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Resilient performance, positive outlook

Apollo Hospitals Enterprise Ltd operates the largest hospital network and pharmacy chain in India. The hospital owns 71 Hospitals and operates 4,163 pharmacy outlets in India.

• During Q3FY22, standalone revenue continued its growth trajectory, rising 20.7% YoY owing to growth achieved as a result of systemic improvements in diagnostics, elective and primary care footfall overall indicating that revenue was high and unaffected by lower vaccine revenue. Inpatient volume up 28% YoY.

• EBITDA rose 31.8% YoY to Rs. 424cr (-3.3% QoQ), as EBITDA margin expanded 120bps YoY to 14.8%. Resultantly, Adj. PAT grew 65.1% YoY to Rs. 175cr (-5.6% QoQ) further aided by lower finance costs.

• Given the private label growth, digitally transformed delivery model, cost cutting measures, upscaled infrastructure, third party delivery tieup (Amazon) and quick adaptability to COVID needs, the company is expected to continue its growth momentum. Hence, we upgrade our rating on the stock to BUY with a rolled forward TP of Rs. 5,416 based on SOTP valuation.

Broad based revenue growth across segments

Standalone revenue grew 20.7% YoY to Rs. 2,858cr (+0.9% QoQ), supported by strong performance across healthcare and pharmacy distribution business. Healthcare revenue grew 24.0% YoY to Rs. 1,539cr (-7.1% QoQ), supported by higher average revenue per occupied bed (ARPOB) improving to Rs. 46,062 (vs. Rs. 40,092 in prior year period). Pharmacy business revenue went up to Rs. 1,307cr (+12.0% QoQ). Overall occupancy stood at 5,107 beds (65% occupancy), with that of mature hospitals at 3,575 beds (66%) and of new hospitals at 1,532 beds (63%).

EBITDA margins expand on YoY basis

EBITDA increased 31.8% YoY to Rs. 424cr (-3.3% QoQ), as EBITDA margin expanded 120bps YoY to 14.8% (-70bps QoQ) driven by better ARPOB this quarter with higher footfalls and sustained margins. On the back of strong operational performance, Adj. PAT grew 65.1% YoY to Rs. 175cr (-5.6% QoQ) further aided by lower finance costs (- 18.0% YoY, -3.6% QoQ).

Key concall highlights

• Cumulative Revenue guidance over 3-4 years is ~Rs. 1bn.

• Capex over next 2 years includes Bangalore~ (Rs. 700-800cr), South Bombay ~(Rs. 600-750cr) along with 2 projects in Delhi~(Rs. 1,500cr) funded via Rs. 700cr of mutual fund, free cash flows and impending money from 24/7 Hospital.

• The customer acquisition cost over 6-9 months will be ~ Rs. 150-200/customer, much lower than competitors due to goodwill and corporate associations.

• On the 24/7 platform, Apollo touched ~140k consultations (~1,000-1,200/day) including app as well as offline consultations.

• The split between B2B (third-party labs) and B2C across 3 years average is expected to be ~60-40% from current ~55% of B2C.

Valuation

The company is growing organically with rising efficiency and productivity, continuous expansion across new & existing markets via digitalization, increased capex, omnichannel approach and quick response to COVID-needs. Hence, we have a positive outlook on company’s growth prospects and upgrade our rating to BUY with a rolled forward target price of Rs. 5,416 based on SOTP valuation.

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