IGI Logo

Add Apollo Hospitals Enterprises Ltd For Target Rs.4,312

Strong revenue growth; focus on digital network

Apollo Hospitals Enterprises’ (AHEL) Q1FY22 performance was better than estimate led by strong recovery in occupancies along with ARPOB, stock piling by pharmacy customers during 2nd covid-19 wave and incremental revenue from vaccination. However, margins were low due to lower margins in vaccination business and costs relating to 24x7 initiative.

Overall, revenues grew 73.2% YoY to Rs37.6bn (I-Sec: Rs31.4bn). EBITDA margin stood at 13.8% vs estimated 15.0% due to additional cost of Rs370mn for 24x7 initiative and lower margin in pharmacy business. We remain positive on AHEL’s long-term outlook considering its strong brand and pan-India presence in the hospital segment, margin expansion potential and aggressive focus on creating digital network for pharmacy, doctor consultation, clinics and diagnostics. Maintain ADD.

* Hospital occupancy improves, pharmacy benefited by 2nd covid-19 wave: Hospitals business grew 18.2% QoQ (145% YoY) as occupancy level improved QoQ and ARPOB also improved. Occupancy level increased to 67% vs 63% QoQ and we expect it to improve in coming quarters as situation normalises. We expect strong 57.5% growth in hospitals business in FY22 on a low base, consolidation of Kolkata hospital and incremental revenue from vaccination. Vaccination business contributed Rs1.9bn revenue in Q1FY22. The company’s digital outreach for consultations and OPDs would help in accelerating growth. Pharmacy business continues to grow strong on like-to-like basis (+43% YoY).

* Margins to improve: Hospital business margin stood at 20.3% vs 21.1% YoY and the decline was due to higher contribution of covid-19 patients. Gradual improvement in occupancy level and various cost control exercises (human resource, administrative expenses etc.) undertaken by the company would aid gradual margin expansion. Pharmacy business margin improved 20bps QoQ to 5.2% but down YoY due to incremental cost of Rs370mn on account of 24/7 initiative. The consolidated margin was 13.8% in Q4FY21 and we expect it to increase to 16.5% by FY23E.

* Outlook: We expect improvement in performance to continue in the ensuing quarters supported by higher occupancy, cost control initiatives and continuous growth momentum in pharmacy segment. We expect 25.5% revenue and 51.8% EBITDA CAGRs over FY21-FY23E on low base of FY21. Company has put backend pharmacy business and Apollo 24/7 into a separate subsidiary, Apollo HealthCo, and would look to get investor in this for growing the same and unlock value.

* Valuations: We raise EBITDA estimates by 2-4% to factor in higher growth. Maintain ADD with a revised target of Rs4,312/share based on SoTP on FY23E (earlier Rs3,466/share). We now value pharmacy business at 3x sales (vs EBITDA earlier) considering potential value of 24x7 platform which is currently contributing negative EBITDA. Key downside risks are: higher competition and further delay in elective surgeries.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer