Apollo Hospitals Enterprise likely to ride on healthy business outlook

Apollo Hospitals Enterprise (APH) delivered an in-line performance for the April-June quarter (Q1) of FY25 with growth in the number of patients. AHLL (Apollo Health & Lifestyle), a subsidiary, posted sales growth and profitability. APH also reduced operational costs at Healthco. However, GMV growth rates moderated.

APH’s consolidated revenue grew 15 per cent year-on-year (Y-o-Y) to ~5,090 crore. Healthcare services revenue rose 16.8 per cent Y-o-Y to ~2,560 crore. Healthco revenue was up 15.3 per cent Y-o-Y at ~2,080 crore. The AHLL revenue increased 14.9 per cent Y-o-Y to ~370 crore. The Ebitda grew 32.6 per cent Y-o-Y to ~680 crore and adjusted PAT rose 83 per cent Y-o-Y to ~316 crore. In Q1FY25, the revenue contribution of cash, insurance, international patients and government segments was at 38 per cent, 47 per cent, 6 per cent and 10 per cent, respectively.

The Ebitda margin expanded by 180 basis points (bps) Y-o-Y to 13.3 per cent. The Ebitda margins for healthcare services stood at 23.6 per cent and diagnostic and retail health had a margin of 8.4 per cent (up 110 bps Y-o-Y) and digital health at 1.1 per cent (turnaround vs Ebitda loss in Q1FY24).

Hospital segment’s Ebitda grew 15 per cent Y-o-Y to ~620 crore. Ebitda margin was flat Y-o-Y at 23.6 per cent. ARPOB (average revenue per occupied bed) grew 2 per cent Y-o-Y to ~59,073. Volume of patients grew 11 per cent Y-o-Y and occupancy was 68 per cent versus 62 per cent Y-o-Y. The average length of stay was flat at 3.3 days.

Healthco, the pharmacy arm, 41 per cent of sales along with Apollo 24/7, posted Ebitda of ~22.5 crore versus ~56.6 crore loss Y-o-Y. The platform GMV grew 9 per cent Y-o-Y to ~700 crore. The pharma average order value increased 15 per cent Y-o-Y to ~1,072. A net of 44 stores were opened during the quarter, taking total stores to 6,074. AHLL contributed 7 per cent of sales. Apollo HealthCo, has entered into a binding agreement to raise equity capital of almost $300 million (~2,475 crore) from private equity investor Advent International.

The guidance was that healthcare services growth would be mid-teens. International revenue contribution may rise to 8-10 per cent by end-FY25, up from 6 per cent in Q1FY25. Bangladesh accounts for 30 per cent of international revenue. GMV is expected to grow 50 per cent Y-o-Y in FY25 for Healthco, with an increase in private labels and more customers. The company expects Ebitda breakeven for Apollo 24/7 in the next 4-6 quarters. Occupancy will be 68-70 per cent in FY25, led by international patients, a change in the payor mix, and increased insurance penetration. The company plans to launch its life insurance business in FY26/FY27 and is in the process of obtaining Irdai approval by October 2024.

APH plans to operationalise 1,500 beds across hospitals in Gurugram, Hyderabad, Kolkata, and Pune, in CY25-26. The company also plans a brownfield expansion of 140 beds in Mysore in FY26. During FY24-27, APH plans a total capital outlay of ~3,400 crore to add 2,860 beds. This expansion may lead to initial margin compression.

APH expects online pharmacy distribution margins to grow to 20 per cent in FY25, from 13.6 per cent currently. Online pharmacy discounts stood at 13-13.5 per cent (the industry standard is 15–15.5 per cent), while offline discounts were 11 per cent.

Analysts have upgraded FY25 earnings estimates due to better margins in AHLL and reduced opex in Apollo 24/7. Ebitda should increase by 20 per cent CAGR over FY24-26 and EPS could grow by double. Consensus is positive for the stock, which was up 2.55 per cent and closed at ~6,687.55 on Friday. According to Bloomberg, 19 of 23 analysts polled post results (announced on Tuesday evening) are bullish, and 2 each are neutral and bearish on the stock, with an average one-year target price of ~7,139.