Apollo Hospitals' Stock Gains As Analysts Raise Price Targets After Q1

Shares of Apollo Hospitals Ltd. gained after analysts hiked price targets on the company, citing a recovery in its core hospitals business and increasing traction for its digital platform, among others.

The Chennai-based hospital chain operator posted a 31% sequential jump in revenue at Rs 3,760.2 crore in the quarter ended June. That compares with the Rs 3,117.3-crore consensus estimate of analysts tracked by Bloomberg.

Highlights (QoQ, Consolidated)

• Net profit surged 191% to Rs 489.3 crore, against the estimated Rs 165.7 crore.

• Ebitda up 26% at Rs 519.9 crore, compared with the Rs 434.9-crore forecast.

• Margin stood at 13.8% versus 14.4%. Analysts had pegged the metric at 14%.

The consolidated revenue of the healthcare services division increased 15% sequentially to Rs 1,482.7 crore. The company's omnichannel healthcare platform Apollo 24x7, announced in the quarter ended March, also received 1 crore registrations as of June. Apollo said it was seeing more than 20 lakh weekly active users on it.

Shares of Apollo Hospitals gained as much as 6.5% to Rs 4,329.95 apiece as of 12 p.m. on Monday. Of the 24 analysts tracking the stock, 21 have a ‘buy’ rating, and one each recommend a ‘sell’ and a ‘hold’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 6.7%.

Here's what brokerages made of Apollo Hospitals' Q1 performance:

Morgan Stanley

• Maintained 'overweight' stance, raised target price from Rs 3,602 to Rs 4,743, implying a potential upside of 17%.

• Key themes for Apollo include recovery in core hospitals business, continuing momentum in pharmacies and scale up and monetisation of its nascent healthtech platform.

• Travel resumption will help in core business volume recovery. Margins should improve in mature hospitals to 25% (22% in Q1) and 20% in new hospitals (16% in Q1).

• Strong pharmacy supply chain, home delivery across 16,000 pincodes and online presence should build an omnichannel platform.

CLSA

• Upgrades to 'outperform' from 'sell', raises target price to Rs 4,420 from Rs 2,900, implying a potential upside of 9%.

• Strong quarter for pharmacy and new hospital occupancy at a record high

• "The traction of the stake sale in Apollo Hospitals, the recent peer transaction and a rising share of private labels sees us raise out target multiples."

• A big valuation surprise would be required to drive significant upside.

• Ebitda and net profit were ahead of estimates, boosted by the contribution from Covid-19-linked services like vaccines and diagnostic tests.

• Brownfield expansion plans for hospitals are underway and unlocking for the healthcare technology platform, Apollo HealthCo, is expected in two months.

Kotak Institutional Equities

• Maintains 'add' rating, raises target price to Rs 4,400 from Rs 3,400, implying a potential upside of 8.2%.

• While traditional verticals remain on a strong footing, Apollo is also executing well on the digital front with 24/7 witnessing strong traction.

• 24/7 has already enhanced its brand visibility through robust marketing and with the impending fundraise in HealthCo, Apollo Hospitals can better compete with other e-health players and accelerate its digital journey.

• All segments benefitted from the impact of Covid, with vaccinations, RT-PCR tests and Covid patients driving growth.

• Impressed by Apollo’s execution across segments and raises FY2022-24 Ebitda estimates by 6-7% led by higher growth in pharmacy and Apollo Health & Lifestyle Ltd. business.

Jefferies

• Maintains ‘buy’ rating, raises target price to Rs 4,699 from Rs 4,303, implying a potential upside of 15.7%.

• Apollo reported an 18% beat on revenues and Ebitda, driven by strong Covid-related sales in hospitals as well as better-than-expected vaccination numbers.

• Surprisingly average revenue per occupied bed was up sequentially, despite a higher component of Covid sales.

• The company provided fresh color on 24/7 revenue targets and spending. Management expects Apollo Pharmacy to continue growing at 18-20% per annum, driven by store expansion. The company is looking for both strategic or financial investors in the Apollo HealthCo (Newco, Pharmacy+24/7).

ICICI Securities

• Maintains ‘add’ rating, raises target price to Rs 4,312 from Rs 3,466, implying a potential upside of 6.2%.

• Apollo Hospitals Enterprises’ Q1FY22 performance was better than estimate led by strong recovery in occupancies along with average revenue per occupied bed, stockpiling by pharmacy customers during second Covid-19 wave and incremental revenue from vaccination.

• However, margins were low due to lower margins in vaccination business and costs relating to 24x7 initiative.

• Remains positive on Apollo’s long-term outlook considering its strong brand and pan-India presence in the hospital segment, margin expansion potential and aggressive focus on creating digital networks for pharmacy, doctor consultation, clinics and diagnostics.