Reiterating its positive stance on Apollo Hospitals Enterprise Ltd., Citi has added the leading healthcare player to its Pan-Asia Focus List and maintained its 'buy' rating. The brokerage has retained its target price at Rs 9,600. With the stock currently trading at Rs 7,124.50, this implies an upside potential of about 34%.
The brokerage said Indian hospitals benefit from a predictable and steady revenue stream, supported by high unmet demand and the low, though steadily rising, penetration of organised healthcare. However, as these companies remain in an investment phase, it believes EBITDA is a more accurate measure of operating profitability at this stage. Accordingly, the brokerage uses EV/EBITDA relative to EBITDA CAGR as its primary valuation methodology for Apollo Hospitals' healthcare business. This underlines why Apollo Hospitals remains Citi's top pick in the Indian hospitals' space.
Citi also identified the fast-growing pharmacy business as a key driver of the investment thesis. According to the brokerage, the pharmacy segment is showing strong growth momentum, with digital profitability now in sight, which could provide an additional lever for earnings over the medium term.
On valuations, Citi said Apollo Hospitals continues to trade below its long-term averages. This valuation comfort, combined with structural strengths in hospitals and growth prospects in pharmacy and digital initiatives, supports the brokerage's decision to add the stock to its Pan-Asia Focus List.
However, flagging the key risks that could prevent the shares from reaching their target price, the brokerage listed fixed-cost- intensive business, with high operating leverage by the hospital, inability to scale occupancy and realisations that could depress capital efficiency, delays in setting up hospital projects, and higher cost of real estate and/or an inability to get property at the desired locations.
On the whole, Citi maintained its buy rating, reiterating confidence in Apollo Hospitals' long-term growth outlook within the Indian healthcare sector.
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