Apollo Hospitals slips 8% on stake sale in AHL, Keimed merger

Apollo Hospitals Enterprises stock update: The stock hit its lowest level since January 10, 2024

Shares of Apollo Hospitals Enterprise (AHEL) hit over three-month low of Rs 5,733 as they slipped 8 per cent on the BSE in Monday's intraday trade after the company said Apollo HealthCo (Apollo 24/7 or AHL) will raise R 2,475 crore from Advent International, and merge Keimed with AHL.

The stock hit its lowest level since January 10, 2024. At 10:42 am, AHEL was trading 6 per cent lower at Rs 5,889.15, as compared to 0.71 per cent decline in the S&P BSE Sensex.

In a two-step deal, which includes merger and stake investment, AHL, the omni-channel pharmacy arm of AHEL, has announced plans to raise Rs 2,475 crore in equity capital from PE firm Advent International for a 12.1 per cent stake. The deal also takes into account merger of promoters-owned Keimed Private Limited, India's leading wholesale pharmaceutical distributor, over the next two years.

In an exchange filing AHEL said, Advent shall invest in compulsory convertible instruments over 2 tranches to secure 12.1 per cent stake in the merged entity, by valuing the combined entity at an enterprise value of Rs 22,481 crore. Apollo 24/7 is valued at an enterprise value of Rs 14,478 crore. Keimed is valued at an enterprise value of Rs 8,003 crore and pursuant to merger, Keimed shareholders would hold a maximum of 25.7 per cent stake in the combined entity, while AHEL would continue to remain the largest controlling shareholder with at least 59.2 per cent stake.

The merger of Keimed is a significant step in the integration of the comprehensive supply chain. The combined entity will deliver Rs 25,000 crore of revenue in 3 years with 7-8 per cent earnings before interest, taxes, depreciation, and amortization (Ebitda). This deal brings together a formidable partnership of capabilities and strengths, to deliver exponential value for AHEL and its shareholders, the management said.

The deal establishes a strong pharmacy franchise that spans the entire value chain from distribution to direct and online customer engagement. This expansion not only increases scale but also boosts efficiency throughout the value chain, leading to enhanced profitability, according to Motilal Oswal Financial Services.

AHEL has been expanding across the healthcare services comprising hospitals and both offline and online pharmacy businesses. Overall, the brokerage firm expects 48 per cent earnings CAGR over FY24-26.

This will create a leading integrated pharmacy distribution business complemented by a fast growing omni-channel digital health business, analysts at Prabhudas Lilladher said.

"While stake sale of AHL to Advent was done below our estimates by $0.8-0.9 billion; likely merger of Keimed with AHL is a positive step and removes overhang of any leakage. Further management guidance of Rs 1,750-2,000 crore Ebitda of the merged entity by FY27 provides comfort," the brokerage firm said.