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Superior execution across segments

Work-in-progress to add beds/improve GMV

* Apollo Hospitals (APHS) delivered in-line 1QFY25 performance. The hospital business was largely driven by higher volume of in-patients/out-patients, while AHLL continued to post healthy sales/profitability across diagnostics, primary and secondary care segments. APHS continued to reduce operational costs at Healthco. However, GMV growth moderated.

* We raise our FY25 earnings estimate by 4%, factoring in better profitability in AHLL and reduced opex in Apollo 24/7. We value APHS on SOTP basis (30x 12M fwd EV/EBITDA hospital business, 12M fwd EV/EBITDA for AHLL, 22x 12M fwd EV/EBITDA for front end pharmacy) to arrive at a TP of INR7,940.

* The company is implementing efforts to commission acquired hospitals after refurbishing/adding medical equipment, get regulatory approval for its greenfield hospital project, and optimize Apollo 24/7 business. Accordingly, we estimate a 21% EBITDA CAGR and a 41% earnings CAGR over FY24-26. Maintain BUY.

Better volume growth, reduced Healthco losses drive earnings

* Revenue grew 15% YoY to INR50.9b (est. INR50.1b).

* Healthcare services revenue rose 16.8% YoY to INR25.6b.

* Healthco revenue was up 15.3% YoY at INR20.8b.

* AHLL revenue increased 14.9% YoY to INR3.7b.

* EBITDA margin expanded by 180bp YoY to 13.3% (our est: 13.5%) due to lower employee/other expenses (down 50bp/150bp YoY as % sales).

* EBITDA margins for (i) Healthcare services stood at 23.6%, (ii) Diagnostic and retail health at 8.4% (+110bp YoY) and (iii) Digital health at 1.1% (vs EBITDA loss in 1QFY24)

* EBITDA grew 32.6% YoY to INR6.8b (in line).

* Adj. PAT rose 83% YoY to INR3.1b (our est: INR3b).

Highlights from the management commentary

* Healthcare services growth would be in mid-teens, led by volume growth and improved occupancy.

* Cost optimization measures, along with better case mix/payor mix and focus on international patients, would drive a 100bp EBITDA margin expansion to 25% for the hospital segment in FY25. Beyond FY26, EBITDA margins are expected to fall ~100-150bp owing to capacity expansion.

* The revenue contribution from international patients is expected to rise to 8-10% in FY25, up from 6% in 1QFY25. Bangladesh accounts for ~30% of international revenue. While volumes have dropped, a rebound is anticipated via expansion in other markets.

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