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Strong Q2 with significant margin expansion…

About the stock: Apollo is one of the leading integrated healthcare service provider with avenues like hospitals, pharmacies, primary care & diagnostic clinics.

* Group capacity of 10,231 beds across 71 hospitals in India. Total 8858 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 4,292 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.

Q2FY22 Results: Apollo reported strong Q2FY22 results.

* Sales were steady at | 3717.1 crore (marginal decline of 1% QoQ)

* EBITDA was at | 615 crore, up 18.3% QoQ with margins at 16.5%  Consequent adjusted PAT was at | 247.8 crore (up 1.9% QoQ)

What should investors do? Apollo’s share price has grown by ~3.7x over the past five years (from ~| 1361 in July 2016 to ~| 5100 levels in November 2021)

Upgrade from HOLD to BUY due to resurgence in elective surgeries, better than expected margin expansion and impending value unlocking

Target Price and Valuation: We value Apollo at | 5930 based on SOTP valuation.

Key triggers for future price performance:

* Apollo is undergoing 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 (more focus towards oncology, transplants etc. besides cardiac pedigree) with a hospital in Cayman Islands

* BUY with a target price of | 650

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