We believe the current valuation of Apollo Hospitals Enterprises to an extent captures the prospects of longer term growth and ROIC (return on invested capital) improvement, brokerage house Nomura said in its note to clients
Shares of Apollo Hospitals continued their slide Wednesday, shedding nearly 3 percent to Rs 948.50 after the company’s fourth quarter earnings announced on Monday fell short of market expectations.
Brokerage house Nomura downgraded the stock to neutral and also cut its revenue and net profit estimates for FY15 by 4-16 percent.
"Slippage in earnings, slower-than estimated growth in ARPOB (average revenue per occupied bed) and some delay in execution contribute to a 14–16% cut in our earnings estimates," said the Nomura note to clients.
"We believe the current valuation to an extent captures the prospects of longer term growth and ROIC (return on invested capital) improvement. We remain constructive the over long term, but await a better entry point," the note added.
Nomura has a price target of Rs 933 for the stock, and does not see the weak fourth quarter numbers as a cause for concern.
"4Q was weak due to a bunching up of holidays and start-up costs related to two new hospitals. Expansion plans are however on track, business outlook remains strong and funding is not a concern," the Citi note to clients said.
Citi has a target price of Rs 960 for the stock.
Apollo shares had rallied nearly 40 percent in less than 2 months between March and May this year. The stock's inclusion in the MSCI India Index contributed to the positive sentiment in a major way.
"After the recent stock rally and weak operational performance, we believe the stock offers limited margin of safety," brokerage house Kotak Securities said in a note to clients.