Buy Apollo Hospitals Enterprise Ltd for the Target Rs. 8,788 by JM Financial Services Ltd
Apollo reported a strong 1Q, with revenue/EBITDA/PAT growing 14.9%/26.2%/42.9% YoY. The EBITDA margins expanded 131bps to come in at 14.6%. The growth in top-line was led by a healthy growth across hospitals (+11% YoY on a large base), AHL (+19% YoY) and AHLL (+19% YoY). In hospitals, the management guided for 13-14% growth guidance led by volume expansion, and 25% segmental EBITDA. In AHL, the segment continued strong growth across both offline pharmacy and distribution business, with the breakeven in the latter guided by 4QFY26 (GMV requirement – INR 8-9bn vs current INR 7bn). The AHLL segment continues to focus on Diagnostics growth, with the margins impacted by one-offs of Chennai expansion. We remain positive on the company’s prospects – with the renewed focus on bed expansion, strong growth prospects across both the offline pharmacy network as well as the digital pharmacy, greater visibility on 24/7’s breakeven and Keimed merger; and expect the revenue/EBITDA/PAT to grow at a CAGR of 17%/21%/27% over FY25-28. Thus, maintain BUY with a TP of INR 8,788.
* Hospitals: The segmental revenue grew 11% YoY and EBITDA rose 15% YoY. Growth driven by ARPP (+9% YoY, came in at INR 1,72,282). ARPP growth aided by 4–5% tariff hikes and improved case mix, with Gastro and Ortho up 16% and 17% YoY, respectively. International patients contributed 5% to the mix. However, it is targeted to reach 7% by FY26-end and 10% in FY27, with higher ARPP from Bangladesh despite lower volumes, and growth from Africa, Middle East, South East Asia, Malaysia, Philippines, and Iraq. The management aims to lift the segmental margins from existing units to 25+%, though new units are expected to create a temporary ~INR 1.5bn EBITDA drag over the next couple of years; with a 100 bps EBITDA margin dip anticipated in FY26–FY27 before recovery. The management reiterated the FY26 top-line growth guidance of 13–14%, to be driven by volume expansion, secondary care, CONGO, a picking up in international patients in 2Q–3Q from new markets, and a greater share of complex procedures.
* AHL (Pharmacy and 24/7): The segmental revenue rose 19% YoY, with offline pharmacy at INR 21,630mn (+18% YoY) and digital at INR 3,080mn (+26% YoY). The offline network grew to 6,742 (+ 116 QoQ). Apollo 24/7 GMV was INR 6,820mn (+23% YoY, +8% QoQ; historical restated for hospital contribution). The digital breakeven is expected at INR 8–9 bn GMV, with breakeven on track for 4QFY26. Insurance revenue was INR 50 mn vs. INR 70 mn target, affected by tech delays at partners’ end. Private labels formed 14.6% of total pharmacy sales (15.8% for offline), while daily orders averaged 74K vs. 60K last year. FY26 guidance remains 17–18% offline revenue growth, aided by 600 openings, mainly in Central and South regions; and digital GMV guidance of INR 30–32 bn (+25-30% YoY) with GMV-to-revenue conversion of 45-46%.
* AHLL (Diagnostics and Specialty clinics): Gross revenue grew 19% YoY, driven by network maturity in diagnostics and primary care. Diagnostics grew +31% YoY, supported by a strategic focus on volumes. However, Diagnostics’ margins were impacted by the Chennai Laboratory launch, with normalized EBITDA margin at 10.3% versus the reported 7.8%.
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