference shares. And beyond that, there will be some dividend to be paid post the customary transaction costs. That would also perhaps not attract tax because dividend -- dividend tax flexibility is in the hand of the ultimate dividend of the shareholders as the dividend is declared. So the transaction flow that we are talking from the sale to the dividend will perhaps not have any tax leakage as such. That is my answer to your point 1. The point 2. Of course, the taxability for dividend is dependent on the status of the shareholders or the enterprise [indiscernible] there are different tax positions and those will determine the dividend taxes. Mr.Chairman, you could perhaps add.
Thank you, Amitabh. So the first part has been answered. So we presume that after discussions with the tax experts and all, money which comes into India, and that's a good thing for India for Indian shareholders. Money doesn't attract tax. It comes back. Now the second part, it depends again like what I alluded to by Amitabh. The foreign investors who are coming for them, the dividend which comes out, many of them may not have significant taxation. And for NRIs also, there is for a dividend, there is a limitation of the tax to some extent. I understand that for NRIs, it is 10% and all. So we have a lot of NRI investors who may not have as much as tax. But Indian investors, depending on what category they are, they will have a taxation.
Now the third question as an extension of that, which you asked, we definitely will keep money which is required for acquisition or for -- I mean, expansion and all. We have discussed about that earlier. But thinking that a large amount of money at some point will be required for us to I mean, invest into and keeping that money. I don't think that's the right thing to do. We have a responsibility to -- I personally feel that there is a responsibility to the shareholders. We have not given them anything for the last 5 years to all the shareholders, including institutional investors have been telling us that it is time for us to show that we will treat them well. We always tell that we will treat you well to our patients. So why are you not treating us well is the question. So it's time for us to treat them well, and that's what we would like to do.
Just adding further to, as Chairman mentioned, keeping that cash and inflating the balance sheet and marginalizing the return profile will not be the best way to kind of deal with the listed entities balance sheet. I think -- so as Chairman mentioned, the required amount will be there to ensure that the CapEx needs are fully met. And if there are acquisition opportunities, the company is in a strong position to raise funds in the future whenever needed the appropriate valuation. So just for assumption that we will do acquisition later and then we keep cash for that till that period, I think may not be the best idea.
My thought was also in terms of potentially the promoters increasing their stake in the India business because if the opportunity is here, why is the focus being segregated. That's the only point here.
No, no, that's a good question. And I would like to answer that. See, we have increased focus here because we have demonstrated that we have gone from what our earlier position was from 37% to 42%. We increased our stake in India. And we are not bringing it down, whereas in GCC, we are bringing down our position from 42% to 35%. So our confidence is there for the India business. But we also have the reality of maintaining this 35% we have to buy again for which funding is required. So some part of the fund will have to be required for that, like what I said earlier. So it's a balance. We are on both sides because we started this business in GCC came to India. So it's important that we, as a family now, we believe in both geographies. It's not that we don't have confidence. That's why we are, I mean, having this now.
And we also have a lot of -- I should tell you this also. This is a different story altogether. We have huge interest which has come from the private equity firms in India, who wants to invest income as our partners and who wants to be with us as soon as the India becomes a separate entity, whereas in a joint entity, none of them were willing to come and join us. They were very reluctant because they thought that the growth is not there. We have struggled. While all our peer group has done well, India, pure-play India story, we have not done well. And that's what we are correcting now. So like what I told, this was something wrong, which was done 5 years back, we are correcting that. So with this aggregation, I've got at least 5 calls today from major private equity people saying that, now that they want to look at this journey, how to go forward. So there's no lack of funding there or money there. It's only just we have to be a pure India only play. So we see significant opportunity as we go forward for the India business to grow alone or with the help of private equity partners.
The next question is from [indiscernible]
Sir, just a clarification on the previous question. Can you help us understand the tax incidence for the promoters post issuance of the anticipated dividend.
Yes. So the promoters are -- we have invested this funding from GCC, and we understand that we will get the benefit of that. because it's coming as a foreign direct investment. So whatever is possible, we hope that we'll be getting that. Whatever tax implication comes in, no, it's a reality that -- we have to meet that. So we hope that as NRIs and as foreign direct investors, we'll get that benefit. .
So practically, nil tax incidents for the promoters, would that be a fair assumption? .
No, no, no. I think that is tax that on the way. There will be some leakage definitely, but we are in the process. So we would like to minimize that, but definitely, we'll be happy to pay whatever tax is there.
Sure, sir. And just a continuation of this question. Once the deal concludes and the dividend comes in, should we expect the promoter pledging in the Indian entity to come down significantly?
Okay. That's a good question. And it's good that you asked it. So our present pledge of our total, I should disclose to you is that the $80 million for whatever worth, we are 42% of a $2 billion company or a $2.5 billion company. Whatever is there. Our total amount, which we have availed is $80 million. So that $80 million also has been availed for increase. So that is the pledge which -- I mean, for which we were due to some structure issue because we are holding this from outside India. There is a complete -- I mean lean on our stock. And as you rightly mentioned, 1 of our intention is that once this transaction goes through and India and GCC becomes separate, we'll be able to, to a great extent, reduce the leverage in India and analytic promoter pledging in India. It will be very minimal. And I assure you that it will come to the minimum possible. [indiscernible] less than 10%, and it should even come below that is what we hope.
Understood, sir. Sir, my second question is, if you look at the net debt in GCC and look at the September 30 numbers versus what seems to be the implied net debt given in the transaction. It seems that the net debt in GCC has increased since September 30. Is that a fair assumption? The increase seems to be closer to about $100-odd million. So can you elaborate? Can you clarify that, please?
Amitabh, you would like to answer that? .
Sure, Chairman, I will take that. So yes, the debt has not increased. Let me put it that way. Because when -- what you're looking at is the net debt is technically the borrowing minus cash. But when you look at a transaction, the transactions also include debt-like items, which technically are not borrowings, but I'll give you a small example. Things like your salary being paid at the end of the month -- in sort of the end of the month you are paid or the first of the following month or there are benefits payable or gratuity and others, which are usually in the nature of a working capital cycle. But when you're consummating a transaction that consumes as debt-like items, and they find their way from the working capital to debt-like items being considered for the purpose of the transaction. The difference that you are seeing is largely debt.
Understood. So basically, the net debt in GCC, which we had reported in September, $155 million. And excluding some of these items which you mentioned has not really changed much.
That's right. That's a fair assessment.
The next question is from Amrish.
Congratulations to the Aster team, and thank you very much for the opportunity. My question is on the Indian operations. First one is, previously, I think we had given some suggestion that perhaps we will add about 400 to 500 beds in the asset-light O&M model for year. Is this something that would still be something we should consider? Or should we wait for a revised plan now that we have some money on this?
Yes. So thank you very much for raising that point. We have told that we are looking at about 500 beds to be added. Now altogether, we might have added more than that. What's the number now, Sunil, the asset-light...
O&M Asset Light model beds is 528 for hospitals.
528. So what we thought is that we would like to stabilize this before going on that journey. What we want to do is to, one, look at how it is going to benefit people, patients who are in the periphery because it's also a service that we are doing, where there is no advanced treatment like an angioplasty or a head injury, somebody comes. There is no doctor in the periphery. We are now having that in all these hospitals, which we started.
The second part is that how is it going to I mean, impact our manning-related areas. Are we able to get doctors to these places, our own doctors or other doctors who can come in. And the third thing is how are we going to integrate because it's mostly, we are taking it 100% lease, but there are some places that are where our partners are there. So we have now 4 hospitals in that model. And we want to stabilize that in a year's period and also most importantly, look at the profile, the EBITDA as well as the ROCE. If the market thinks that this is something from the point of view of investment into that and the effort that we put in, if they appreciate that, we would like to continue this journey. If not, we will not go very aggressively whenever there is an opportunistic things like that, we will do that. But otherwise, we want to go aggressively if it is being accepted as a ROCE instead of EBITDA, if people are able to accept that, we will go in that direction. But we want to put a pause for a year, not going too much into that until we get the reaction in different areas, which I mentioned.
You wanted to add something to this, Nitish, because I'm talking on his behalf.
Yes, you have covered it. Now this is something a model which we just started 1 year back, and we are getting hand of these models. And what we have done is out of 4 hospitals, 2 are in Kerala and 1 in Andhra and 1 in Karnataka. All 3 geographies are different, acceptance of this model is different, on different geographies. And as we are going forward, we are getting a hand of it. Kerala, to certain extent, it has been accepted. Andhra, the model has done well. In Karnataka, it is taking some time to kind of -- because of the location, there are other channels, it is taking some time to kind of get a clarity of how exactly it's going to play out.
Like Chairman mentioned, we would need another year to get, say, make a good assessment of these models. At the same time, these models are also getting us inside of the Tier 2, Tier 3 market, which is the future of India in healthcare space. So it's a good experience for us. At the same time, some of these models are presenting us opportunity to scale up and become like a regular O&M model also where we are seeing there is general acceptance and then there's a scope to scale up this model because this particular niche have space for further growth in sites. But again, we need to wait and watch and make informed call on this. So that's surely giving us exposure to Tier 2, Tier 3 cities and also opportunity to test the market before we go out and invest further.
I think that's clear. So just as an extension to that as well as for the labs and pharmacy business, I think in quarter 4, you had indicated that we should be breakeven, which we are now in both the asset-light O&M and our lab and pharmacy business. Is there -- at this stage, do we have visibility on what these businesses might become in terms of margin or is it too early at this stage?
Sunil, do you want to take that question regarding the lab and...
Yes, Chairman. Yes, as we had promised previously, the labs is almost broke even and wholesale pharmacy few losses. For example in quarter 2, both put together, we had a revenue of INR 76 crores and a loss of just INR 1 crore, right? It's almost broken even. And when you're looking at the future, see, we can't compare our pharmacies with the other stand-alone pharmacies, which is there listed in the market, right? Because there, we're talking about more B2B and B2C business. In our case, as of now, 75% comes from Aster and 25% comes from non-Aster. So for us to grow and increase the non-Aster business, that's when the margin will come in. But yes, in a couple of years, we should be able to reach that level, but it will be a slow ramp-up as compared to what the stand-alone pharmacies have done because our ramp-up will be more concentrated on the clusters where Aster already is present, right? So that's one of the things.
Now coming to wholesale pharmacy. We have already have 4 warehouses in 3 states already. And you already know wholesale pharmacies don't have a great margin, 4% to 5% is the maximum margin you can really make out of it. And that is something which we should be able to achieve in the next 2 years' time.
Just 1 last request. I know you've shared the financials for the India business. It would be fantastic if you could share the detailed pro forma for the last 3 years. That would be much appreciated.
Yes.
The next question is from Bharat.
Congratulations on a successful closure of this transaction. My only question was that in your opening remark, as you rightly said that India is a growth market. And had we not distributed this, yes, whichever we are receiving by way of dividend and looking at the capability of management, we could have generated more better return for the sale order in medium term. Short term, of course, would have it and doing our own expansion in a much larger way. So don't you think -- what's your thought process on that?
Yes. This question came in between and we answered. So as I told earlier, it has to be a balance because we have retail investors. We have institutional investors. We have people who are looking at outside the return. At the same time, we have to keep our growth. So what I'm telling -- what I'm just making you -- I mean, now is that it will be a process in which the Board will look at what are the requirements for a growth that we are anticipating, and what are the opportunities for deploying this capital. And depending on that, this will be utilized. See, having a huge fund there sitting there, it doesn't help anybody because it's not something -- we are not a finance company. We are an operating company.
As and when things are coming -- if there are opportunities, we will definitely deploy that. And it's not only money, which is required. There also has to be if you are doing an acquisition, you have to integrate that. It takes time. If you are constructing it takes longer time. So you have to have that growth with some planning. Otherwise, you can suddenly grow at 100%, 200%, I mean, times. So I think that we will be very, very cautious like what has been mentioned here. We grow 25%, 30% every year, which I think is a good growth. And going beyond that and acquiring a lot of things and growing to that level. That's not there in the DNA, and we will grow at a very good pace when compared to our peer group as well as our own expectation. So that's my answer. And also, we have this responsibility to the retail shareholders as well as to the other institutional shareholders for paying back. Ultimately, people look at -- are they getting any return on investment, which is a very important parameter is what I understand.
Fair, sir. And secondly, sir, just if you can give some color on O&M business model vis-a-vis our own to what is the margin? I mean, differential would be there or ROCE or ROE in 3, 4 years?
Yes. So Sunil, would you like to take that on the 2 models of O&M that we have.
And vis-a-vis our owning our own hospitals.
Yes.
Thanks Bharat for the question. So see, in India, currently on the hospitals, we've got 3 models. One is owned, then we have O&M and then we have O&M Asset Light. See, now owned we all know it's land, building, everything is ours. But in case of O&M, we take the land, building from a third party, and we do the interiors and put the medical equipment that's owned as O&M hospital. Then there is a third one which we recently introduced maybe a year back or so. That is O&M Asset Light. Now O&M Asset Light is basically, we don't do any interiors or the fixtures or even the medical equipments. We basically take the existing hospital, which is run by the existing stakeholder and we try to refresh certain assets, which is required, add more clinical specialties and drive the revenue, right, which has been studied. So that is a very basic difference between the model. Now when you talk about the margin bit of it, there is no difference between the first owned and the O&M, okay?
The only thing is that the [indiscernible] Owned model takes a little longer to get the ROC, for example, our Aster Medcity, Kochi, which is a owned model. took approximately 6 to, I would say, 8 years -- 7 years to go beyond 25%, 30% ROCE. That is something which our Aster CMI Hospital, which is a classic O&M model, took, I would say, 60% of the time. 4 to 5 years, we were able to hit more than 20% ROCE, right? It's only about the faster ramp up. But otherwise, there is no large difference between the -- either the EBITDA margins because when you look at operating EBITDA, which is currently post-Ind-AS excluding the rentals, both margins will be almost similar, literally similar. Only thing is that ROCE ramp up will be faster in case of O&M, right, as compared to owned model. .
Now the third bit of it is on the O&M Asset Light Hospitals, where EBITDA margin will be 100% lower than what we can expect from the other 2 models which I described. Now O&M Asset Light why it is grower, is not because of model difference, it's all because of the Tiers of the city, which is in place. For example, your Tirupati, Mandya, Kollam, you can't expect great ARPOBDs. Today the ARPOBDs, there are below INR 20,000, right? It's somewhere between ranges between INR 17,000 to INR 18,000. And that ARPOBD, and also you don't have the high-end tertiary care or quaternary care specialties, right? where we will do a secondary or only tertiary care specialties. So keep all this in mind, ARPOBDs are lower, which indirectly impacts your EBITDA margin. So there, you can look at our margin somewhere between 15% to 18%, not more than that, okay?
But at the same time, ROCE is very high. For example, our Tirupati Hospital, which we started, I think, just 9 months back, is doing ROCE of more than 10 percentage, right? So it's a faster ramp-up. But also, as Dr. Nitish highlighted, we are also looking to see that whether these hospitals, we want to pause it as of now, look at how we can really improve the margins there. And also, can we expand into a number of beds, which will bring the more ROCE and margins expansion of it. So basically, I am trying to get operating leverage. I hope that answers your question, Mr. Bharat.
[Operator Instructions] The next question will be from Ashwin Agarwal.
Congratulations, team. Thank you for all the comments and answers which have been very detailed and very well explained. Congratulation Dr. Moopen. I just needed one data point. What would be the total costs that will need to be taken out of this consideration of $1.02 billion and which will flow through to the entity for consideration of dividend, et cetera. So there would be some transaction costs, there would be other leakages. What would be the number there?
Yes. Amitabh, you would like to answer that?
Ashwin, thanks for the question. So actually, the transaction is still in program. There are some fees -- there are some payouts that are success-based, and some payouts that are fixed in terms of diligence, valuation and others. All in all, we expect that for a transaction size of $1 billion plus, we are expecting anywhere in the range of $18 million to $20 million of our transaction cost. Now that includes all these costs that I called out including the legal fee and other items that are there. These are the items that we are trying -- we will identify as cost against that transaction.
Okay, that's negligible. Yes, okay. That's all I needed. And congratulations once again and all the best as we go ahead.
The next question is from [ Rishab ]
Just an operational question. So in the Southern region, let's say, if we look at the other southern region of, let's say, Tamil Nadu, we would see hospitals doing anywhere between 25%, 26% kind of EBITDA. So what is operationally different in Kerala where we are able to do sub-20% kind of margin?
Yes, Dr. Nitish, you would like to answer that?
Your question was, Rishab, that why we are lesser than the competition in Tamil Nadu, is that the question?
The question is more regarding is there something different in Kerala from the other southern regions because of which the margins are less or...
Yes, margins are less. Are you asking me why the margins are less?
Yes.
Yes, one of the primary reason is the manpower cost, minimum wages is a challenge in Kerala compared to the other geographies. Minimum wages is around INR 30,000. The nurses get at entry level INR 30,000. The Kerala has been very worker-friendly and they have been revising the minimum wages. That has been one of the reasons. But if you see the Kerala, it's more of urbanized, it's smaller towns also where we -- it is a conducive environment to put up hospitals. .
In other geographies, it's always a metro, bigger cities is conducive for private players. But in Kerala even smaller towns, there's an opportunity, but the ARPOBDs are a little lesser, and it's a cash market. Whereas in the other geographies, it's in the mid, larger cities, which are more cash patients have higher ARPOBDs, but there are a lot of street patients, which have lesser ARPOBD. But in Kerala, it's all of -- more of 60% of the patients are cash patients. It's kind of very competitive when it comes to the paying capacity and also the case mix, what we get there is a little different. But the basic reason the operating cost might be a little higher in Kerala because of the manpower costs, but that is very soon changing now or ARPOBDs are changing in Kerala market. .
Earlier the Kerala population needs to go out of Kerala for a high-end treatment, which has changed in the last 1 or 2 years. You see a lot of patients are availing quaternary care in Kerala, network hospitals in Kerala, that should change ARPOBD like within just a matter of 2 years, the ARPOBD of a city like Kochi has changed from somewhere around mid-20s to now it has one to 40s. We are doing in the range of 40, 42. And even in the Calicut city, it is changing, which is to be around 20s, ARPOBD now, it is around 30, 35 So it is changing fast. And then the margins in Kerala, we are confident to be higher than even the neighboring states. What you are seeing is a historical data. But in the future, we're going to see a major shift in that and the Kerala market will be more conducive for making -- while making margin in spite of the challenges in the manpower, minimum wages cost.
So you mean to say that it will be north of 24%, 25% in the next 2 to 3 years? Is that fair assumption?
Yes.
I think we will take 1 final question from [indiscernible].
Again, congrats to the management team and this question is to Dr. Moopen. You mentioned about private equity players expressing interest with India business. Are there any ongoing discussions here? Or how do we see this panning out?
Yes. So now at this point, we are focusing on completing this transaction. So that is the focus of the company and -- which will take like what has been mentioned 3 to 4 months; before end of March, we want to finish this. So all the focus is on that. While that's happening, definitely, there are inbound interest, which has been shown. And the issues looking after Investor Relations are in touch with the people who are coming in but the active work on this will happen once we complete this transaction, which, again, is something which, while the board has approved. Reality is that this will go through only when the shareholders approve this. It has to have -- it should get the minority shareholders majority. So we hope that it will take -- in 2 to 3 months, we'll be able to get that. .
So answering your question, yes, we get a lot of inbound interest in the last 6 months, it has been there, but now it has increased and we will look at which is the best private equity or investors who are ready to be aligned with our plans and, of course, supporting us. So as such, we are not committed to anything or it will take some time.
Ladies and gentlemen, this concludes the investor conference call. I thank you all and the management for joining us today. If you have any further questions or queries, please do get in touch with us. Thank you.
Thank you.
Thank you, everyone.