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Apollo Hospitals’ Q1 enough to keep its investors hooked

Shares of Apollo Hospitals Enterprise Ltd have gained 18% in the past three trading sessions, an indication that the June quarter performance has boosted investor sentiment. Multiple growth drivers remain intact, according to analysts.

The hospital business grew 26% sequentially and 145% year-on-year (y-o-y), with an improved occupancy level. The average revenue per operating bed (ARPOB) also showed improvement.

The Q1FY22 occupancy in mature hospitals remained stable at 64%. New hospitals, on the other hand, reported a significant jump in occupancy to 73% compared to 60% a quarter ago. As much as 26% of the business during the quarter was a result of covid-19.

Analysts are hopeful of healthier growth due to the normalization of business mix, increase in elective surgeries and other factors that may bode well for margins.

New hospitals have shown profitability with most of them achieving break-even. Proactive capacity addition has also benefited the company.

“We expect strong 57.5% growth in the hospitals business in FY22 on a low base, consolidation of the Kolkata hospital and incremental revenue from vaccination,” analysts at ICICI Securities Ltd wrote in a note. The firm’s pharmacy business grew by 35% sequentially and reported decent improvement in the margin to 7.6% from 7.1% in the previous quarter. This was aided by an increased share in private labels to 13.24%, which is far better than the 9% historically.

The company had separated the front-end pharmacy business and Apollo 24/7 into a separate subsidiary, Apollo HealthCo Ltd, to improve its e-commerce platform. The Apollo 24/7 platform is scaling up well and analysts at HDFC Securities Ltd expect revenues to reach $50 million to $60 million by the end of FY22.

They expect Apollo 24/7 to break even by FY24 and expect the company’s diagnostics business to see a steady ramp-up and achieve revenue of ₹500 crore by FY23.

“We expect improvement in performance to continue in the ensuing quarters supported by higher occupancy, cost control initiatives and continuous growth momentum in the pharmacy segment,” said the ICICI Securities note.

They expect 25.5% revenue and 51.8% earnings before interest, tax, depreciation and amortization on a compound annual growth rate basis over FY21-FY23 on a low base of FY21. Live Mint

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