Apollo Hospitals’ Stock Hits A Record High As Analysts Up Targets After Q4
Here's what analysts made of Apollo Hospitals' Q4 results.
Shares of Apollo Hospitals Ltd. jumped to a record high as analysts hiked target prices for the hospital chain operator after the fourth quarter, citing reorganisation of its pharmacy and digital platform 24/7, and vaccination opportunity amid the pandemic, among others.
The Chennai-based hospital chain posted a revenue of Rs 2,868 crore in the January-March period, a 2% fall over the year earlier.
Its profit after tax fell 23.5% to Rs 168 crore.
Ebitda, however, rose 8% year-on-year to Rs 412 crore.
“The last financial year saw the healthcare sector facing unprecedented challenges with the pandemic leading to a massive crisis and putting immense pressure on the healthcare infrastructure. On the financial front, Apollo has bounced back and posted strong results in the second half of FY21, with a strong base to build on for FY22,” Chairman Prathap C. Reddy said in a statement.
“Our focus on further AI-related initiatives continues. FY22 will see a significant acceleration of our efforts to reach the goal of complete digitisation of all services,” he said.
Apollo Hospitals has reorganised its backend pharmacy plus Apollo 24/7 into a 100% subsidiary, Apollo HealthCo. Ltd., through a slump sale, aiming to create an omni-channel healthcare platform. “This platform will combine the strengths of Apollo Group’s offline healthcare leadership with Apollo Group’s new-age digital offerings to address all healthcare consumer needs,” it said in an investor presentation.
Apollo Hospitals also said it completed the acquisition of balance 50% stake in Apollo Gleneagles Hospital Ltd., Kolkata for Rs 410 crore. It even completed the acquisition of a majority stake in Apollo Medics, Lucknow.
Shares of Apollo Hospitals gained as much as 7.6% to Rs 3,446 apiece around 11:40 a.m. on Friday. Of the 24 analysts tracking the stock, 21 have a ‘buy’ rating, and three recommend a ‘sell’, according to Bloomberg data. The stock has gained 36.6% so far this year compared with an 11% rise in the S&P BSE Sensex.
Here’s what analysts made of Apollo Hospitals’ Q4 results:
Jefferies
Upgrades to ‘buy’ from ‘hold’, raises target price to Rs 3,782 from Rs 2,447 apiece.
Apollo announced a reorganisation of its business, with Pharmacy+ digital platform 24/7 being put into a 100% subsidiary. The reorganisation frees up Apollo 24/7 to pursue an independent strategy while enjoying the Apollo brand.
Apollo enjoys pan-India brand recognition, has a large doctor force, and has over 4,000 pharmacies that can fill orders for the e-pharmacy arm. Apollo has set a target of attaining 100 million customers in its digital foray in five years.
Apollo provides one of the best ways to play the themes of pharma retail/e-health in India.
China companies act as a benchmark for the still-nascent Indian e-health. Apollo is benchmarking itself against Ping An Good Doctor, which has 373 million users.
Kotak Institutional Equities
Maintains ‘add’ with a target price at Rs 3,400 apiece.
Q4 revenue and Ebitda were largely in line versus estimates with impressive recovery in healthcare segments.
The company has announced reorganisation of its pharmacy and digital platform 24/7 into a separate entity, Apollo HealthCo, taking the first steps towards unlocking the value of its digital offerings. Potential capital-raise in the entity will also provide funds to aggressively expand in the competitive e-health market.
Apollo has demonstrated a track record of creating new verticals in the past and while the market remains competitive, additional funds will help Apollo aggressively expand its customer base without impacting core healthcare business profitability.
ICICI Securities
Maintains ‘add’ rating, and hikes target price to Rs 3,466 apiece from Rs 2,888.
Q4FY21 performance was better than estimates at margin level, led by better profitability in hospitals and retail healthcare segment.
Expects performance to improve further in the coming quarters as occupancy level improves and management expects to sustain annual cost saving of Rs 120 crore.
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 network for pharmacy, doctor consultation, clinics and diagnostics.
Company has put backend pharmacy business and Apollo 24/7 into a separate subsidiary, Apollo HealthCo, through slump sale and would look to get investors in this subsidiary for growing this business.
Morgan Stanley
Maintains ‘overweight’ rating with a target price of Rs 3,602 apiece.
Apollo is leveraging its physical healthcare infrastructure and patient/doctor connect to transform into a pan-India health-tech digital play. Unlocking this value and vaccine upside should benefit the stock in the near term.
Management did not give guidance for FY22, but expects momentum in the hospital business as the lockdown impact subsides.
It has administered two million Covid-19 vaccines, with another eight million doses to come over the next three months.
Benefits of capacity creation over the last five years are playing out with volume ramp up.
Expects a mid-teen Ebitda CAGR for 2023-24 and value to be unlocked in its non-healthcare business. The stock is pricing in only part of the Ebitda growth potential.
Latent capacity of nearly 1,000 beds, ramp up in some of the new hospitals, and average revenue per occupied bed improvement in established hospitals are well understood, but vaccine upside and new healthcare platform scale-up do not appear to be in the price.
Edelweiss
Maintains ’buy’ and hikes target price to Rs 3,700 from Rs 3,210 apiece.
Apollo Hospitals is likely to clock long-term double-digit growth driven by turnaround in the retail segment and rapid scaling up of new hospitals. Higher investments in Apollo 24/7 could dent near-term margin, but will also complement all-round growth and enable the stock to command a premium.
The company’s focus on 24/7 digital app complemented by a wide network of its physical assets not only puts it ahead of competition, but also acts as feeder for existing businesses.
Two businesses that are yet to reach full potential — new hospitals with Rs 3,000 crore capital employed and Apollo Health and Lifestyle (retail segment), with Rs 950 crore total assets — have started to deliver.
Have factored in vaccine opportunity in FY22 (Rs 850 crore) assuming no booster dose requirement.
Given the strong uptick in new hospitals, growing pharmacy and diagnostics, Apollo deserves to trade at a premium.
Nomura
Maintains ‘buy’ rating and hikes target price to Rs 3,831 from Rs 3,168, implying a potential upside of 19.6%.
Covid-19 presents a near-term challenge for Apollo, but medium term growth prospects are intact. Q4 missed estimates, but strong EBITDA margin across segments.
Mature hospitals (standalone) Ebitda at 23% was up 240 basis points quarter-on-quarter.
Apollo could trade at a premium to peers, as it presents a comprehensive play on India healthcare, with omnichannel presence across various healthcare verticals.
Sees the 24x7 digital platform as an enabler of growth for the company’s existing businesses segments.
The digital healthcare ecosystem is at a nascent stage with limited visibility on profitability and sustainability of business models. However, the narrative on digital healthcare has gained strong traction, supported by the growth witnessed during the Covid-19 pandemic.
Benign liquidity environment has led to substantial value ascribed to independent digital platforms in the recent past. The 24x7 platform is better placed versus peers given wide service offering supported by an offline infrastructure and lower customer acquisition cost.
The company has indicated that despite the capping of prices by the government, the company would be able to make a margin on vaccinations. Apollo has accounted for 45% of the vaccinations done by the private sector in India.
The company is pursuing aggressive growth plans and intends to have 100 million customers over five years compared to 10 million currently. The large customer base will not only be served by the Apollo’s offline infrastructure but also by partners.
The company believes it now has the flexibility to repurpose beds depending on Covid-19 demand. In general, the company expects normalisation in operations from Q2FY22.
The Ebitda margin for the diagnostic business will remain below peers in the near term as the company shall continue to expand its network.
Macquarie
Maintains ‘outperform’ rating, raises target price to Rs 3,516 from Rs 3,306 apiece.
Apollo continues to demonstrate the strength of its hospital/standalone pharmacy franchise, with improved execution to drive sales recovery aided by a solid cost focus.
With the core business recovery, vaccine realisations, improving case mix, and cost savings, the research house builds in a robust 39% Ebitda CAGR over FY21–23 for Apollo Hospitals.
For the hospital segment, Apollo expects to curb the impact on non-Covid footfalls even if there is a third Covid-19 wave.
The company expects 18–20% YoY growth in standalone pharmacy sales to continue.