Markets
Apollo Hospitals needs a heath check on e-pharma, diagnostics
Summary
The stock has risen by 8% since the company has announced subdued March quarter (Q4FY23) results last week.Apollo Hospitals Enterprise Ltd’s shares hit a new 52-week high on Wednesday. The stock has risen by 8% since the company has announced subdued March quarter (Q4FY23) results last week. Investors seem excited about the strong FY24 guidance, particularly in Apollo 24/7. That said, the Apollo HealthCo segment, which includes offline and online pharmacy distribution and the 24/7 business, continues to report loss. Higher operating expenses incurred for online pharmacy and 24/7 meant HealthCo’s loss at the Ebitda level stood at ₹72 crore. This is despite offline pharma business doing well. HealthCo’s Ebitda loss for FY23 is ₹200 crore.
The management has guided that the HealthCo business is on track to breakeven by Q4FY24. It has taken cost-saving initiatives such as manpower rationalization and reduced logistics spends to lower 24/7’s cost structure. This should aid profitability. Further, Apollo plans to double the gross merchandise value (GMV) of 24/7 in FY24. In FY23, Apollo 24/7 clocked a GMV of ₹1,643 crore, exceeding its target of ₹1,500 crore. It goes without saying that progress on this front needs to be monitored.
Besides the pharmacy business, Apollo’s mainstay healthcare services segment (hospitals) is also expected to perform well in FY24. This segment saw revenue growth of 18% year-on-year in Q4FY23 to ₹2,195 crore driven by an increase in average revenue per occupied bed. The management expects the revenue from the hospitals’ segment to grow 13-15% in FY24 led by higher occupancy. The company aims to take occupancy to 70% in FY24 from the current level of 64% in Q4FY23.. For this, the management intends to recruit new doctors, leverage 24/7 for patients and use international and corporate relationships. The company also plans to add 2,000 beds in the next four years. As such, investors seem to be factoring the brighter picture what with the stock rising by 39% in the past one year. This may limit meaningful upsides. According to Kunal Randeria, director, Nuvama Institutional Equities, “Rerating is contingent on how other businesses that is Apollo Health and Lifestyle Ltd and 24/7 perform. Hospitals business is already on a double-digit growth trajectory. But it is the other segments that need to pull up. So, while the outlook is good, improvement in diagnostics segment margin and online pharmacy business progress are key triggers for the stock." In a report on 31 May, Jefferies India analysts said, “We maintain our Buy rating primarily on belief that management will be able to drive up hospital occupancy and reduce losses in Apollo 24/7."
