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Credit Suisse
Apollo Hospitals (Outperform)
CMP: ₹1,325.55
Target: ₹1,600
The first quarter of FY21 outlook is challenging but Apollo Hospitals Enterprises has managed the situation quite well with significant cost reductions, no increase in net debt and timely roll-out of digital app for digital consultation, e-pharmacy and diagnostics.
Net debt (₹3,100 crore) should further reduce with inflow of ₹300 crore from pharmacy front-end restructuring and ₹350 crore from a new partner in Proton.
The crisis has prompted Apollo to look at all cost items closely and the company aims to achieve 10-15 per cent reduction in cost permanently.
Capex has been slashed to ₹200 crore at the consolidated level (₹100 crore maintenance capex and ₹70 crore for the remaining payment on proton). Occupancy in the hospital had declined to 28 per cent in April and 35 per cent in May but has now increased to 45 per cent. Apollo currently has 1,000 beds dedicated for Covid-19 patients and these are 70 per cent utilised currently. The utilisation is high in urban areas such as Chennai and Delhi while it is lower in non-urban areas. The realisation from Covid-19 treatment is lower at ₹20,000 in Chennai and Delhi and ₹25,000 in other states. This is lower than Apollo's realisation and may be another reason for the high break-even. The break-even is likely at 50-55 per cent occupancy, which the management expects to reach by the end of second quarter of FY21.
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