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Apollo Hospitals Enterprise Ltd’s investors have little to complain about. Though the stock has declined by about 18% from its 52-week high in November, its value has doubled in 2021. Not without reason.

For one, the hospitals business has seen a strong rebound. Further, rising non-covid revenue has helped normalize the business mix, boosting profit margins. Also, there is reasonable optimism on the pharmacy business. The company has separated its front-end pharmacy business and Apollo 24/7 into a subsidiary, Apollo HealthCo Ltd, to grow its e-commerce platform. Robust growth outlook for the platform and an impending fundraise have created excitement around this division.

Analysts at Motilal Oswal Financial Services Ltd said, “We expect its omni-channel differentiated factor to be the preferred mode for online pharmacy going forward, enabling Apollo to garner a 14% market share in e-pharmacy over the next five years." Here, a strong network of 4,300 offline stores lends confidence of faster delivery and wider reach compared with online-only peers.

 

Sarvesh Kumar Sharma/Mint
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Sarvesh Kumar Sharma/Mint

Meanwhile, the company’s back-end pharmacy business is performing well, too. Rising sales of private labels and increase in occupancy help, too. As such, the hospitals business clocked sequential growth of 13% in the September quarter (Q2FY22). Its year-on-year growth stood at 77%. New hospitals have been growing faster. In Q2, their revenue rose by 84%, outpacing the 70% growth of mature hospitals. New hospital occupancy stood at 66%, comparing well with mature hospital occupancy of 65%.

With its profits beating expectations in Q2, many analysts raised their earnings estimates of Apollo for FY22 and FY23. But growth may taper a bit in the ongoing quarter. Analysts say foreign patient inflow may take time to pick up given the threat of Omicron.

Meanwhile, Motilal Oswal’s target price for the stock at 5,900 is about 21% above the current share price. According to the brokerage, key risks include a delay in profitability improvement of new hospitals and lower-than-expected share of private labels in the pharmacy business.

For now, the sharp outperformance in the Apollo Enterprises stock suggests that a good portion of the near-term growth prospects are being factored already. This may keep significant upsides at bay in the near future.

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