Buy Apollo Hospitals; target of Rs 8660: Motilal Oswal

Motilal Oswal's research report on Apollo Hospitals

Apollo Hospital and Enterprise (AHEL) delivered better-than-expected 2QFY25 on account of improved occupancy and reduced operating costs at Healthco. The performance was partly impacted by reduced patient flow from Bangladesh due to ongoing political issues. The higher medical mix compared to the surgical mix led to moderate YoY growth in ARPOB for the quarter. We raise our earnings estimate by 9%/3%/3% for FY25/FY26/FY27 to factor in: a) reduced marketing cost driving better profitability in Healthco, b) increased patient flow in the hospital business driving better operating leverage, and c) additional business from insurance products/concierge services in Healthco.

Outlook

We value AHEL on an SOTP basis (34x EV/EBITDA for hospital business, 15x EV/EBITDA for retained pharmacy, 22x EV/EBITDA for front-end pharmacy, 15x EV/EBITDA for retained pharmacy, and 2x EV/sales for Apollo 24/7) to arrive at a TP of INR8,660.