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Strong performance; upbeat outlook maintained...

About the stock: Apollo is a leading integrated healthcare service provider.

* Group capacity of 9911 beds across 71 hospitals in India. Total 8538 beds owned in 44 hospitals; 278 beds in 11 cradles; 244 beds in 11 day-care/short surgical stay centres; 851 beds in five hospitals under O&M contracts

* It has got a digital presence with “ASK Apollo” & digital health platform “Apollo 24/7”. Apollo Hospitals is the exclusive supplier for APL, which operates India’s largest standalone pharmacy chain with 4529 outlets

* Apollo Health & Lifestyle Ltd runs the largest chain of standardised primary healthcare models, multi-specialty clinics under the brand: Apollo Clinics in India and Middle East, diabetes management clinics: Apollo Sugar, diagnostic centres: Apollo Diagnostics, specialty formats: Apollo Cradle for women & children, Apollo Spectra for planned surgery

Q2FY23 Results: Apollo delivered a strong performance in line with our estimates.

* Revenues grew 12% QoQ at | 4251 crore

* EBITDA increased 15.2% QoQ to | 566 crore. EBITDA margins increased 37 bps QoQ to 13.3%

* Adjusted net profit declined 35% QoQ to | 205 crore

What should investors do? Apollo’s share price grew 3.2x over past three years

* We maintain BUY due to 1) pick-up in elective surgeries and margins at hospitals to improve through better operating leverage and optimisation of payer and case mix, 2) impending value unlocking through Apollo HealthCo and 3) increase in reach for all verticals through integrated digital platform to be remunerative in long term albeit with front-loaded cost pressure

Target Price and Valuation: We value Apollo at | 5230 based on SOTP valuation.

Key triggers for future price performance:

* Apollo is undergoing an optical transformational journey towards creating an omni-channel healthcare platform that could set the platform for tapping new-age investors enabling rapid scale up of the digital healthcare platform

* Business normalisation in healthcare is expected to continue with further momentum due to lifting of travel restrictions, international patients. Also with strong healthcare pedigree & asset base, the company is on course to integrate all entities digitally to leverage its brand and physical presence

* The new hospitals, ventures are turning profitable on the back of a judicious case mix besides better occupancy & ramp up at new hospitals and AHLL

Alternate Stock Idea: Apart from Apollo, in our hospital coverage we like Narayana.

* Narayana operates a duel model, which perfectly blends established ‘’Assetright’’ India business with a hospital in Cayman Islands

* BUY with a target price of | 800

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