Q2 performance shows Apollo Hospitals Enterprise in the pink of health

Most analysts are positive but target prices indicate limited upside

The September quarter performance of Apollo Hospitals Enterprise (AHEL) was better than expected with a rise in the average revenue per occupied bed (ARPOB) and a lower average length of stay (ALOS). The company also acquired a 65 per cent stake in the 180-bed Excelcare Hospital in Guwahati at an enterprise value of Rs 210 crore, and it’s seeking to acquire a 300-bed facility in Mumbai in the next few years and 300 more beds in Bengaluru by acquisition in the next two years.

The long-term guidance included an estimate of addition of around 400 pharmacies annually and around 20 per cent growth in the offline pharmacy business. The company also expects around 25 per cent annual growth in the diagnostics revenues, targeting Rs 1,000 crore over the next three years. The 24/7 online consultancy division should hit breakeven in two-three years; it added 2,000 new pin codes (total about 19,000 pin codes) in Q2FY22.

Unlocking should mean a rise in contributions from overseas -- which was less than 1 per cent in Q2 -- to 4-5 per cent in the second half of FY22; this can further rise to 10 per cent over the next two financial years. The company continues to seek strategic investors in Apollo HealthCo, the subsidiary that holds the 24/7 and pharmacy divisions, and it hopes to announce two significant partnerships in a month’s time. Currently, the number of international patients is around 5 per cent of normal pre-Covid levels. Full unlocking should also improve domestic occupancy. So there’s a potential upside here.

The revenue of Rs 3,717 crore in Q2FY22 was down 1 per cent versus Q1FY22 (Rs 3,760 crore) and up 35 per cent YoY versus Rs 2,660 crore in Q2FY21. The Ebitda was at Rs 615 crore, up 105 per cent YoY over Rs 300 crore and up 18 per cent sequentially over Rs 520 crore. The OPM was at 16.5 per cent, which was substantially better than 13.8 per cent in last quarter and 11 per cent a year ago. Interest costs of Rs 95 crore were down 22 per cent YoY.

The PAT was at Rs 267 crore, which was 350 per cent higher than Rs 59 crore a year ago, and also greater than the Rs 206 crore in the June quarter, after adjustment for an exceptional gain of Rs 294 crore in Q1. The revenue from vaccinations came at Rs 240 crore and from Covid patients at Rs 140 crore in Q2. The non‐Covid revenue grew 22 per cent QoQ. Discounts on the online pharma were at average of 12 per cent. Further margin expansion is likely, barring another wave of Covid. The hospitals segment has an Ebitda margin of 23 per cent (mature and new combined), while pharmacies has an Ebitda margin of 8 per cent and AH Lifestyle (AHLL) has an Ebitda margin of 16.3 per cent. All margins expanded sequentially. The ROCE or return on capital employed may achieve 17-18 per cent for 2021-22 and it can expand to 21 per cent in 2022-23, according to analysts’ estimates.

Analyst opinions are largely bullish. While HDFC Securities and Edelweiss have “buy” recommendations, ICICI Securities has an “add” suggestion. According to the Bloomberg data, post-results, 15 of 16 analysts have an add/outperform/overweight/buy rating. YES Securities is the only one to have a “sell” call on the basis of overvaluation.

The current price is Rs 5,084 after a 9 per cent spurt on results. YES’ target for Apollo Hospitals is at Rs 3,030, while Edelweiss has an upgraded target of Rs 5,500. HDFC Securities and ICICI Securities are offering upgraded targets of Rs 5,295 and Rs 4,994, respectively. The average for the 16 analysts is Rs 5,133.