Buy Apollo Hospitals Ltd For Target Rs.7,880 by Motilal Oswal Financial Services Ltd
Broad-based growth across segments
GMV reset to drive profitable growth for Healthco
* Apollo Hospitals Enterprises (APHS) delivered in-line 3QFY25 performance. APHS delivered broad-based growth across hospitals, Healthco (online/offline pharmacy), as well as the Health and Lifestyle (AHLL) segment. APHS delivered healthy growth in realization per patient/number of patients treated. The GMV was stable on a sequential basis.
* We cut our earnings estimates by 4%/5% for FY26/FY27, factoring in moderation in GMV for Apollo 24/7 and an increase in opex related to the commissioning of newer hospitals. We value APHS on an SOTP basis (32x EV/EBITDA for the hospital business, 15x EV/EBITDA for retained pharmacy, 23x 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 INR7,880.
* We remain positive on APHS, aided by 1) a steady improvement in occupancy of existing hospitals, 2) expanding total bed capacity through M&A/brownfield/greenfield routes, 3) enhancing offerings under Healthco, and 4) improving reach for the AHLL business. Accordingly, we model a 16% EBITDA CAGR over FY25-27. Reiterate BUY.
mproved occupancy & realization and reduced opex for Apollo 24/7 lead to a 24% YoY EBITDA growth
* APHS’ 3QFY25 revenue rose 13.9% YoY to INR55.3b (est. INR54.5b). Healthcare services’ revenue grew 13% YoY to INR27.8b. Healthco's revenue grew 15.3% YoY to INR23.5b. AHLL revenue grew 15% YoY to INR3.9b.
* EBITDA grew 24.1% YoY to INR7.6b (in line with estimates).
* EBITDA margin for 1) Healthcare services stood at 24.1% (+30bp YoY), 2) AHLL was 8.8% (+110bp YoY), and 3) Healthco segment was 2.4% (+230bp YoY). The overall EBITDA margin expanded 110bp YoY to 13.8%.
* Adj. PAT grew 51.8% YoY to INR3.7b (our est: INR3.5b).
* ARPOB grew 8% YoY to INR60.8k, with occupancy of 68% (+200bp YoY) in 3QFY25.
* GMV for Apollo 24/7 grew 11% YoY to INR7.6b in 3QFY25.
* Max added 132 offline pharmacy stores in 3Q, bringing the total to 6,360.
* Revenue/EBITDA/PAT grew 15%/29%/64% to INR162b/INR22.5b/INR10.6b in 9MFY25.
Highlights from the management commentary
* All the necessary regulatory approvals are in place for insurance products through Apollo 24/7. Three life insurance and three health insurance companies would be onboarded soon, and the business would be reflected from 4QFY25 onwards.
* APHS is working on the recalibrated cost structure for Apollo 24/7 and subsequently would indicate the growth prospects in this segment. INR9bINR10b quarterly GMV would enable EBITDA to break even in Apollo 24/7.
* Pune, Kolkata, and Delhi would start in 1HFY26, followed by Gurgaon and Hyderabad in 2H. Expect Kolkata/Delhi to have an EBITDA break-even in 12M.
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