Apollo Hospitals’ focus on healthcare segment fuels positive outlook

New Delhi: Apollo Hospitals Enterprises Ltd reported a nearly 47% year-on-year decline in consolidated net profit during the June quarter due to one-off factors. Nonetheless, strong performance in the healthcare services (hospitals) division helped maintain a positive outlook, analysts said.

The hospital segment remains robust with average revenues per operating bed (ARPOB) at ₹57,760, up 11% year-on-year, and segment's profits at ₹264 crore, up 19% year-on-year. Overall occupancy was 62% and the company plans to achieve more than 70% over the next two years, Group CFO Akhileswaran Krishnan said.

Analysts at Motilal Oswal Financial Services said that., “We remain positive on Apollo Hospitals due to its sustained healthy growth/ profitability in healthcare services. Its efforts to achieve breakeven in Healthco during 4QFY24, also is another key factor that adds to their confidence.

New hospitals are expected to witness double-digit growth in volumes with revenue for new hospitals higher at 23% during Q1 and margins around 16.7%. The company is targeting 20% margins by year-end, driven also by increasing numbers of international patients and recovery of medical tourism revenues to pre-covid levels, Krishnan added.

Further support comes from retail and insurance segments, with year-on-year growth at 21% (compared to overall healthcare services growth of 13%). Apollo Hospitals is also planning to add 2,000 beds with an investment of over ₹3000 crore in key metros over the next four years. The company's current operating beds across the network total 7,798, with 2,380 of those in 14 new hospitals.

The company's focus on tower specialties including cardiac, onco, neuro, nephro, gastro, and ortho, which contribute to 63% of inpatient revenues, continues to drive growth.

Apollo's profit in Q1 was impacted by higher costs and operating losses at its wholly-owned subsidiary, Apollo HealthCo Ltd. (AHLL), but these are declining sequentially. The subsidiary, which houses the pharmacy distribution business and digital healthcare services platform Apollo 24x7, saw higher costs and a loss in Q1 but is expected to break even by Q4FY24, according to Krishnan.

Despite rising costs in the online pharmacy business over the last year, sequential decreases have begun. The offline pharmacy business continues to perform well with 6% margins and profits will be used for investment in the online pharmacy sector, seen as a future growth driver.

Q1's net profit was also impacted by higher ESOP charges and higher costs at AHLL, resulting in earnings before interest tax depreciation and amortisation (Ebitda) growing only 4% year-on-year to ₹509 crore (11.52% margin) versus ₹491 crore (12.93% margin) in the same quarter last year.

The net profit for the April-June quarter (Q1FY24) at ₹167 crore declined 47% year-on-year. However, adjusted for a tax credit of ₹146.6 crore in the year-ago period, net profit declined lower by 2% over the adjusted net profit of ₹171 crore in Q1 FY23.

Apollo Hospitals' stock was trading 1.5% lower in early Monday deals, on a day when broader indices were down half a percent. 

Analysts at Jefferies India Pvt Ltd maintained their positive ratings on Apollo Hospitals as increasing occupancy in newer hospitals and ARPOB growth should drive double-digit growth for the company.