Buy Apollo Hospitals; target of Rs 1970: ICICI Direct

ICICI Direct's research report on Apollo Hospitals

Q1 results witnessed the full impact of Covid-related challenges. Despite the significant drop in hospital occupancies, revenue drop was arrested by a significant uptick in pharmacy revenues. Revenues de-grew 15.6% YoY to Rs 2172 crore due to a 41.2% YoY decline in hospital revenues to Rs 795 crore amid the pandemic. On the other hand, Pharmacy segment posted strong revenue growth of 21.0% YoY to Rs 1279 crore. EBITDA margins dropped to 1.6% vs. 13.8% in Q1FY20 due to negative operating leverage. Subsequently, EBITDA de-grew 90% YoY to Rs 35.5 crore. Reported loss for the quarter was at Rs (208) crore vs. net profit of Rs 57 crore in Q1FY20.

Outlook

We value the stock on an SOTP basis by valuing the healthcare business (existing hospitals & JV) at 13x FY22E EV/EBITDA, healthcare (new hospitals) and pharmacy business at 1.5x and 2x FY22E EV/sales respectively. We have a target price of Rs 1970.

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