Buy Apollo Hospitals Ltd for the Target Rs. 9,600 by Choice Institutional Equities
Capacity expansion strengthens growth visibility: Hospital segment revenue is projected to grow through capacity expansion, with plans to add ~3,400 beds by FY30 alongside a sustained EBITDA margin of 24–25%. The diagnostics arm (AHLL) is expected to deliver ~16% revenue CAGR over FY26–29E and maintain mid-teen EBITDA margin, supported by expansion in primary care and diagnostic services. Apollo HealthCo (pharmacy) aims to achieve ~20% CAGR over FY26–29E, driven by private label growth, digital breakeven and operating leverage benefits. The company has also announced the divestment of its Apollo Cradle and Fertility business to combine with Cloudnine; however, we have not incorporated this into our estimate, as it contributes less than 2% to overall revenue.
View and valuation: We forecast Revenue/EBITDA/APAT to expand at a CAGR of 16.8%/19.5%/24.4% over FY26–29E. Valuing the stock on FY28E SoTP, we revise our target price to INR 9,600 (from INR 9,000) and ‘BUY’ rating on the stock (maintained). We value Hospitals at 22x EV/EBITDA, AHLL at 10x EV/EBITDA and HealthCo at 3x EV/EBITDA (refer Exhibit 2).
Result is in line with estimate; strong YoY growth on all fronts
* Revenue came in at INR 66.1 Bn (vs. CIE est. at INR 65.4 Bn), up 18.1% YoY and 2.0% QoQ, driven by increase in volume and better case mix.
* EBITDA came in at INR 10.1 Bn (vs. CIE est. at INR 9.9 Bn), up 31.3% YoY and 4.7% QoQ. EBITDA margin came in at 15.3% (vs. CIE est. of 15.2%).
* Adj PAT came at in INR 5.3 Bn (vs. CIE est. of INR 5.1 Bn), significantly up 35.9% YoY and 2.4% QoQ, with a PAT margin of 8.0%
Aggressive capacity expansion strengthens growth visibility: APHS is entering a powerful expansion cycle with ~1,400 new beds being added across key metro markets including Pune, Hyderabad, Kolkata, Sarjapur and Gurugram. Of this, 185 beds are already operational while the remaining beds are expected to ramp up in the next 12–18 months. This addition represents ~25% capacity expansion in core markets. APHS expects the new hospital cluster to break even by FY28E at 50–55% occupancy, indicating a strong operating leverage potential. We believe APHS’s calibrated expansion into high-demand tertiary care markets can sustain mid-teen hospital growth and materially strengthen long-term earnings visibility.
Diagnostics and primary care creating long-term funnel: APHS is aggressively scaling up diagnostics and primary care, which creates a longterm patient acquisition funnel into its hospital ecosystem. The management highlighted that diagnostics has now emerged among the top four players nationally, supported by increasing lab utilisation, B2B expansion and deeper metro penetration. Following the Cloudnine transaction, APHS plans to redeploy capital towards diagnostics and primary care expansion across metro and nonmetro markets. We believe this ecosystem-led strategy materially strengthens preventive healthcare engagement, cross-selling opportunities and long-term consumer stickiness across APHS’s integrated platform.
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