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Last Updated : Nov 20, 2019 11:38 AM IST | Source: Moneycontrol.com

Apollo Hospitals share price climbs 2% after Nomura revises target price; sees 27% upside

While maintaining buy call on the stock, Nomura raised its target price to Rs 1,787 (from Rs 1,693 earlier), implying 27 percent potential upside from current levels.

 
 
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Apollo Hospitals Enterprises share price gained 1.82 percent intraday on November 20 after Japanese brokerage firm Nomura raised target price on potential free cash flow generation in coming years.

The stock gained 20 percent in the last six months. It was quoting at Rs 1,426.90, up Rs 16.70, or 1.18 percent on the BSE at 1108 hours IST.

While maintaining a buy call on the stock, Nomura raised its target price to Rs 1,787 (from Rs 1,693 earlier), implying a 27 percent potential upside from current levels.

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"The sustained turnaround in earnings momentum will drive stock performance. Free cash flow generation in FY21-22 should improve significantly," the brokerage said.

Nomura forecasts a 13.9 percent revenue CAGR for FY19-22, though it cut earnings estimates for FY20/21 by 2/7 percent.

The company continued to deliver a healthy set of numbers on the revenue and cost fronts in the quarter ended September 2019.

Its Q2FY20 standalone revenues grew 17.9 percent YoY to Rs 2,463.6 crore on the back of 21.7 percent YoY growth in pharmacy business to Rs 1,172.7 crore and 14.6 percent YoY growth in hospital business to Rs 1,291.2 crore.

EBITDA margins improved 246 bps YoY to 14.8 percent) mainly due to the positive impact of Ind-AS 116. Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 41.4 percent YoY to Rs 364.4 crore. Net profit grew 14.7 percent to Rs 90.6 crore. The delta vis-à-vis EBITDA was mainly due to the negative impact of Ind-AS 116.

"The overall narrative is panning out on the expected line with sustained margin expansion and improvement in RoCE, as guided by the management at the beginning of last fiscal," said ICICI Direct.

The management has reiterated a similar strategy, going ahead, with more focus on consolidation of existing hospitals and making new hospitals profitable. The company owns one of the best-integrated business models in the healthcare space with a strong management pedigree. The management has reiterated plans for phased promoter's pledge reduction.

ICICI Direct valued the stock on SOTP basis by valuing the healthcare business (existing hospitals & JV) at 13x FY22E EV/EBITDA, healthcare business (new hospitals and JVs) and pharmacy business at 1.5x FY22E EV/sales. "We ascribe a target price of Rs 1,800," it said. The target price implies 28 percent return from current levels.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Nov 20, 2019 11:38 am
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