Buy Apollo Hospitals; target of Rs 5700: Motilal Oswal

Motilal Oswal's research report on Apollo Hospitals

Apollo Hospitals (APHS) delivered operationally in-line 1QFY24. However, earnings were below our estimate due to higher interest/tax rate for the quarter. There has been a healthy (11% YoY) growth in ARPOB. APHS has also reduced opex in Apollo 24/7. We cut our earnings estimates by 5% each for FY24/FY25 to factor in: a) gradual improvement in occupancy of certain network hospitals, and b) lower profitability in Apollo Health and Lifestyle (AHLL) segment. We value APHS on an SoTP basis (22x 12M forward EV/EBITDA for healthcare services, 12x 12M forward EV/EBITDA for backend pharmacy, 25x 12M forward EV/EBITDA for AHLL, 20x 12M forward EV/EBITDA for front-end pharmacy and 2x 12M forward EV/sales for Apollo 24/7) to arrive at a TP of INR5,700. We remain positive on APHS due to: a) its sustained healthy growth/ profitability in healthcare services, and b) efforts to achieve breakeven in Healthco during 4QFY24E. Reiterate BUY.

Outlook

We value APHS on an SoTP basis (22x 12M forward EV/EBITDA for healthcare services, 12x 12M forward EV/EBITDA for backend pharmacy, 25x 12M forward EV/EBITDA for AHLL, 20x 12M forward EV/EBITDA for front-end pharmacy and 2x 12M forward EV/sales for Apollo 24/7) to arrive at a TP of INR5,700.

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