Welcome to Issue #004. In this issue, I'll present 2 investing ideas -- 1) a case for investing in Chinese stocks as a contrarian strategy & 2) the dividend fishing opportunity at Aster DM Healthcare
Thank you Dan. All three instruments -- stocks, mutual funds and ETFs are available to Indian investors. Platforms like IndMoney allow investors to buy Alibaba, Tencent & other stocks while mutual funds & ETFs can be accessed on MF & trading platforms.
I haven't explored the Edelweiss Greater China fund but you raise a good point. Hangseng is different from CSI 300 which is different from Shanghai Composite. An ETF/MF might be aligned to one of these indices which means the components might be very different. Pls do pull out a couple of hours and review this at your convenience - I'm certain it will be a rewarding exercise.
From China market beginner perspective, Some pointers on how to invest in China from India , which sector / co's are safe and lucrative, further reading material - would be of tremendous help. I started researching but hardly any good video
Vikrant ji -- I am not surprised that you didn't find good videos. Videos are notoriously bad for anyone researching/seeking details with an eye on investing actual money. This is part of the reason I started this newsletter & in addition to crisp curated reading, I also add many links for further examination by the reader
This might sound odd coming from someone who runs a Youtube channel of his own (youtube.com/@shankarnath) but here's an insight -- 1 minute of video requires me 15 minutes of research. So I have to read & learn 15 times more than my video viewers
Below are some additional reading material. These are sourced from Google search engine & parts have been used in this newsletter
Hello, thank you for the follow-up .. a wonderful read!
I'm still undecided on whether to invest or not but here's some parallel commentary one can consider while building a thesis:
1. I won't look at PAT as much because as you rightly said, depreciation is high as there are buildouts happening & not many hospitals have matured. The depreciation part is likely to remain high for the next 3-4 years as an additional 1,450 beds have to be added so the PE visibility will be high.
Instead, the EBITDA of the India business is an important tracker and is at ₹453 crores for FY23. The numbers are looking up and I reckon, this would close at ₹550 crores for FY24 which is just 3 months away. Ergo, at a EV of ₹14,000 crores (13k + 1k debt) - this is an EV/EBITDA of 25.4 which is at the lower end of similar sized hospitals (KIMS - 25.4, Rainbow Child - 30.8, Narayana Health - 23.0, Medanta - 34.1). This offers some safety in relative valuations
2. Aster DM India is doing well on major metrics on which a hospital's are evaluated (referring to my Youtube video) are :
i) Hospital additions - 10 in 2018 .. to 19 (incl. O&M) in 2023. Another 3 planned until FY27
ii) Patient volumes - 18 lakh in 2018 .. to 29 lakh in 2023 (17% growth)
iii) Occupancy rate is around 70% which is good
iv) ARPOB - ₹23,700 in 2018 .. to ₹39,000 in 2023 -- a big jump & growing at 9-10% p.a. (this ensures value growth while hospital & patient count grows the volume)
v) ALOS is down from 3.6 in 2018 .. to 3.4 in 2023
I did a back-of-the-envelop now and if the company maintain the pace & execute the capex (which has a higher chance now that there is likely to be more focus), the market cap of Aster DM can go up to over ₹27,000 by FY27. This gives a price increment at 25% p.a.
Yes, with respect to the depreciation aspect, I later found that Depreciation as a % of Revenues averaged around 4-5% before 2019. I'm reluctant to use EBITDA, but if we take Depreciation to be at this 4-5% of Revenue range, the P/E falls to 27-ish, which is better than 70 lol. Assuming a similar level for the GCC business, the sale is roughly at 20 times 'normalised earnings'. This is a much more attractive situation. Yep, their operating metrics are quite good too. Thank you for highlighting my mistake in considering PAT. I am very lazy at times😅. Could you share how you got the 25% cagr calculation? Seems interesting
With regards to Aster DM, it will be better to consider stock post Dividend Record Date, since Dividend Will unnecessary get taxed at normal tax rate. In my opinion Dividend is just payment out of value if assts and market cap will decline to that extent.
Thank you Abhishek ji. I had the same thought and I'm currently undecided on whether to invest now in anticipation of the dividend or at the ex-dividend date
To get differing views, I spoke to my collaborators and some investor friends who presented a pricing gap. Per them -
a) the market has not factored this upcoming dividend yet in Aster DM's share price and when the realisation sets in, there is likely to be an upside of maybe 50-60 rupees from here
b) secondly, they say when the stock goes ex-dividend, the fall in Aster DM's share price might not be the dividend amount (let's say 130 rupees) but the fall in share price will be lower, say 100 rupees
They are speaking from experience in the real-world having experienced similar situations and seem to be pointing to - a) buying now, wait for the 50-60 rupee hike & sell .. or b) invest once the stock price is ex-dividend
Not currently. Unfortunately, my work schedule (running a YT channel, newsletter and peripherals) doesn't allow enough time to run research-styled detailed follow-ups. Curious to know - anything in particular you are looking/hinting at from the pre-post exercise?
Sorry, I don't have any presently; haven't tracked this particular index. I have myself invested in HANGSENG Index and for exposure to Chinese tech sector, I has some units in FANG+ Index.
A quick glance on screener https://www.screener.in/company/ASTERDM shows the promoter pledging and poor RoCE of 9% in FY23. With this NEWS a major impact on financials is forseen.
NEWS was out on 28th night and 29th there was a major breakout candle ~18% jump in a single day.
Thanks for sharing. I don't understand breakout candle but a word on the ROCE. The low ROCE until FY23 was primarily on account of the GCC business. Infact, the Aster DM team had been trying to cut-off the GCC business (which was growing at only 5-6%) from the India business for the last 5 years.
Now, if one looks at the latest numbers (Q2 FY24) & specific to India, the hospital business ROCE has gone up to 20.1% - which is on par with other similar sized hospital chains except NH
Great to see your perspective on China Investing 🙌
What are the possible investment options that are available to Indian investors?
Would Edelweiss Greater China Equity Off-shore Fund would suffice ?
Please share your investment option on this matter 😊
Thank you Dan. All three instruments -- stocks, mutual funds and ETFs are available to Indian investors. Platforms like IndMoney allow investors to buy Alibaba, Tencent & other stocks while mutual funds & ETFs can be accessed on MF & trading platforms.
I haven't explored the Edelweiss Greater China fund but you raise a good point. Hangseng is different from CSI 300 which is different from Shanghai Composite. An ETF/MF might be aligned to one of these indices which means the components might be very different. Pls do pull out a couple of hours and review this at your convenience - I'm certain it will be a rewarding exercise.
Hope this helps
From China market beginner perspective, Some pointers on how to invest in China from India , which sector / co's are safe and lucrative, further reading material - would be of tremendous help. I started researching but hardly any good video
Vikrant ji -- I am not surprised that you didn't find good videos. Videos are notoriously bad for anyone researching/seeking details with an eye on investing actual money. This is part of the reason I started this newsletter & in addition to crisp curated reading, I also add many links for further examination by the reader
This might sound odd coming from someone who runs a Youtube channel of his own (youtube.com/@shankarnath) but here's an insight -- 1 minute of video requires me 15 minutes of research. So I have to read & learn 15 times more than my video viewers
Below are some additional reading material. These are sourced from Google search engine & parts have been used in this newsletter
- https://www.reuters.com/world/china/chinese-firms-set-best-earnings-growth-seven-years-2024-2023-11-28/
- https://www.abrdn.com/en-lu/institutional/insights-and-research/have-we-hit-peak-china-pessimism
- https://www.bbvaresearch.com/wp-content/uploads/2023/12/2023Q4China-Economic-Outlook_edi.pdf
- https://www.brookfieldoaktree.com/sites/default/files/2023-12/China_Priced-in-Pessimism-Could-Provide-Opportunity-for-Value-Investors.pdf
- https://www.abrdn.com/en-lu/institutional/insights-and-research/china-equities-opportunity
Hope this helps
What more can one ask for ! Thank you so much for generously sharing your great work for the benefit of everyone.
https://youtu.be/OkKjLDAeWRo?si=BQlE9utC_cH6kdzX
It is really good one
Thanks for sharing Girish.
@Dan
Though it's old, this article may help
https://www.valueresearchonline.com/stories/50821/what-are-some-china-focused-funds-available-in-india/
Hi Shankar. Great post as always! China seems intriguing
I was not aware of the AsterDM transaction, so I did some research. Here are my findings:
https://open.substack.com/pub/eternalcompounder/p/opportunity-of-a-lifetime?r=2fs90b&utm_campaign=post&utm_medium=web&showWelcome=true
Hello, thank you for the follow-up .. a wonderful read!
I'm still undecided on whether to invest or not but here's some parallel commentary one can consider while building a thesis:
1. I won't look at PAT as much because as you rightly said, depreciation is high as there are buildouts happening & not many hospitals have matured. The depreciation part is likely to remain high for the next 3-4 years as an additional 1,450 beds have to be added so the PE visibility will be high.
Instead, the EBITDA of the India business is an important tracker and is at ₹453 crores for FY23. The numbers are looking up and I reckon, this would close at ₹550 crores for FY24 which is just 3 months away. Ergo, at a EV of ₹14,000 crores (13k + 1k debt) - this is an EV/EBITDA of 25.4 which is at the lower end of similar sized hospitals (KIMS - 25.4, Rainbow Child - 30.8, Narayana Health - 23.0, Medanta - 34.1). This offers some safety in relative valuations
2. Aster DM India is doing well on major metrics on which a hospital's are evaluated (referring to my Youtube video) are :
i) Hospital additions - 10 in 2018 .. to 19 (incl. O&M) in 2023. Another 3 planned until FY27
ii) Patient volumes - 18 lakh in 2018 .. to 29 lakh in 2023 (17% growth)
iii) Occupancy rate is around 70% which is good
iv) ARPOB - ₹23,700 in 2018 .. to ₹39,000 in 2023 -- a big jump & growing at 9-10% p.a. (this ensures value growth while hospital & patient count grows the volume)
v) ALOS is down from 3.6 in 2018 .. to 3.4 in 2023
I did a back-of-the-envelop now and if the company maintain the pace & execute the capex (which has a higher chance now that there is likely to be more focus), the market cap of Aster DM can go up to over ₹27,000 by FY27. This gives a price increment at 25% p.a.
Hi Shankar. Thank you for the kind words!
Yes, with respect to the depreciation aspect, I later found that Depreciation as a % of Revenues averaged around 4-5% before 2019. I'm reluctant to use EBITDA, but if we take Depreciation to be at this 4-5% of Revenue range, the P/E falls to 27-ish, which is better than 70 lol. Assuming a similar level for the GCC business, the sale is roughly at 20 times 'normalised earnings'. This is a much more attractive situation. Yep, their operating metrics are quite good too. Thank you for highlighting my mistake in considering PAT. I am very lazy at times😅. Could you share how you got the 25% cagr calculation? Seems interesting
The 25% is simple back-of-the-envelope math
a) I estimated Aster DM Healthcare (India only part) to do ₹950 crores in EBITDA by FY27 (this comes to a 20% annual growth in EBITDA which is doable)
b) The EV/EBITDA of similar-sized hospitals (which is almost all except Apollo) ranges from 25 to 45. I've assumed a conservative 28 here
c) So per this, FY27 EV estimate to ₹26,600 i.e. ₹950 x 28
d) Current EV (i.e. FY24) is ₹14,000 (₹13,000 + debt of ₹1,000)
e) With debt expected to be low, most of it is market cap. And at a 90% jump, this gives me a 3Y stock price CAGR of ~25%
Hello Shankar,
Well researched article.
With regards to Aster DM, it will be better to consider stock post Dividend Record Date, since Dividend Will unnecessary get taxed at normal tax rate. In my opinion Dividend is just payment out of value if assts and market cap will decline to that extent.
Just a thought.
Thank you Abhishek ji. I had the same thought and I'm currently undecided on whether to invest now in anticipation of the dividend or at the ex-dividend date
To get differing views, I spoke to my collaborators and some investor friends who presented a pricing gap. Per them -
a) the market has not factored this upcoming dividend yet in Aster DM's share price and when the realisation sets in, there is likely to be an upside of maybe 50-60 rupees from here
b) secondly, they say when the stock goes ex-dividend, the fall in Aster DM's share price might not be the dividend amount (let's say 130 rupees) but the fall in share price will be lower, say 100 rupees
They are speaking from experience in the real-world having experienced similar situations and seem to be pointing to - a) buying now, wait for the 50-60 rupee hike & sell .. or b) invest once the stock price is ex-dividend
I am still processing the responses
Hey Shankar
This was a good written piece, loked it. Specially the China story..
Will try Hengseng bees.
Glad you liked it. Thanks!
Loked=liked
There are 4 simple options 2 ETF and 2 MF
1. Mirae Asset Hang Seng TECH ETF
2. Nippon India ETF Hang Seng BeES
MFs
1. Edelweiss Greater China Equity
2. Axis Greater China
Think of Mirae Asset Hang Seng TECH ETF like nasdaq100 and Nippon India ETF Hang Seng BeES as S&P 500.
Thanks for the article it served as validation for some thing which I had been thinking since oct and moved me into action.
Thanks for this compilation. Very useful. I'm glad you liked the article & found it useful
The doubt in my mind is that can Hang Seng and Hang Seng Tech index be considered as proxy for China? What has been the historical correlation been
While researching I found: there are three primary indices here - Hang Seng, CSI 300 and Shanghai Composite. As expected there are variations in terms of constituents. CSI 300 and SSE are tight but Hang Seng performs very differently so investors will have to do some work on that & assess. (comparison graph - https://www.google.com/finance/quote/000300:SHA?hl=en&comparison=INDEXHANGSENG%3AHSI%2CSHA%3A000001&window=5Y)
In my view, Hang Seng Tech seems more sectoral (as the name suggests) & at this juncture seems to offer a higher rish-reward play.
Yes, it is like Nasdaq or even NYSE FANG+ with a very heavy skew towards tech companies
How to invest in foreign country like china and what are the tax liability in investing in such countries?
Hello Sayan ji
1. Dan asked a similar question, please have a look at the answer there
2. Sorry, I'm not adept at tax rules & its better to consult a tax advisor on the same. Tax laws are changing too frequently.
Yeah I checked that later. Anyway I am not currently thinking of investing in foreign markets. Thank you. :)
Most welcome. Glad it helped
If you invest in debt fund or ETF which i have listed above, you should consider them to be taxed like debt MF only.
Do you think investing in HangSengBees may be a good option with a holding period of 3-5 years
Yes. In my view, it's definitely worth a consideration and I've myself bought some units in HangSeng ETF as a contrarian bet
❤🙏🏾
i was hoping that if you could share deep dive analysis of Aster SM pre and post dividend that you were referring to earlier. is it in the making?
Not currently. Unfortunately, my work schedule (running a YT channel, newsletter and peripherals) doesn't allow enough time to run research-styled detailed follow-ups. Curious to know - anything in particular you are looking/hinting at from the pre-post exercise?
Shankar if you can share your Views on HSTECH Index . ETF's are also available by Mirae.
Sorry, I don't have any presently; haven't tracked this particular index. I have myself invested in HANGSENG Index and for exposure to Chinese tech sector, I has some units in FANG+ Index.
if I invest in aster dm now will i be eligible for dividend? if yes how much would be safe to invest?
1. Difficult to say, the shareholder approval has not come in yet. Pls keep track of company announcements on BSE website
2. Nothing is safe -- afterall, this is an equity instrument. The share price can go anywhere for the most absurd reasons.
A quick glance on screener https://www.screener.in/company/ASTERDM shows the promoter pledging and poor RoCE of 9% in FY23. With this NEWS a major impact on financials is forseen.
NEWS was out on 28th night and 29th there was a major breakout candle ~18% jump in a single day.
Thanks for sharing. I don't understand breakout candle but a word on the ROCE. The low ROCE until FY23 was primarily on account of the GCC business. Infact, the Aster DM team had been trying to cut-off the GCC business (which was growing at only 5-6%) from the India business for the last 5 years.
Now, if one looks at the latest numbers (Q2 FY24) & specific to India, the hospital business ROCE has gone up to 20.1% - which is on par with other similar sized hospital chains except NH
Great post! I've been thinking along similar lines myself. What broker would you recommend for HKSE listed stocks?
Thanks. I don't buy foreign stocks (stick to indices) so unaware of the broker for buying these; sorry!
Your views on using Han Seng BEES from Nippon India as proxy for investing in China?
Hang Seng Index P/e is currently at 20 year low. Chart below
https://www.gurufocus.com/economic_indicators/5732/pe-ratio-ttm-for-the-hang-seng-index
I am presently invested via Hang Seng Bees ETF
Thanks for your reply
Most welcome