The proposal to demerge the pharmacy business—including offline pharmacy, online and telehealth operations, and Kiemed—into NewCo bodes well for longterm value creation across both the healthcare services (hospital/clinics business) and pharmacy businesses. In fact, acquiring the remaining 74.5% stake brings the front-end pharmacy operations fully under NewCo, enabling the creation of a complete ecosystem and positioning it as the largest omnichannel pharmacy distribution/digital health platform. The demerger allows for a sharper strategic focus, with APHS concentrating on core healthcare services, while NewCo drives growth in digital health and pharmacy distribution under dedicated leadership.
OutlookWe value APHS on an SoTP basis (30x EV/EBITDA for the hospital business, 15x EV/EBITDA for retained pharmacy, 23x EV/EBITDA for AHLL, 22x EV/EBITDA for front-end pharmacy, and 2x EV/sales for Apollo 24/7) to arrive at our TP of INR8,720. Reiterate BUY.
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