Apollo Hospitals’ stock gains 20% in week since Q2 results

Apollo Hospitals Enterprises Ltd.’s shares have risen as much as 20 percent this week. Investors were thrilled with the company’s second-quarter (July-September) results announced on November 12.

With this, the stock has more than doubled in this calendar year, increasing by almost 132 percent. Apollo Hospitals’ shares closed at Rs 5,588.60 on the National Stock Exchange on November 18.

Valuations are pricey now, with the stock surpassing the target prices of some analysts. Nomura Financial Advisory and Securities (India) values Apollo Hospitals using the sum-of-the-parts (SOTP) methodology and arrives at a March 2023 target price of Rs 5,394.

In the SOTP method, the value of each division of a company is ascertained separately and added together to arrive at a total.

Nomura’s analysts said it is appropriate to value Apollo Hospitals on an SOTP basis, given the likely value unlocking in Apollo HealthCo, a subsidiary that houses its online and offline pharmacies and telemedicine businesses, in the near term through investment by strategic or financial partners.

The impending fundraising by Apollo HealthCo is expected to help Apollo Hospitals in competing better with other e-health firms and propel growth in its digital segment. Additional funds will also help the company expand its customer base and improve market penetration. To be sure, this is also one reason for investors’ excitement on the stock.

HDFC Securities’ SOTP-assessed target price for Apollo Hospitals based on September 2023 estimates stands at Rs 5,295 per share. The brokerage has raised its estimates by 19 percent/14 percent for FY22/23E to factor in Q2 beat/ faster-than-expected recovery from Covid-19.

Strong revenue growth and margin expansion helped the company beat Street estimates in Q2. Occupancies were strong for the company’s older hospitals at 3,518 beds (65 percent). New hospital occupancy stood at 1,466 beds (66 percent).

Consolidated revenue increased by 35 percent over the same period last year to Rs 3,717 crore. A good portion of this came from the healthcare services segment, where revenue increased 75 percent year-on-year and 12 percent sequentially.

Apollo Hospitals’ earnings before interest, tax, depreciation and amortisation (EBITDA), a key measure of profitability, and profit after tax were 17 percent and 9 percent ahead of Kotak Institutional Equities’ estimates due to a recovery in patient counts, average revenue per occupied bed and hospital occupancy.

EBITDA for Q2 grew by 105 percent year-on-year and 18 percent sequentially to Rs 615 crore. Average revenue per occupied bed, excluding vaccination, for the half year ended September grew 15 percent year-on-year.

“We are impressed by Apollo Hospitals’ execution across segments and raise our FY2022-24 EBITDA estimates by 8-14 percent, led by higher growth in pharmacy and healthcare business,” said Kotak’s analysts.

Apollo Hospitals is on a strong footing and the growth outlook is bright. Even so, the stock’s stellar appreciation suggests investors are capturing future optimism adequately, at least for now. Moneycontrol