Apollo Hospitals Stock Jumps To A Record High After Analysts Raise Targets

Shares of Apollo Hospitals Enterprise Ltd. jumped to a record high after analysts hiked price targets on the company, citing, among others, cost cuts and a recovery in volumes and margin.

India's largest hospital chain operator, in a conference call with analysts after the third-quarter results, said it will return to normal growth rates from FY22, and is targeting Rs 500-crore revenue from the diagnostic business over the next two to three years.

The company hopes to close FY21 with operating margin of 6.5-6.6% and touch the 7% mark in FY22.

After acquiring the balance 50% stake in Apollo Gleneagles Hospitals, Kolkata, the way Apollo Hospitals is thinking of growth is definitely a focus on existing assets and improving asset utilisation, Managing Director Suneeta Reddy said on the call. "We have not really looked at greenfield. We are not looking at greenfield but also looking at revenue share options. So its an asset-light growth strategy."

According to Reddy, there is a potential to reach Rs 1,000-crore revenue from the preventive health business itself in the next 36 months.

Shares of Apollo Hospitals gained as much as 10%—the most in 10 months—to Rs 3,022 apiece around noon on Monday. Of the 22 analysts tracking the company, 17 have a 'buy' rating, three suggest a 'hold' and two recommend a 'sell', according to Bloomberg data. The stock is trading 6% higher than its 12-month consensus price target of Rs 2,733.9 apiece.

Here’s what analysts have to say:

Morgan Stanley

• Maintains 'overweight' rating; hikes price target to Rs 3,245 apiece from Rs 2,549.
• Diversified healthcare services business model and now ramping up diagnostics and digital platform.
• Expects mid-high teens Ebitda growth driven by recovery in volumes, operating leverage, cost control and capacity expansion.
• Balance sheet is now stronger.
• Raises FY22-23 Ebitda estimates by 19.4% and 15.5%, respectively.

Nomura

• Upgrades to 'buy' from 'neutral'; raises price target to Rs 3,168 apiece from Rs 2,349.
• Stronger growth narrative supports valuation multiples.
• Factor in recent QIP issuance, acquisition of additional stake in Kolkata and Lucknow hospitals.
• Raises FY22 and FY23 Ebitda estimates by 8% and 14%, respectively.
• Raises valuation multiple to factor in expectation of stronger medium-term growth.
• Increase in cost of capital and execution slippage are the key risks.

ICICI Securities

• Maintains 'add' rating; hikes price target to Rs 2,888 from Rs 2,566.
• Faster margin recovery likely to sustain.
• Performance to improve further as occupancy levels improve and management expects to sustain annual cost savings of Rs 1,200 crore.
• Remains positive on long-term outlook considering its strong brand and pan-India presence in the hospital segment, margin expansion potential and 16.4% Ebitda CAGR over FY20-23.
• Expects 12.2% revenue CAGR over FY20-23.
• Minimal organic capex requirement in the near term will help generate free cash flow which will help reduce leverage.

HSBC

• Maintains buy rating; price target raised to Rs 3,050 apiece from Rs 2,830
• Hospitals business continues to see a recovery with pick-up in patient footfalls and pent-up demand for elective surgery
• Further consolidating its market positioning by offering advanced technology-enabled services
• Improving volume of out-station and international patients are key catalysts
• Stepping up focus on industry leading offerings
• Outlook for core business remains intact despite quarterly variations
• Expect overall RoCE to improve to 16.9% by FY23E
• Build-in better margin pick-up for account for benefits from long-term investments

Jefferies

• Maintains 'hold' rating; hikes price target to Rs 2,447 apiece from Rs 2,425.
• Ebitda beat led by higher average revenue per occupied bed, and cost savings.
• Part of QIP proceeds will be used to shore up digital presence.
• Digital platform Apollo 24/7 will also drive volumes.
• Assumes 21% YoY revenue growth in FY22/21.
• Size, track record and growth are factored into current multiples.

Credit Suisse

• Maintains 'outperform' rating; raises price target to Rs 3,160 apiece from Rs 3,050.
• Best play in the integrated health services.
• Massive plans in diagnostics and preventive health.
• Increased investments to boost Apollo 24/7 expansion.
• Pharmacy growth momentum sustaining at good margins.
• Hospital margin was strong and upside should be driven by utilisation.
• Raises FY22 and FY23 EPS estimates by 15% and 11%.

Elara Securities

• Maintains 'buy' rating; raises price target to Rs 3,210 apiece from Rs 2,700.
• Strong improvement in hospitals Ebitda.
• On track to achieve normalcy in fourth quarter.
• Has headroom to achieve accelerated growth, without the necessity of making further large capital investments.
• Expects Ebitda CAGR of 20% over FY20-23E.