While Apollo Hospitals has increased its operating bed capacity by just 700 beds, a 10% increase over FY19-24 (versus 25% over FY14-19), its sales/Ebitda saw a 14/21% CAGR over FY19-24, driven by an 11% CAGR in average revenue per occupied bed and post-Covid occupancy improvement.
HDFC Securities Institutional Equities
Apollo Hospitals Enterprise Ltd. has consistently delivered steady performance over the last several quarters, driven by:
- steady growth in its hospital business (52% of sales) with margin improvement,
- strong growth in HealthCo (41%) with a sharp improvement in margin due to a reduction in Apollo 24/7 spending, and
- expansion-led growth in Apollo Health and Lifestyle Ltd. (7%).
Going forward, we expect:
- the hospitals to experience steady growth driven by a combination of occupancy improvement and mid-single-digit growth in average revenue per occupied bed from an improving case/payor mix; the phase-wise bed addition of 1,700+ over FY25-27 will provide growth visibility while limiting the drag on margins.
- HealthCo to see strong scale-up driven by steady growth in offline and the expansion of the Apollo 24/7 business, with continuous cost reductions to improve margins.
- Apollo Health and Lifestyle to see strong growth from network expansion, and the company expects 100-150 bps margin expansion over the next few years.
Given steady sales growth, margin expansion, and improved return ratio visibility, we maintain a Buy rating. We have rolled forward our target price to Rs 7,520, based on a 25x blended FY27E enterprise value/Ebitda, assigning:
- EV/E of 25x to the hospital business,
- EV/E of 17x to the offline pharmacy, and
- EV/E of 21x to Apollo Health and Lifestyle.
