Spark Capital
Apollo Hospitals (Buy)
Target: ₹1,870
CMP: ₹1,777.35
In Q1-FY21, Apollo Hospitals’ Healthcare Services (EBITDA loss of ₹100 crore) and AHLL (EBITDA loss of ₹19 crore) were impacted by lockdown. Pharmacy segment (37 per cent y-o-y EBITDA growth) continued its robust performance.
Healthcare Services’ occupancies should improve (guidance of 50-52 per cent in Q2-FY21 vs 38 per cent in Q1-FY21), led by an increase in non-Covid patient volumes and surgical volumes. In addition to volume recovery, ongoing cost rationalisation initiatives should aid margin improvement (guidance to achieve positive EBITDA in Q2-FY21, targeted cost savings of ₹180-200 crore in FY21 vs. ₹100 crore done in Q1-FY21).
Lower capex guidance and proceeds from SAP restructuring (nearly ₹300 crore, transaction completed in September 2020) should ease leverage position (net debt/EBITDA* of 3.5x as of June 2020).
The management expects net debt to remain stable or decline from current levels (₹3,300 crore in June 2020) at FY21-end.
Our SOTP-based target price of ₹1,870 is based on FY22 EV/EBITDA multiple of 16x for APHS’ Hospitals business; FY22 EV/EBITDA multiple of 18x for back-end pharmacy business; equity valuation of AHEL’s stake in associates and joint ventures.