Partner With Us NRI
Apollo Hospitals Enterprise Ltd>
  • CMP : 4,383.4 Chg : -8.30 (-0.19%)
  • Target : 5,080.0 (17.87%)
  • Target Period : 12-18 Month

13 Aug 2022

24/7 cost dents margins; upbeat outlook maintained...

About The Stock

Apollo is a leading integrated healthcare service provider.

  • Group capacity of 9911 beds across 71 hospitals in India. Total 8538 beds owned in 44 hospitals; 278 beds in 11 cradles; 244 beds in 11 day-care/short surgical stay centres; 851 beds in five hospitals under O&M contracts
  • It has got a digital presence with “ASK Apollo” & digital health platform “Apollo 24/7”. Apollo Hospitals is the exclusive supplier for APL, which operates India’s largest standalone pharmacy chain with 4529 outlets
  • Apollo Health & Lifestyle Ltd runs the largest chain of standardised primary healthcare models, multi-specialty clinics under the brand: Apollo Clinics in India and Middle East, diabetes management clinics: Apollo Sugar, diagnostic centres: Apollo Diagnostics, specialty formats: Apollo Cradle for women & children, Apollo Spectra for planned surgery

Apollo’s revenues were in line with our expectations while margins were missed amid ₹ 135 crore operation spend on 24/7.

  • Revenues increased 7% QoQ to ₹ 3796 crore
  • EBITDA was at ₹ 491 crore, up 6%% QoQ with margins at 12.9%
  • Adjusted PAT was at ₹ 317 crore (up 252% QoQ)
What should Investors do?

Apollo’s share price grew 3.2x over past three years

  • We maintain BUY due to 1) pick-up in elective surgeries and margins at hospitals to improve through better operating leverage and optimisation of payer and case mix, 2) impending value unlocking through Apollo HealthCo and 3) increase in reach for all verticals through integrated digital platform to be remunerative in long term albeit with front-loaded cost pressure
Target Price and Valuation

We value Apollo at ₹ 5080 based on SOTP valuation.

Key Triggers for future price performance
  • Apollo is undergoing optical transformational journey towards creating an omni-channel healthcare platform that could set the platform for tapping new-age investors enabling rapid scale up of the digital healthcare platform
  • Business normalisation in healthcare is expected to continue with further momentum due to lifting of travel restrictions, international patients. Also with strong healthcare pedigree & asset base, the company is on course to integrate all entities digitally to leverage its brand and physical presence
  • The new hospitals, ventures are turning profitable on the back of a judicious case mix besides better occupancy & ramp up at new hospitals and AHLL
Alternate Stock Idea:

Apart from Apollo, in our hospital coverage we like Narayana.

  • Narayana operates a duel model, which perfectly blends established ‘’Asset-right’’ India business with a hospital in Cayman Islands
  • BUY with a target price of ₹ 800

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net Sales 9,617.4 11,246.8 10,560.0 14,662.6 15.1 16,555.7 18,672.9 12.8
EBITDA 1,064.6 1,583.4 1,137.4 2,185.1 24.6 2,318.4 2,912.9 15.5
EBITDA margins (%) 11.1 14.1 10.8 14.9 - 14.0 15.6 -
PAT 236.0 454.9 113.0 850.4 36.7 1,135.3 1,452.6 30.7
EPS (|) 16.4 22.6 7.9 59.1 - 79.0 101.0 -
PE (x) 262.5 136.2 412.1 58.7 - 54.6 42.7 -
P/BV (x) 18.6 18.6 13.5 11.0 - 9.5 8.1 -
RoE (%) 7.1 9.7 2.5 15.1 - 17.4 18.9 -
RoCE (%) 8.8 10.2 6.3 15.1 - 15.3 18.8 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q1FY23 Results: Hospitals ramp-up continues; 24/7 spends high

  • Consolidated revenues grew 7% QoQ to | 3796 crore as hospitals segments grew 9% QoQ to | 2023 crore. HealthCo and pharmacy grew 8% QoQ to
    | 1479 crore while AHLL reported de-growth of 5% QoQ to | 293 crore. EBITDA margins declined 13 bps QoQ to 12.9%, mainly on the back of increase in other expenditure. EBITDA, in absolute terms, grew 6% QoQ to | 491 crore. Adjusted profit for the quarter was at | 317 crore vs. profit of
    | 90 crore in Q4FY22. Delta vis-à-vis EBITDA was mainly due to lower tax and depreciation and interest expense
  • Apollo Hospitals’ Q1FY23 revenues were more or less in line with our estimates while margins were missed. Healthcare business returned to normalcy in this quarter and hospital segments largely capture it. Pharmacy distribution business was re-organised into a 100% subsidiary Apollo HealthCo Ltd along with Apollo 24/7, the group’s digital healthcare services platform is making steady progress while also incurring cash burn for digital platform. The pharmacy business remains a steady growth engine albeit in a changed structure. AHLL (clinics and diagnostics) has witnessed softer quarter while Apollo Diagnostics has set an aspirational target to achieve
    | 1000 crore revenue mark over the next three years. Structurally, cost reduction drives, expanding of complex procedures and profitability of new hospitals remain key management focus areas


Q1FY23 Earnings Conference Call highlights

  • Hospitals ARPOB was at | 51,999 vs. 41,102, registering growth of 27% in Q1FY23 compared to the same period in the previous year. ARPOB levels have improved due to shift in pay mix (insurance and cash increased to 41% from 34% in pre-Covid levels), price hike of 2% and surgical revenue increased to 68% from 60% of sales. In-patient volumes across the group increased 9% from 115,902 to 126,511. Q1FY23 occupancy across the group was at 4,696 beds (60% occupancy) compared to 5,108 beds (67% occupancy) in Q1FY22. The Q1FY23 occupancy in mature hospitals was at 3,365 beds (62% occupancy). New hospitals had an occupancy of 1,331 beds (55%) occupancy) in Q1FY23. Cardiac sciences grew 7%, oncology 17%, neuroscience 11%, orthopaedics at 28%, gastro at 19% and transplant at 18%. International mix has reached ~ 85% of pre-Covid levels
  • Apollo has tied up with Imperial hospitals Bangladesh to manage their 375-bed hospital in Chittagong, Bangladesh. Apollo has completed the acquisition of a hospital asset in Gurugram for | 450 crore with potential for 650 beds over 700,000 square feet and will be commissioned in 24 months
  • The management has indicated at improving the occupancy from 60% to 70% in 12-15 months, leading to 15% increase in volumes, which, in turn, is likely to result in 15-20% revenue growth, going ahead. The company has indicated at better operating leverage and optimisation of payer and case mix to result into 200 bps margin improvement from 24% to 26%. Post this timeline, announced expansions would kick-in, starting with Gurgaon in 24 months followed by Chennai. Both will lead to addition of 1,000 beds. The management is also looking at the possibility of expansion in Mumbai, Bangalore, North India and acquisitions
  • Apollo Hospitals incurred routine capex of | 300 crore. Expansion plans in Chennai are for | 800 crore while Gurgaon is | 900 crore (acquisition: | 450 crore, investment: | 450 crore). The company has guided to fund these though internal accruals (expecting | 800 crore plus FCF generation). Apollo will also receive | 1200 crore from 24/7 in the next one year as fund raise is expected by December, 2022
  • Pharmacy: Number of pharmacies 4761. Net addition of 232 stores in Q1FY23. Private label sales at 10.3% of revenues in Q1FY23. Pharmacy distribution margins at 7.6% in this quarter. The company’s focus continues on increasing private label sales and expansion of stores
  • While backend pharmacy margins were steady, front end pharmacy margins declined due to 1) technology alignment with Amazon system for pan-India delivery, 2) creation of infrastructure (16 dark stores in Mumbai, 12 in other parts) for Amazon delivery and 3) addition of new stores. Overall there was additional | 25-30 crore cost with | 20 crore being one-time. The management expects margins to return from Q2FY23. They have guided for offline pharmacy to grow at 22% with steady margins. Apollo is aiming at over | 8,500 crore revenues from combined pharmacy in FY23
  • On the digital front, Q1FY23 GMV: | 215 crore (up 21% QoQ and ex-Covid up 34% QoQ). The platform is witnessing 35,000 transactions per day vs. 25,00 last quarter. The management has raised the guidance for FY23 GMV from earlier | 1000 crore to | 1500 crore. Apollo expects additional 20% increase in expenditure over earlier guided | 450 crore in FY23. In Q1FY23, operating expense was | 135 crore. The additional expense is due to better-than-expected traction for digital platform. The company expects offline and online pharmacy to grow 27% in FY23. On the Amazon deal front, Apollo has a contract for ~15% discounts. However, the company has guided for rationalisation in cost and discounting on its platform
  • AHLL: Revenues declined QoQ as in Q4FY22, Covid and Covid allied testing was very high. In non-Covid testing, business grew 12% QoQ. The management has reiterated diagnostics revenue guidance of | 1,000 crore in three-years
Variance Analysis:

  Q1FY23 Q1FY23E Q1FY22 Q4FY22 YoY (%) QoQ (%)   Comments
Revenue 3,795.6 3,898.0 3,760.2 3,546.4 0.9 7.0   QoQ growth due to normalcy in healthcare services
Raw Material Expenses 1,952.1 2,013.3 2,062.0 1,815.7 -5.3 7.5    
Employee Expenses 447.4 474.9 443.5 446.6 0.9 0.2    
Other expenditure 905.3 841.3 734.9 820.9 23.2 10.3    
EBITDA 490.7 568.4 519.9 463.2 -5.6 5.9    
EBITDA (%) 12.9 14.6 13.8 13.1 -90 bps -13 bps   QoQ decline due to  ~ | 135 crore expense for 24/7 
Interest  92.7 77.4 94.7 94.9 -2.1 -2.3    
Depreciation 147.8 160.4 140.6 166.4 5.1 -11.2    
Other Income 16.1 20.8 24.6 30.7 -34.8 -47.7    
PBT before EO & Forex 266.3 351.4 309.3 232.7 -13.9 14.5    
EO 0.0 0.0 -294.1 0.0 0.0 0.0    
PBT after Exceptional Items 266.3 351.4 603.4 232.7 -55.9 14.5    
Tax  -69.5 87.8 98.6 138.7 PL PL    
Tax rate (%) -26.1 25.0 16.3 59.6 PL PL    
 Net Profit  317.1 246.8 489.3 90.1 -35.2 251.8    
 Adj. Net Profit  317.1 246.8 243.2 90.1 30.4 251.8   Delta vis-à-vis EBITDA mainly due to lower tax 
EPS (|) 22.1 17.2 34.0 6.3 -35.2 251.8    
Key Metrics                
Hospitals 2023.4 2032.6 1939.2 1863.1 4.3 8.6   Occupancy in mature hospitals at 62%, new hospitals at 55%
Pharmacy  1479.2 1525.4 1512.0 1374.5 -2.2 7.6   Combined pharmacy platform sales at | 1808.1 crore
AHLL 293.0 339.9 309.0 308.9 -5.2 -5.1   Diagnostics: | 81.5 crore, Primary care: | 85.1 crore and specialty care: | 139.7 crore



I/We, Siddhant Khandekar, Inter CA, Raunak Thakur, PGDM, Kush Mehta, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. 

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. 

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports. 

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. 

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research. 

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. 

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. 

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. 

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. 

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. 

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. 

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. 


ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5%to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research




ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093




Read More