Buy Apollo Hospitals Enterprise Ltd For Target Rs.10,000 by Prabhudas Liladhar Capital Ltd
Strong show in hospital segment
Apollo Hospitals Enterprise (APHS) reported consolidated EBITDA of INR10.9bn; improved 28% YoY, which was 4% above our estimates. Adjusted for 24x7 losses and ESOPs cost (~INR910mn), EBITDA was at Rs11.8bn, up 22% YoY. The stake sale in HealthCo to Advent and merger with Keimed are positive moves toward an integrated pharmacy and digital health platform, with Apollo HealthCo scaling up well and its digital business on track for EBITDA breakeven in coming quarters. The management guidance of INR16.5-17.5bn EBITDA of the merged entity by Q4FY27 (exit run-rate) provides comfort. Further, mgmt. has also announced the demerger of its Omnichannel Pharmacy business, 24*7, and telehealth business into a newly listed entity with an aim to unlock value by creating a focused, high-growth platform in the pharmacy and digital healthcare space, which is more consumer centric in nature. Overall, we estimate 25% EBITDA CAGR over FY26-28E. We maintain ‘BUY’ rating with revised TP of INR10,000/share. We ascribe 27x EV/EBITDA multiple to hospital, 25x to offline pharmacy and 20x to AHLL.
Strong quarter; hospital EBIDTA growth at 20% YoY:
Consolidated EBITDA improved 28% YoY to INR10.9bn; 4% beat to our estimate. 24x7 digital app expenses were increased by INR~79mn QoQ to INR 811mn while ESOP related non-cash expenses declined to INR99mn (INR 227mn in yQ4). Pharmacy OPM adjusted for 24x7 largely flat YoY and QoQ to 8.8%. Apollo HealthCo reported EBITDA of INR1.7bn vs INR1.56bn in Q4. Hospital EBITDA grew 20% YoY to INR8.6bn despite INR380mn losses from new units; excluding these losses, growth stood at 25% YoY with adjusted OPM exceeding 25.9%. AHLL EBITDA increased 46% YoY to INR590mn, with OPM expanding 250bps YoY to 11.8% driven by diagnostic business.
Healthy occupancy and ARPP growth:
Overall occupancy improved 500bps YoY to 70% vs 65% in Q1FY26. ARPP growth was up 8% YoY to ~INR186.6K; driven by improved clinical case mix. ALOS improved to 3.09 days from 3.14 days YoY. Overall hospital revenues grew by 22% YoY, while HealthCo registered 20% YoY growth in revenues. PAT came in at INR 5.8bn; improved 34% YoY and 6% above our estimates. Net debt reduced by INR 1.2bn to INR 7.5bn.
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