After declining around 20 percent this year (2022 YTD), Elara Capital expects Apollo Hospital Enterprises to see an upside of around 40 percent in the next 1 year.
Higher occupancy and specialized surgeries at mature and new facilities and the addition of new pharmacy stores are expected to boost growth, noted the brokerage. However, it cut the stock's earnings estimates by 6 percent for FY23E and 5 percent for FY24E to factor in moderation in occupancy.
"We reiterate Buy with a target price of ₹5,125 from ₹5,700 ascribing 20x (from 22x) EV/EBITDA to hospitals and 22x (from 24x) EV/EBITDA to pharmacy," it said in its note.
In the March quarter (Q4FY22), Apollo Hospitals' EBITDA stood at ₹420 crore, down 23 percent QoQ, due to lower occupancy at the hospitals and higher costs incurred for the 24/7 app.
Q4 revenue also fell 3 percent QoQ to ₹3,550 crore vs its estimates of ₹3,620 crore, due to lower occupancy, the brokerage pointed out. It added that the firm's healthcare business declined 8 percent QoQ and Apollo Health & Lifestyle’s revenue fell 1 percent QoQ.
Elara further stated in its report that in Q4FY22, new hospitals’ occupancy stood at 55 percent vs 60 percent in Q4FY21 and that for mature hospitals at 60 percent vs 64 percent last year.
The average revenue per bed (ARPOB) stood at ₹48,510, up 12 percent YoY, on better inpatient flow and a rise in high-end surgeries, it added.
"Increased high-end surgeries, the shortened average length of stay of 4.0 days vs 4.1 in Q3, rise in overseas patients and better payer mix should improve ARPOB by 3-4 percent in FY23E," said Elara.
Recently, the firm deferred plans to divest a minority stake in Apollo Health (AHL) by six months. AHL will have 500 stores in India and improve online traction through the 24/7 app. It targets to achieve $3 billion in gross merchandise value (GMV) in two years AHL’s expansion plans will be funded through internal accruals of pharmacy and healthcare services, highlighted the brokerage.
Going ahead, as per the brokerage, increased high-end and complex surgeries may improve profitability and expand margin. Further, Brownfield expansion and acquisitions may also bolster the hospital segment revenue while the Pharmacy and diagnostics businesses may see strong traction, aided by the 24/7 app. These are the key upside risks, noted Elara.
However, the firm has invested significantly in its 24/7 online platform and any delay in business ramp-up may mar profitability, said the brokerage. Also, regulatory changes in pricing would affect profitability as well as any lockdowns or similar situations would hurt operations.
The brokerage sees healthcare services growth in FY23 in the mid-teens and margin improving by 150-200 bps. Further, new hospitals to touch a 17 percent margin in the near term and offline pharmacies will grow 20 percent due to new store addition, it forecasts.
24/7 will also witness rapid growth. It is clocking quarterly gross merchandise value (GMV) of ₹200 crore and the run-rate will double in FY23, added Elara. Also, Tie-up with Amazon is expected to bolster sales from November 2022, it noted.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
