Buy Apollo Hospitals Enterprise Ltd For Target Rs. 8,800 By JM Financial Services
Integrated healthcare play in India
Established in 1983 by Dr Prathap C Reddy with a single hospital in Chennai, Apollo Hospitals has grown to become India’s largest integrated healthcare services provider. Today, the company operates 51 hospitals, 267 clinics and over 6,600 pharmacies, and it has a growing presence in diagnostics and distribution across India. Unlike peers that primarily focus on standalone hospital expansion, Apollo has adopted a differentiated strategy aimed at leveraging synergies across its healthcare ecosystem.
For investors, the key value drivers include – 1) renewed focus on hospital bed expansion, 2) consolidation of the pharmacy business, 3) growth of the 24|7 online healthcare platform, 4) integration of specialty clinics and 5) margin expansion in the diagnostics business.
With 1,717 beds being added, an 8% annual increase in pharmacy outlets, and improving operating leverage in the 24|7 segment, we project Apollo to deliver 17% / 21%/ 28% revenue / EBITDA / PAT CAGR FY25-FY28 respectively—comparable to or better than smaller peers in the hospital industry. Valuing the business on a SOTP basis, we arrive at a target price of INR 8,800, implying a 20% upside. We initiate coverage with a BUY rating
Balanced growth in hospitals: Apollo is pursuing balanced growth over the next 3–5 years, with a focus on both case/payer mix improvement and capacity expansion. It has announced plans to add 3,577 beds over this period with a planned capex of INR 55bn over the horizon, with a significant portion of these additions to come online in FY26–27, and the remainder likely to be commissioned after FY28. This phased rollout provides a buffer to maintain healthy margins in the interim. Also, focus on high-value CONGO therapies— particularly oncology—will support strong ARPP/ARPOB trends, helping offset initial losses from greenfield units. We estimate the hospital segment to grow at 13.9%/14.3% revenue/EBITDA CAGR FY25-FY28, with EBITDA per occupied bed improving from INR 4.9mn to INR 6.2mn by FY28.
Pharmacy business consolidation to drive synergies: With ~6,600 outlets (1.4x the 2nd largest), Apollo operates the largest pharmacy network in India. The integration of the 24|7 online platform and the Keimed merger are likely to further accelerate growth, as the company expands online sales and strengthens private label offerings through Keimed (merger priced in separately in valuation). With an improving product mix, synergy realisation, and greater operating leverage, we project the segmental margin to improve from 1.8% to 6.5% by FY28, with top line growth at 20.2% CAGR over FY 25-28.
AHLL margin expansion in sight: Apollo Health & Lifestyle Limited (AHLL) focuses on primary care, single-specialty services, and diagnostic centres. Growth to date has been driven by its primary and specialty care segments; steady low-teens growth is expected in these sub-segments. With aggressive expansion plans underway, the recently restructured diagnostics is expected to see mid- to high-teens growth, along with margin expansion. Overall, we are anticipating EBITDA margin expansion of 410bps by FY28 for AHLL.
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
