Recovery in occupancy, footfalls drive growth for Apollo Hospitals

Led by a recovery in occupancy and footfalls, the country’s largest hospital chain Apollo Hospitals Enterprises reported an improvement in December quarter performance. While the numbers cannot be compared with the year ago period as well as September quarter levels given the pharmacy restructuring, its performance excluding the impact of the pharma reorganisation were better on a sequential basis. 

While 83 per cent of the company’s 8,816 beds are operational, occupancy levels have increased to 63 per cent as compared to 56 per cent in the September quarter. Patient footfalls have increased with outpatients at 65-70 per cent of pre-Covid levels, the slowdown in air and rail travel has been a dampener.

Covid-related patients accounted for a quarter of the occupied beds and 17 per cent of revenues. However given the steadily declining allocated beds to Covid, this could come down further unless there is a further spike in infections. A positive trend is the higher revenues at newer hospitals as compared to the mature hospitals led by higher occupancies and a better mix. The ramp up in new hospitals should add to revenues and margins going ahead for the hospitals segment. Sales of Apollo Health and Lifestyle (diagnostics, preventive healthcare) too saw a 6.4 per cent gain led by higher Covid-related testing. 

While reported operating profit grew 30 per cent, margins expanded 14.1 per cent (from 10.9 per cent in Q2) due to pharmacy restructuring-led fall in employee costs. The like-for-like growth in the pharmacy business, which accounts for 40 per cent of revenues, came in at 17 per cent. Analysts at ICICI Direct Research expect the pharmacy business, which is into procurement and distribution of pharma, FMCG and private label products to grow at 12 per cent annually over the FY20-23 period. 

With recent fund raising, the company will also be able to reduce its debt which stands at Rs 2,704 crore and fund other projects. Further with major capex behind it and a stronger recovery in operating metrics for key segments expected in CY21, the company could post healthy return ratios going ahead. While the stock has gained 30 per cent over the last three months, given the improvement in Q3 and revenue trajectory going ahead, investors can look at investment for the long term.