MUMBAI : Apollo Hospitals Enterprise Ltd’s second-quarter numbers do not have much to cheer about, though they have matched the Street’s expectations. The stock slipped by 1.5% on Friday.

Much of the increase in revenue was along expected lines because of better growth in its new hospitals. While mature hospitals’ revenues rose 12% year-on-year in Q2 FY20, higher than what analysts had estimated, revenue from new hospitals were up 17%. Overall, stand-alone revenue grew 18%, which is decent growth.

Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint

Optimal asset utilization, along with an improvement in the revenue mix, is also being seen as a key reason for better revenue trajectory. However, increasing the growth rates of its new hospitals becomes critical. That’s because the margins in its existing hospitals have stabilized, but the new hospitals seem to have better scope for growth.

A positive is the momentum in the company’s pharmacy business, which was ahead of estimates because of the optimization of private labels. Revenue in this segment grew about 22% year-on-year, though margins were low.

“Operations improved across verticals. New hospitals have the potential to add to the margins, while the old hospitals are growing at a steady pace. Also, its lifestyle segment turned profitable this quarter, implying better revenue growth trajectory," said Param Desai, analyst at Elara Capital (India) Pvt. Ltd.

Still, the higher base of operations has improved its operating leverage by a decent margin, much in line with estimates. “Ebitda pre-Ind AS116 accounting change was at 310 crore, up 19.4% y-o-y. Ebitda margin post-Ind AS116 was at 14.8%, higher by 245 basis points y-o-y and in line with our forecast," Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a note to its clients. Ebitda stands for earnings before interest, tax, depreciation and amortization, and Ind AS is Indian Accounting Standards.

Net profit, however, grew just 14% year-on-year, reflecting higher corporate tax provisions, which the Street had not factored in. The management clarified that it has not moved to the new corporate tax regime due to minimum alternate tax credit. It will move to the new rate only after this credit is exhausted.

The stock seems to be pricing in a faster pace of scalability though, which remains critical for Apollo Hospitals.

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