Broker's call: Apollo Hospitals (Sell)

Target: ₹3,030

CMP: ₹5,080.45

Apollo Hospitals Enterprises Ltd has surprised with solid delivery in the core hospitals business especially on the ARPOB (realisations/bed) which drove recovery in mature hospitals margin.

Management indicated it expects ARPOB (average revenue per occupied bed) to sustain even as sensitivity to change in ARPOB is quite meaningful. Factoring such elevated ARPOB would imply assuming case mix remains similar to what it has been during the pandemic.

We refrain from making such an overarching change in realization/bed assumption particularly as revival in footfalls would tend to reduce the share of high end surgeries. Pharmacy business carried 24/7 operating costs of ₹84.5 crore in H1 FY22 with online blended discount of nearly 12 per cent; any rise in discounting is likely to cramp segment margin.

Given the sharp rise in ARPOB in H1, we raise realisation estimates resulting in about 40 per cent rise in FY22 EPS (Ex-exceptional gain) though FY23/24 estimates undergo a relatively modest change.

Given the near term strength in ARPOB, raise EV/EBIDTA multiple for hospital business to 13x but retain Sell with revised a target price of ₹3,030 (earlier ₹2,750).

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