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Our view:

Apollo has guided to US$50-60mn of revenues for Apollo 24/7 platform by end FY22; albeit, there does not appear to be any change to EBIDTA break even period of 3 years. As the competitive intensity across triad of consultation/tests/medicine delivery intensifies, expect Apollo 24/7 operating costs to inch up – these were Rs370mn in Q1 and subtracted 100bps from overall margin.

Epharmacy remains a business with particularly harsh economics – our recent interactions with niche unlisted players suggests major epharmacy players burn anywhere between 7-13% after factoring delivery and inventory costs even net of 25% discount from distributors. On the other hand, online consultation and diagnostic tests have picked up amidst the pandemic though the jury is still out on the extent of persistence once footfalls fully normalize in OPD and collection centres respectively. Ironically, the core hospital business would be the bulwark that would support the digital platform particularly as and when costs of acquisition inch up in an expected competitive landscape.

Core hospitals business would reach steady margin of 25% (existing) and upwards of 16% (new) for hospitals though that is largely baked in; indeed, current valuation may hold elevated optimism for the digital platform business where execution will be keenly watched amidst rising competitive intensity. Our Sell stays on the stock with unchanged EV/E targets on hospitals and pharmacy business but roll over to FY24 earnings which results in bump up in TP to Rs2,750 (earlier Rs2,250).

Result Highlights

* Guides to US$50-60mn in 24/7 revenues; no guidance on margin, reckon three year EBIDTA break even still holds

* Hospital business margin impacted qoq due to vaccination delivered at 15% margin

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