Result update – Apollo Hospital

Apollo Hospitals Enterprises’ (AHEL) associate company Apollo Pharmacies would be listing its products on Amazon India. With this listing of products, Amazon India’s customers shall have access to pharmacy products across India. This is a non-exclusive deal and no infusion of capital. With this deal, Apollo Pharmacy seeks to leverage Amazon’s reach in the regions where it does not have strong presence, like in western part – especially Mumbai – and hence it is likely to augment the company’s online pharmacy growth. However, it may have some cannibalization impact on the company’s existing business as well. Overall, we are positive on the long-term outlook of AHEL, given its strong brand and pan-India presence in the hospital segment, margin expansion potential, and aggressive focus on creating a digital network for pharmacy, doctor consultation, clinics and diagnostics. Also, the recent correction in the price makes valuation reasonable. Upgrade to BUY from Hold with a revised target price of Rs5,211/share.

Highlights from management interaction on Apollo Pharmacies listing its products on Amazon:

• The company will start with a pilot project to list its product in Amazon platform in next 30 days and gradually increase the geographical spread.
• Apollo 24/7 grew 5x in past two
• Aspiration is to reach US$2.3bn in Apollo Healthco revenues in next 2-3 years with more than 30% compounding
• Apollo 24/7 is the second largest home pharmacy delivery channel with more than 45,000 deliveries per day (~21,000 through online platform and ~25,000 offline home delivery).
• However, with the listing of its products on Amazon, the company is expected to be a largest pharmacy delivery channel in
• Blended current cost of acquisition of Apollo 24/7 is Rs150 per
• The company is continuously looking for strategic investors in Apollo HealthCo to accelerate growth and unlock
• Apollo is also working with Google on the digitalization front

Outlook: We expect the improvement in performance to continue in the ensuing quarters supported by higher occupancy, cost-control initiatives and continuous growth momentum in the pharmacy segment. We expect 23.6% revenue and 42.5% EBITDA CAGRs over FY21-FY24E on low base of FY21.

Valuations: We have maintained our estimates, but the recent correction in the price makes valuation reasonable and also we roll over to Sep’23E. Hence, we upgrade AHEL to BUY (from Hold) with a revised TP of Rs5,211/share based on SoTP on Sep’23E (earlier Rs4,994/share). Key downside risks are: higher competition and further delay in elective surgeries.

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MB Bureau