Apollo Hospitals sinks 8% as Apollo HealthCo's valuation in Advent deal a letdown for Street

It is this valuation assigned to Apollo 24/7 that has been a cause of concern for investors. Nuvama Institutional Equities said while the deal was long overdue, the valuation commanded by Apollo HealthCo or Apollo 24/7 at $1.7 billion is lower than the estimated $2.7 billion. It not only comes as a negative surprise but also a huge letdown. The brokerage also said doubling Keimed's valuation for the deal, just within a year also seemed aggressive.

Jefferies shared the same view, saying the valuation assigned to Apollo HealthCo was lower than the brokerage's estimate of Rs 17,000 crore.

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Apollo Hospitals management accepted that 24/7 did not receive the valuation it deserved. Based on the lower valuation, Nuvama reduced the price target for Apollo Hospitals by around 3 percent to Rs 7,300 while retaining its "buy" call.

While Prabhudas Lilladher also acknowledged that the stake sale of Apollo HealthCo was done at a discounted valuation, it sees the merger of Keimed with the arm as a positive step as it removes overhang of any leakage. "Further management guidance of Rs 1,750-2,000 crore EBITDA of merged entity by FY27 provides comfort," the brokerage stated.

Nuvama said Apollo’s preference for a timely fund-raise over valuation should reduce the drag from 24/7's operating cost and strengthen both its pharmacy and hospital businesses.

Motilal Oswal Financial Services also said the part stake sale in Apollo HealthCo would infuse growth capital . Overall, the firm expects a 48 percent earnings CAGR for the merged entity over FY24-26. The brokerage has a "buy" call on Apollo Hospitals with a price target of Rs 7,280.

Nuvama, too, said the fund-raise could minimise 24/7's cash burn, support future expansion and enable integrated pharmacy distribution. The merged entity could leverage Keimed’s over 70,000 store network to push private label sales and unlock synergies, Nuvama said.

Jefferies highlighted Apollo HealthCo's strong focus on accelerating growth but said it would need a stronger executive given the complex organisational structure of the merged entity. The brokerage has a "buy" call on Apollo Hospitals with a price target of Rs 7,500.

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