IGI Logo

Adding growth levers in hospital/healthco business

* Apollo 24/7 has launched insurance products on its online platform. It would be launching concierge service on its online platform as well. This would aid strong surge in GMV as well as expand margins of Apollo healthco (AHL).

* APHS has chalked out plans to add 2,860 beds over next 3 years n current base of 7,942 operating beds. Also, the occupancy remains at elevated level at 68- 69%, driving improved margins in hospital business as well.

* In the physical format, APHS plans to add ~570 Apollo 24/7 stores in 2HFY25. These measures is expected to provide comprehensive healthcare services to patient pool.

* We value the stock on an SOTP basis (32x 12M forward EV/EBITDA for the hospital business, 14x EV/EBITDA for the retained pharmacy, and 25x EV/EBITDA for AHLL, 22x EV/EBITDA for front end pharmacy and 2x EV/sales for Apollo 24/7) to arrive at our TP of INR8,020. Reiterate BUY.

Healthco – Renewed strategy to drive GMV/profitability

* Healthco has shown considerable improvement in profitability (from an operational loss of INR721 in 4QFY23 to EBITDA of INR520m in 2QFY25), aided by controlled opex and gradual improvement in offline pharmacy distribution margins. However, this affected its GMV run rate. Compared to 73% YoY growth in GMV in FY24, AHEL delivered a modest 5% YoY growth in GMV in 1HFY25.

* We expect growth revival in GMV will be led by the launch of its insurance, consultancy and diagnostic business. The concierge service is expected to be launched in 2HFY25. Apart from product introduction, AHL focuses on cost efficiency and targets to reduce opex per quarter to below INR1.2b by 4QFY25.

* APHS plans to add a total of 350-400 stores in FY25 with key focus in Chhattisgarh, MP and Jharkhand. The store addition run-rate is expected to increase in 2HFY25. Further, the APHS has worked on offerings in pharmacy to increase the revenue per store to INR13.3m from INR11.8 in FY22. APHS indicated same store sales YoY growth to be 10% over 15-18M.

* With funds received from Advent and strategic reset, we expect strong improvement in performance from Operational loss of INR817m to EBITDA of INR6b by FY27.

Hospitals: Metro focused capacity expansion plans

* Post stable operating beds for past two years, APHS plans to expand its bed capacity considerably by 26% (~2,860 beds) with capex of INR34b.

* APHS is planning to add major capacity in south (44% new bed addition) and north (33% of new bed addition). While west and east has 14%/ 8% share in bed addition.

* APHS’s Metro: Non-Metro share stood at 57:43 as of Sept’24. With majority bed addition coming in metro cities, the share of metro beds is expected to go up going ahead.

* The improved occupancy at 68-69% also provides impetus to increase the bed capacity to cater to future patient flow. Particularly, the occupancy in Metro region has touched 70% now.

AHLL – Focussed efforts to expand diagnostic network

* AHLL has scaled its efforts in diagnostic business with not only addition of 818 labs over past two years, but also improved average realization per patient.

* Further, it has been able to increase its reach through its online platform, thereby driving better overall profitability

* Overall, we expect 12%/20% sales/EBITDA CAGR in this segment to INR19.4b/INR2b over FY24-27.

Valuation and view

* We expect 20%/ 18% EBITDA/PAT CAGR over FY24-FY27 fueled by a) adding newer offerings and controlled cost driving better profitability of Healthco b) higher number of patients being treated through adding beds/better occupancy, and c) healthy execution in diagnostic business.

* We value the stock on an SOTP basis (32x 12M forward EV/EBITDA for the hospital business, 14x EV/EBITDA for the retained pharmacy, and 25x EV/EBITDA for AHLL, 22x EV/EBITDA for front end pharmacy and 2x EV/sales for Apollo 24/7) to arrive at our TP of INR8,020. Reiterate BUY.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412