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Strong performance to drive growth

Apollo Hospitals Enterprise Ltd. (Apollo) operates the largest network of about 73 hospitals and more than 6,000 pharmacies in India.

* In Q4FY24, consolidated revenue increased 15.1% YoY to Rs.4,972cr, driven by healthy performance across all segments.

* EBITDA surged 32.5% YoY to Rs. 669cr, with margins reaching to 13.4% (+170bps YoY) owing to higher topline and cost optimisation efforts.

* Apollo reported strong Q4 results with higher sales and improved margins. The company has been actively expanding its operations by adding new beds and hospitals, increasing surgical volumes, and broadening its test menu. These efforts are expected to boost the company's earnings potential in the future. Therefore, we upgrade our rating to BUY from HOLD on the stock with a revised target price of Rs. 7,059 based on a sum-of-the-parts (SOTP) valuation.

Robust segment performance drives topline

In Q4FY24, the consolidated revenue increased 15.1% YoY to Rs. 4,972cr, driven by significant growth across various segments. Healthcare services experienced a 15.8% YoY rise to Rs. 2,580cr, primarily due to increased self-pay and insurance volumes, along with a 12% YoY increase in the average revenue per occupied bed. Overall occupancy improved to 65% from 64% in Q4FY23, supported by an increase in patient flow. Digital health and pharmacy distribution revenue climbed 12.6% YoY to Rs. 2,027cr, fuelled by 7% YoY growth in the average order value for pharmaceuticals and an expansion in the user base. Retail health and diagnostics experienced 14.7% YoY growth to Rs. 354cr, driven by higher footfalls. EBITDA grew 32.5% YoY to Rs. 669cr, with margins improving by 170bps YoY to 13.4% owing to increased topline and reduced employee costs (accounting for 13.0% of sales in Q4FY24 vs. 13.7% in Q4FY23). As a result, reported profit after tax rose 77.5% YoY to Rs. 258cr, owing to increased share of results of associates.

Merger with Keimed to drive synergies.

The company plans to raise Rs. 2,475cr equity capital from Advent International for Apollo HealthCo Limited (AHL) through two tranches. It also aims to integrate Keimed Private Limited with AHL gradually. This merger should establish a robust pharmacy distribution business with a nationwide presence. The combined enterprise value of AHL and Keimed will be Rs 22,481cr. After the merger, AHL will retain the largest controlling stake of at least 59.2%. The merger is pending regulatory approval.

Key concall highlights

* The company plans to open four new hospitals with 1,500 beds in the existing market to drive growth. It is expected to open its new hospitals in Gurgaon, Kolkata, Hyderabad, and Pune between 2025 and 2026.

* Apollo was the first to open India AI’s precision oncology centre at the Apollo Cancer Centre in Bengaluru.

* The company anticipates revenue from international patients to increase to 10% of sales in FY25 from 7% in FY24.

Valuation

Apollo has been expanding its segments to drive profitability. This expansion includes adding new beds and hospitals, as well as increasing surgical volumes through innovative therapies. The company also expects to reach break-even in its full 24/7 digital business in the coming quarters. In addition, the diagnostics business is expected to perform well, supported by an enhanced test menu that should aid margin growth. AHL is also likely to experience growth, driven by synergies from the integrated entity. Hence, we upgrade our rating to BUY on the stock with a revised target price of Rs. 7,059 based on the SOTP valuation.

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