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In-line 4Q; higher ARPOB drives hospital performance

Work-in-progress to improve Healthco sales/profitability

* Apollo Hospitals (APHS) delivered in-line 4QFY24 performance. The reduction in losses in Apollo Healthco continued to drive superior EBITDA growth on YoY basis. APHS continues to implement efforts to improve sales growth momentum and enhance profitability in Healthco over the medium term.

* We reduce our FY25/FY26 earnings estimates by 3% each, factoring in a gradual uptick in occupancy of hospital business and opex for new beds. We value APHS on SOTP basis (25x EV/EBITDA for hospital business, 12x EV/EBITDA for retained pharmacy, 20x EV/EBITDA for front end pharmacy, 24x EV/EBITDA for Apollo Health and Lifestyle (AHLL) and 2x EV/sales for Apollo 24/7) to arrive at a TP of INR6750.

* APHS has chalked out a plan to a) add 1,500 beds in existing markets, b) improve GMV/profitability in Healthco, c) add 500 stores for off-line pharmacy, and d) add labs/collection centers for the diagnostic business, thereby providing comprehensive healthcare solution. We maintain BUY on the stock.

Better patient realization, lower losses improve margins

* 4QFY24 revenue grew 15% YoY to INR49.4b (est. INR48.7b).

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

* Healthco revenue grew 12.6% YoY to INR20.3b.

* AHLL revenue grew 15% YoY to INR3.5b.

* EBITDA margin expanded 160bp YoY to 13% (our est: 12.8%) due to better operating leverage (employee expenses/other expenses down 70bp/50bp YoY as a % sales).

* EBITDA grew 31.2% YoY to INR6.4b (in line). Hospital EBITDA grew 11% YoY to INR5.9b. Healthco posted EBITDA of INR117m in 4QFY24 vs. INR720 loss in 4QFY23. AHLL EBITDA grew 40% YoY to INR357m.

* Adj. PAT jumped 47% YoY to INR2.5b (in line).

* For FY24, revenue/EBITDA/PAT grew 14.7%/16.6%/29.6% YoY to INR190b/ INR24b/INR9b.

Highlights from the management commentary

* Healthcare services growth would be more than 15%, led by volume growth and improved occupancy due to an increase in international patients.

* The revenue contribution from international patients should rise to 10% in FY25 from 7% in FY24.

* Cost optimization measures, along with growth in surgical volume, would drive a 150bp EBITDA margin expansion to 25% for the hospital segment in FY25.

* GMV would grow 50% YoY in FY25 for Apollo Healthco, led by an increase in private labels and customer acquisition. The company expects EBITDA breakeven for Apollo 24/7 in the next six to eight quarters

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