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Apollo Hospital reported earnings above our expectations, whereas the revenue was in line. Revenue stood at INR 55,893 mn, reflecting a growth of 15.3% YoY and 9.9% QoQ, driven by strong performance across the key segments. EBITDA saw a significant growth of 30% YoY and 20.8% QoQ to INR 8,155 mn, with the margin expanding by 164bps YoY and 132bps QoQ to 14.6%. ARPOB for the healthcare segment grew by 2.8% YoY, reaching INR 59,011. International patients contributed 6% to the revenue. The company expects that the factors including increased surgical volume, future case mix, and payer mix will continue to drive the ARPOB growth in the future.

* Healthcare Services: Hospital revenue grew by 14% YoY and 10.1% QoQ to INR 29,032 mn, driven by an optimized payor mix, wherein insurance patients saw a YoY growth of 13%, while the revenue from cash patients grew by 15% and due to seasonality, occupancy stood at 73%. EBITDA grew by 13.8% YoY to INR 7,220mn, with a margin of 24.9%. IP volumes grew by 8% annually, and tertiary care specialties like neurosciences, oncology, and gastro-sciences grew at a very healthy rate. The growth was achieved despite outside challenges including the flow of patients from Bangladesh, the prolonged delay in Kolkata, and the effects of the rains in Mumbai and Ahmedabad. Apollo is well poised to commission 6 facilities with around 1,400 operational beds in key strategic metro markets like NCR, Hyderabad, Kolkata, Pune, and Bangalore in FY26.

* AHLL and Diagnostics: AHLL's revenue grew by 14.0% YoY and 10.3% QoQ to INR 4,039 mn, primarily driven by the maturing network. AHLL recorded an EBITDA of INR 410mn, delivering a 30% YoY growth, and an improved margin of 10.3%. Apollo plans to become a leader in Gynecology, IVF & Oncology testing. Diagnostics revenue and EBITDA grew by 9% and 21% YoY respectively due to an increase in productivity.

* Digital Health and Pharmacy Distribution: The revenue for this segment grew by 17.3% YoY and 9.6% QoQ to INR 22,822mn. It has reported its first-ever quarterly profit with a PAT of INR 190mn, contributing to a sharp improvement in the consolidated PAT. The digital health sector, through the Apollo 24*7 app, saw a user registration increase of 2mn, bringing the total to around 36mn. The company also added 154 net new stores, bringing the total number of pharmacy stores to 6,228. Private label and generic revenues were at 16.7% of total pharmacy revenue.

* Outlook & Valuation: The growth story of Apollo Hospitals is based on several factors, including increased volume and bed capacity in the healthcare service business, continuous addition of pharmacy stores, and margin expansion on a consolidated level. We expect Revenue/EBITDA/PAT to grow at a CAGR of 17%/22.8%/37.3%. We have introduced FY27E and valued the stock through a SOTP analysis, resulting in a target price of INR 8,702 with a BUY rating on the stock.

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