Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of the new hospitals increased from 6.6% in Q2 to 10.1% last quarter, due to better occupancy. (Mint )
Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of the new hospitals increased from 6.6% in Q2 to 10.1% last quarter, due to better occupancy. (Mint )

Revival in Apollo Hospitals’ growth is already priced in

  • An improvement in performance at some of its older hospitals and scalability of the pharmacy biz also aided Q3 show
  • An improvement in performance at some of its older hospitals and scalability of the pharmacy business have also aided the Q3 operations

After about two years of subdued growth led by regulatory headwinds, Apollo Hospitals Enterprise Ltd has shown signs of a slow recovery in the December quarter (Q3). However, much of that recovery may already be reflecting in its stock price, which has increased by about 48% in a year.

With the phase of heavy capital investments in hospitals and medical devices behind it, the company’s ability to generate more free cash is being considered a positive.

“With no significant expansion planned, we expect strong FCF (free cash flow) generation from FY2021 onwards, with recent initiatives also likely to help drive net debt reduction," said Kotak Institutional Equities in a note to clients last month.

Note that some of the new hospitals have seen revenue growth of about 18%, which has aided overall growth. The company had added 14 new hospitals in the last four years.

Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of the new hospitals increased from 6.6% in Q2 to 10.1% last quarter, due to better occupancy.

GRaphic by Naveen Kumar Saini/Mint
GRaphic by Naveen Kumar Saini/Mint

An improvement in performance at some of its older hospitals and scalability of the pharmacy business have also aided the Q3 operations.

Consolidated revenue grew 17% in Q3. Better scalability and higher occupancies led to an improvement in its operating metrics. Consolidated Ebitda grew 54% in Q3.

Investors’ concerns over the high debt levels at the company and promoter group may ease with the recent stake sale in its insurance joint venture Apollo Munich Health Insurance. The management indicated that its debt, which was about 3,500 crore in December, was down to about 3,150 crore in January.

Revenue from the pharmacy unit grew 20.7% year-on-year. Operating margins have also risen due to economies of scale. The company has also seen an improvement in private label sales, which stood at 7.7% in Q3, about the same levels as in Q2.

But most of the positives are already priced in the Apollo Hospitals stock, which quotes at a trailing price-earnings multiple of 73 times. Earnings may have to revive at a faster pace to justify the valuations.

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