Buy Apollo Hospitals Enterprise Ltd For Target Rs. 8,100 - Prabhudas Liladhar Capital Ltd
In line quarter; Guided stable hospital margins
Quick Pointers:
* Hospital OPM guided at 24% (flat YoY) despite capacity addition in FY26
* Reiterated EBITDA break-even in 24x7 by 2HFY26; expects 30% jump in GMV.
Apollo Hospitals Enterprise (APHS) reported consolidated EBITDA of Rs7.7bn (up 20% YoY), was in line with our estimates. Adjusted for 24x7 losses and ESOPs cost (~Rs1.6bn), EBITDA was Rs9.3bn, up 18% YoY. The recent stake sale in HealthCo to Advent and merger with Keimed are a positive step and will lead to an integrated pharmacy distribution business complemented by the fastgrowing omni-channel digital health business. Scale-up in Apollo HealthCo has been on track with likely breakeven in EBITDA of digital business over the next 3-4 quarters. Further, the management guidance of Rs20bn EBITDA of the merged entity by FY28, provides comfort. Our FY26E and FY27E EBITDA estimates broadly remain unchanged. Overall, we estimate 16% EBITDA CAGR over FY25-27E (ex 24x7 losses). We maintain ‘BUY’ rating with TP of Rs8,100/share. We ascribe 26x EV/EBITDA multiple to hospital and offline pharmacy and assign 1x sales to the 24/7.
* In-line EBITDA; 16% YoY growth in hospital: Consolidated EBITDA at Rs7.7bn; up 20% YoY. 24x7 digital app expenses were at Rs1.15bn (flat QoQ) and higher ESOP related non-cash expenses of Rs 455mn in Q4 (Rs268mn in Q3). Pharmacy OPM adjusted for 24x7 improved by 30bps YoY to 8.3%. Apollo HealthCo reported EBITDA of Rs 364mn vs Rs 587mn in Q3. Overall hospital EBITDA growth was at 16% YoY with OPM of 24.3% (up 120bps YoY). AHLL reported EBITDA of Rs 472mn (up 32% YoY) with 12% OPM.
* Steady occupancy; healthy growth in ARPOB: Overall occupancy stood at 67% vs 68% in Q3 impacted by seasonal weakness and lower international patient footfalls, especially from Bangladesh. ARPOB was up 5% QoQ and 7% YoY to Rs63.6K; aided by higher surgical volumes and improved case-payor mix. Overall consol and hospital revenues grew by 13% and 10% YoY, while HealthCo registered 17% YoY growth in revenues. APHS had become net cash positive in Q2 due to the receipt of funds from the stake sale in HealthCo to Advent. Net cash stands at Rs 109mn vs Rs1.4bn QoQ.
Key con-call takeaways: 1) Bed expansion – The expansion plan of 3,577 census beds over the next 3–4 years is progressing well, with a total capex of Rs76bn, of which Rs 55.2bn remains to be deployed. New hospitals in Pune, Kolkata, and Sarjapur-1 to be operational in Q3. Sarjapur-2 (500-bed) greenfield project located nearby; both Sarjapur units to be operated as an integrated 1.5k bed hub in Bengaluru. Brownfield additions of 80beds each at Jubilee Hills and Secunderabad, targeted for commissioning in FY26. Hyderabad and Gurugram units are scheduled to be operational by March’26.
2) Hospitals – 140bps margin contraction is expected in FY26E due to expansion, offset by an 80bps gain from cost optimization and 60bps from improved payor/case mix and higher occupancy; hospital revenues will grow organically in the low-to-mid teens, with new expansions contributing an additional Rs 10bn in FY27E
3) Apollo 24x7 - EBITDA break-even is reiterated for 2HFY26 at Rs 10bn quarterly GMV, with FY26 GMV expected to grow 25–30%. ESOP costs are guided at Rs 1bn for FY26, declining to Rs 300–330mn in FY27E. GMV increased by 17% YoY to Rs 8bn. Digital platform 24x7 added 2 million new users. Insurance business is currently partnered with 4 insurers, with plans to go onboard with another 4 insurance companies. Insurance revenue has doubled since its Q1FY26 launch, with a FY26E target of Rs 750m. GMV-to-revenue conversion is expected to improve from 36–37% to 45–47% in FY27E as the insurance business scale up
4) HealthCo + Keimed – Reiterated combine target of Rs 250bn revenue with a 24% CAGR over FY25–27E, driven by +20% growth in Offline Pharmacy and Keimed, and 25–30% in 24x7. EBITDA margins of 7–8% to be supported by digital break-even, lower ESOP costs, and 40–50bps Keimed margin gains. Keimed merger to complete by 1QFY27.
5) Offline pharmacy – 596 net new stores were opened in FY25. Reiterated plans to open 600stores annually.
6) AHLL- Diagnostics revenue stood at Rs.1.3bn. expects high-teens revenue growth in Diagnostics, with 200–300bps margin improvement; long-term margin target of 20% driven by lab expansion and volume growth.
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