PL Stock Report - Apollo Hospitals Enterprise (APHS IN) - Q2FY24 Result Update - Strong show in hospital segment - BUY

Apollo Hospitals Enterprise (APHS IN) – Param Desai – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs5,279 | TP: Rs6,000

Q2FY24 Result Update – Strong show in hospital segment

Quick Pointers:

♦ Guided to add 2300 census beds with capex plan of Rs. 34bn in 3 years

♦ Occupancy of 72% and 200 bps margin increase in hospital segment by FY25

Apollo hospitals enterprise’s (APHS) reported consolidated EBITDA of Rs 6.3bn (up 23% QoQ); 6% above our estimates. Adjusted for 24x7 losses and ESOP cost (~Rs2bn), EBITDA was at Rs 8.3bn, up 11% YoY. We believe APHS has created a solid growth platform across segments and digital foraying has further made it a strong Omni channel play. The company also has good presence in offline format, making it more of a formidable player than just pure play online company. Though stake sale in Apollo HealthCo has been delayed, scale-up in business is on track. Our FY24E and FY25E EBITDA ex 24x7 broadly remain unchanged. Overall we estimate 15% EBITDA CAGR over FY23-26E (ex 24x7). Maintain ‘BUY’ rating with revised TP of Rs. 6,000/share (earlier Rs5,800/share) as we roll forward. We ascribe 23x EV/EBITDA multiple to hospital segment, 25x to offline pharmacy and 20x to AHLL, assign zero value to the 24/7 business.

♦ EBITDA beat by 6% aided by hospitals; marginal drop in 24*7 operation cost: Consolidated EBITDA at Rs6.3bn was 6% above our estimate. 24x7 digital app expenses were at Rs1.6bn (Rs1.7bn in Q1) and additional Rs351mn of ESOP related non-cash expenses in Q2. Pharmacy OPM adjusted for 24x7 app exps declined 30 bps YoY at 7.6%. Overall hospital EBITDA including proton was up 11% YoY & 17% QoQ and OPM decline ~30bps YoY to 24.9%; due to higher investment in clinical talents and marketing expenses. AHLL reported EBITDA of Rs318mn (up 37% QoQ) with 9% OPM. The YoY EBITDA was subdued at 16% on account of ongoing network expansions as well as relocation of two spectra units.

♦ Higher occupancy due to seasonality; healthy ARPOB: Overall occupancy stood at 68% vs 62% in Q1. ARPOB growth was flat QoQ and improved 14% YoY to Rs.57.4K. Overall hospital revenues grew by 13% YoY. International biz attributes 7.5% of the total revenues. Net debt was flat QoQ to Rs 15.2bn.

♦ Key con-call takeaways: (1) Hospitals – Mgmt cited acquisition of ~100 new doctors across cities with 5% total revenues spent on advertisement and marketing which should result in higher occupancy, going forward. This should also aid margin expansion in existing hospitals by 200 bps by FY25 end. (2) Bed Expansion – Total bed addition of 2300 census beds over 3 years at capex plan of Rs34bn across 8 cities. Mgmt plans to operationalize 250 beds hospital in Pune (expandable to 425 beds) with a capex of Rs. 6.8bn in Q1FY25; similarly 225 beds in Kolkata in Q4FY25. (3) Double digit ARPOB growth was on account of reconfiguring general ward beds into semi-private and private section in certain locations. (4) Apollo 24x7 - GMV increased 17% QoQ and came in at Rs7.3bn and revenues increased 13% QoQ. During Q1, GMV to revenue conversion was 32% and guided to improve to 40% on sustainable basis in 2 years. The reduction in 24x7 losses QoQ was aided by reduction in digital expenses. Reiterates EBITDA break- even at HealthCo by end of Q4FY24. (5) Offline pharmacy – Net addition of 132 stores (98 stores in Q2) in H1FY24. Reiterates for Rs100bn of revenues with 6% OPM in FY24. (6) Payor mix - Self pay and insurance contributes 38% and 43% respectively. (Click on the Link for Detailed Report)