Brokerages positive on Apollo Hospitals despite subdued Q3; here's why

Despite reporting subdued earnings for the quarter ended December, Apollo Hospitals Enterprise has garnered optimism from various brokerages, as the management commentary suggests the possibility of a turnaround for the healthcare giant.

The weak Q3 earnings were attributed to lower margins across businesses and increased spending for Apollo 24/7. Although the company's core healthcare business was impacted by a seasonal downturn, its pharmacy vertical managed to post year-on-year growth.

However, the optimistic management commentary projecting a breakeven for Apollo Health by the second half of the next financial year resonated well with broking houses. The management also aims for a higher occupancy rate from the next quarter.

Jefferies’ view

"We factor in management guidance in our numbers with slightly conservative numbers for average revenue generated per occupied bed growth in the hospital division," said a report by global research and broking firm Jefferies.

The brokerage house also raised its FY24/25 EBITDA margin estimates for the healthcare major by 7 percent/8 percent on higher growth in hospitals and HealthCo business.

Shares of the company also reacted positively to upbeat views from Jefferies and rose over 3 percent on February 16.

Also read: Apollo Hospitals shares gain as Jefferies raises target price; sees 26% upside

Nuvama Institutional Equities highlighted multiple growth levers for Apollo Hospitals, including improving occupancy, plans for a 2,000-bed expansion over four years and pharmacy store expansion. The firm is also sanguine on the response to Apollo 24/7 and potential recovery in Apollo Health & Lifestyle.

Strong offline presence

Prabhudas Lilladher also expressed a positive view, noting that Apollo Hospitals’ strong offline presence makes it a more formidable player than a pure-play online company. "We believe Apollo Hospitals has created a solid growth platform across segments, and digital foraying has further made it a strong omni-channel play," the brokerage said in a report.

Motilal Oswal Financial Services (MOFSL) is also bullish on Apollo Hospitals, citing its sustained value creation across integrated healthcare services, including hospitals, pharmacies, diagnostics and consultation.

Jefferies, Prabhudas Lilladher, MOFSL and Nuvama Institutional Equities have all rated the healthcare major a Buy. Jefferies sees an upside potential of 26 percent for the stock in its base case and up to 40 percent in a bull case. The other three brokerages predict an upside potential of 19-27 percent.

Also Read: Apollo Hospitals’ digital business revenue set to improve: MD Suneeta Reddy

Elara Capital is among the few brokerages that are less bullish on Apollo Hospitals, mainly on account of its weaker-than-expected earnings in the third quarter. The brokerage has an Accumulate rating for the stock, with a target price of Rs 5,150, reflecting an upside potential of 15 percent from Wednesday's closing price.

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