Apollo Hospitals' Demerger Key To Re-Rating Of Core Business, Say Analysts

Apollo Hospitals Enterprise Ltd. has announced a significant demerger and separate listing of its omnichannel pharmacy and digital health businesses, including Keimed. Shareholders of Apollo will receive 195.2 shares in the newly listed company for every 100 shares held in Apollo Hospitals.

An investor call is scheduled for 12:00 p.m., Indian Standard Time on Tuesday.

This move has been met with positive reaction from analysts, with both Citi and Morgan Stanley highlighting the potential for substantial value unlocking and re-rating of the core hospitals business.

Citi has reiterated its 'buy' call on Apollo Hospitals, maintaining a target price of Rs 8,260. This demerger is a positive development for Apollo shares, as it is expected to narrow the 25% to 30% discount at which Apollo's hospital business currently trades compared to peers like Max, the brokerage said. With a separate listing and a lean business structure, it expects the discount to narrow down.

The new entity will include the omnichannel pharmacy distribution, Apollo 24/7 digital platform, and Keimed. This is anticipated to become India's largest omnichannel pharmacy distribution and digital health player post-listing.

Morgan Stanley has also maintained an 'overweight' rating on Apollo Hospitals, viewing the demerger as a boost for the re-rating of the hospitals business. The separate listing of the omnichannel pharmacy and digital health businesses into NewCo is expected within 18 to 21 months, subject to regulatory approvals.

NewCo financial year revenues were Rs 16,300 crore and Ebitda margin was 3.5%. The company reiterated its financial year 2027 exit run rate targets of Rs 25,000 crore revenues and 7% margins.

"Listing of the new entity is expected in 18-21 months, subject to approvals. We await more details on the conference call," according to Morgan Stanley. NewCo is projected to have aggressive revenue and Ebitda targets that. If met, it is expected to generate shareholder value.