'Buy' Apollo Hospitals Maintains HDFC Securities, Hikes Target Price — Here's Why

NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

HDFC Securities Institutional Equities

Apollo Hospitals Enterprised Ltd. and Apollo HealthCo have got in principle approval for the Composite Scheme of Arrangement, which includes the following: first, demerger of omni channel pharmacy distribution, Apollo 24|7 digital platform, and telehealth division of Apollo Hospitals into the new entity; second, amalgamation of Apollo HealthCo into the new entity; third, amalgamation of Keimed into the new entity; and lastly, the resultant entity, “NewCo,” will apply for listing on the stock exchange, which is expected to happen in the next 18–21 months.

Apollo Hospitals share conversion ratios—100 shares of Apollo Hospitals will get converted to 195.2 shares of NewCo; Apollo Hospitals will retain ~15 % stake in NewCo. Apollo Hospitals expects NewCo to become India’s largest omni channel pharmacy and digital health platform, generating substantial synergies.

It targets a revenue run rate of ~Rs 250 billion by FY27 (gross merchandise value of ~Rs 280 billion), with post Ind AS Ebitda margins at ~7 % (~Rs 17.5 billion Ebitda in FY27). HealthCo (including Apollo 24|7 and Keimed revenues) has a revenue run rate of Rs 162.6 billion and Ebitda margins of 3.5% in FY25.

Concluding the above, after completion of the scheme of arrangement, Apollo Hospitals’ business will be divided into two separate enterprises—

1. Apollo Hospitals, with a core business of hospital services and Apollo Health and Lifestyle (Retail Health and Diagnostics) and

2. NewCo, with online and offline pharmacy (HealthCo and Apollo 24x7), telehealth (from Apollo Hospitals), distribution business (Keimed), and the proposed front end retail pharmacy (Apollo Pharmacy), which will be listed as a separate entity.

We believe this demerger could unlock significant value for Apollo Hospitals and allow it to focus on its healthcare services business (FY25 28E Ebitda CAGR of 16 %), with clear capital allocation outlays and growth plans assigned for each business post demerger.

We maintain Buy and revise target price to Rs 8,650 (27x Q1 FY28E EV/Ebitda). We will factor in the demerger upon completion of the process.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit. 

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.