Hold Apollo Hospitals; target of Rs 1400: ICICIdirect
ICICIdirect.com has recommended to hold Apollo Hospitals with a target price of Rs 1400, in its research report dated August 14, 2015.
August 19, 2015 / 15:57 IST
ICICIdirect.com's report on Apollo Hospitals The revenues of Apollo Hospitals increased 20% YoY to Rs 1265 crore (I-direct estimate of Rs 1316 crore) on the back of 34.7% YoY increase in pharmacy business to Rs 520.1 crore (I-direct estimate: Rs 550.7 crore). The healthcare business grew 11.6% to Rs 745 crore (I-direct estimate: Rs 765.6 crore) to Rs 745 crore. EBITDA margins declined only 52 bps to 14.3% (I-direct estimate: 14.2%) on account of lower-than-expected other expenditure. EBITDA increased 15.8% YoY to Rs 181.1 crore Net profit rose 9.8% to Rs 90.8 crore (I-direct estimates: Rs 98.6 crore)The healthcare services segment (54% of consolidated revenues) has grown at a CAGR of ~16% in FY10-15 on account of incremental hospital addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid expansion and maturity of older hospitals have kept the overall growth tempo over and above 15% per annum. The next phase of expansion includes addition of 1350 beds to the existing network of 40 hospitals and 7123 beds (own hospitals) by FY19 with an additional capex of Rs 1477 crore. This is likely to put some pressure on EBITDA margins in the short to medium term. However, in the past, the company has demonstrated its ability to balance between expansion and margins. By acquiring Nova speciality and Assam Hospitals, the company has also opted for the inorganic route for expansion. We expect more focus in improvement of important parameters such as average length of stay (ALOS) and average revenue per operating bed (AROPB) that have been flat in the last few quarters on account of incremental bed additions. We expect healthcare sales to grow at a CAGR of 12.4% in FY15-17E to Rs 4007.7 crore as the company keeps on investing in new assets.ValuationWe expect consolidated sales, EBITDA and PAT to grow at a CAGR of 12.4%, 17% and 20%, respectively, in FY15-17E. The newly commissioned hospitals have achieved the break even (BE) level fairly ahead of our expectations. The focus will now shift to operational gauges for different cluster hospitals as the current phase of capex cycle nears its end. The Nova and Assam acquisit ion have demonstrated Apollo’s willingness to opt for the inorganic route for expansion through localised targets with good capability. On the other hand, pharmacy margins that showed an improvement recently may ake some hit in the medium-term on the back of Hetero stores acquisit ion. Our revised target price stands at Rs 1400 as per SOTP valuation.For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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