PL Stock Report: Apollo Hospitals Enterprise (APHS IN) - Q1FY24 Result Update - In-line quarter; occupancy to pick up - BUY

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

Rating: BUY | CMP: Rs4,906 | TP: Rs5,800

Q1FY24 Result Update - In-line quarter; occupancy to pick up

Quick Pointers:

♦ Occupancy stood at 62%; ARPOB growth was 11% YoY in hospital segment.

♦ QoQ reduction in 24x7 expenses aided by reduction in digital expenses

Apollo hospitals enterprise’s (APHS) reported consolidated EBIDTA of Rs 5.1bn (up 4% QoQ); in-line with our estimates. Adjusted for 24x7 losses and ESOP cost (Rs2bn), EBIDTA was at Rs 7.1bn, up 19% 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 16% EBITDA CAGR over FY23-25E (ex 24x7). Maintain ‘BUY’ rating with revised TP of Rs. 5,800/share (earlier Rs5,300/share). We ascribe 24x (22x earlier) EV/EBITDA multiple to hospital segment, 25x (20x earlier) to offline pharmacy and 20x to AHLL, assign zero value to the 24/7 business.

♦ EBIDTA at Rs5.1bn; in-line with our estimate: Consolidated EBIDTA at Rs5.1bn was in-line with our estimate. 24x7 digital app expenses were at Rs1.75bn (Rs1.9bn in Q4) and additional Rs292mn of ESOP related non-cash expenses in Q1. Pharmacy OPM adjusted for 24x7 app exps expanded 10 bps YoY at 8.2%. Mature hospital EBIDTA was up 3% QoQ, while EBIDTA from new hospitals including proton was down 4% QoQ. Overall hospital OPM including proton further declined by 80bps QoQ to 23.6%; due to higher COGS and marketing expenses. AHLL reported EBIDTA of Rs233mn (down 9% QoQ) with 7.3% OPM.

♦ Lower occupancy; strong ARPOB: Overall occupancy stood at 62% vs 64% in Q4. ARPOB growth was strong at 9% QoQ and 11% YoY to Rs.57.8K. Overall hospital revenues grew by 13% YoY and 5% QoQ. Net debt increased by Rs 145mn QoQ to Rs 15.2bn. Management cited higher ARPOB growth was driven by case mix and tariff increase.

♦ Key con-call takeaways: (1) Hospitals – Lower occupancy were seen in some of Tier 2 cities like Madurai, Trichy markets. Company have added new doctors in units like Navi Mumbai, Vizag which will help to aid occupancy and margins going forward. Overall reiterated its guidance of 70% occupancy. Occupancy in July month has been tracing well (2) Bed Expansion - Addition of 2000 beds over 3-4 years at a capex of Rs30bn across Bangalore and Kolkata markets where occupancy is already higher (3) Sees ARPOB growth of 7-8% annually, aided by better case mix and price hike in line with its historical trends (4) Apollo 24x7 - GMV was up 5% QoQ and came in at Rs6.2bn however revenues decline by 19% QoQ. Mgmt cited lower discounts and conscious decision of not serving certain pin codes where logistics cost was higher. During Q1, GMV to revenue conversion was 33% and should improve going forward. The reduction in 24x7 losses QoQ was aided by reduction in digital expenses. Guided EBITDA break- even by end of Q4FY24. (5) Offline pharmacy – Net addition of 34 stores in Q1 and guided for 500-600 stores in FY24. Guided for Rs100bn of revenues with 6% OPM in FY24.

(Click on the Link for Detailed Report)