'Buy' Apollo Hospitals Maintains HDFC Securities, On Steady Outlook, Improved Return Ratio Visibility

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HDFC Securities Institutional Equities

Apollo Hospitals Enterprise Ltd. has consistently delivered steady performance over the last several quarters, driven by:

1. steady growth in its hospital business (52% of sales) with margin improvement,

2. strong growth in HealthCo (41%) with a sharp improvement in margin due to a reduction in Apollo 24/7 spending, and

3. expansion-led growth in Apollo Health and Lifestyle Ltd. (7%).

Going forward, we expect:

1. the hospitals to experience steady growth driven by a combination of occupancy improvement and mid-single-digit growth in average revenue per occupied bed from an improving case/payor mix; the phase-wise bed addition of 1,700+ over FY25-27 will provide growth visibility while limiting the drag on margins.

2. HealthCo to see strong scale-up driven by steady growth in offline and the expansion of the Apollo 24/7 business, with continuous cost reductions to improve margins.

3. Apollo Health and Lifestyle to see strong growth from network expansion, and the company expects 100-150 bps margin expansion over the next few years.

Given steady sales growth, margin expansion, and improved return ratio visibility, we maintain a Buy rating. We have rolled forward our target price to Rs 7,520, based on a 25x blended FY27E enterprise value/Ebitda, assigning:

1. EV/E of 25x to the hospital business,

2. EV/E of 17x to the offline pharmacy, and

3. EV/E of 21x to Apollo Health and Lifestyle.

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