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Business News/ Markets / Stock Markets/  Apollo Hospitals share price rises over 4%; should you buy this stock? Here's what top brokerages say
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Apollo Hospitals share price rises over 4%; should you buy this stock? Here's what top brokerages say

Apollo's presence in an offline format makes it a formidable player, said Prabhudas Lilladher. Motilal Oswal Financial Services maintained a buy call while Kotak Institutional Equities also kept a buy call.

Apollo Hospitals Enterprise, post-market hours on May 30, reported a 50 per cent growth in consolidated net profit at ₹146 crore during the January-March quarter of FY23. (Agencies)Premium
Apollo Hospitals Enterprise, post-market hours on May 30, reported a 50 per cent growth in consolidated net profit at 146 crore during the January-March quarter of FY23. (Agencies)

Apollo Hospitals Enterprise's share price rose over 4 per cent in morning trade on BSE on Thursday (June 1), looking set to extend the gains into the second consecutive session after the company's March quarter earnings. The stock opened nearly a per cent higher at 4,657.75 against the previous close of 4,622.80 and rose 4.5 per cent to 4,830 in the first half of the session.

Apollo Hospitals Enterprise, post-market hours on May 30, reported a 50 per cent growth in consolidated net profit at 146 crore during the January-March quarter of FY23, as compared to a profit of 97 crore, in the corresponding quarter of last fiscal. It reported a net income of 4318.50 crore during Q4FY23 as compared to 3,577.15 crore in Q4FY22, representing a gain of 21 per cent YoY.

Read more: Apollo Hospitals Q4 results: Net profit up 50% to 146 Cr, Board declares 180% dividend

The stock ended 0.42 per cent higher in the next trading session on May 31.

While the Q4 numbers looked healthy, they missed the estimates of analysts and brokerage firms. Still, most of them maintained their positive views on the stock.

Brokerage firm Motilal Oswal Financial Services maintained a buy call on the stock with a target price of 5,450 even as it underscored Apollo Hospitals delivered a lower-than-expected Q4FY23 performance, dragged down by higher spending on Apollo 24/7 and additional establishment costs for the pharmacy business. However, the brokerage firm added that the healthcare services business posted healthy revenue and EBITDA growth of 13 per cent and 18 per cent YoY to 8,700 crore and 2,100 crore, respectively, in FY23.

Motilal Oswal cut its FY24 and FY25 earnings per share (EPS) estimates by 7 per cent each to factor in higher opex for the pharmacy business, a gradual uptick in occupancy, and higher spending on the diagnostic business.

"We value Apollo Hospitals on the SoTP basis (22 times 12-month forward EV/EBITDA for healthcare services, 12 times 12-month forward EV/EBITDA for backend pharmacy, 25 times 12-month forward EV/EBITDA for Apollo Hospitals, 20 times 12-month forward EV/EBITDA for front-end pharmacy and 2 times 12-month forward EV/sales for Apollo 24/7) to arrive at a target price of 5,450," said Motilal Oswal.

(EV/EBITDA is a financial ratio used to evaluate the value of a company. EV stands for enterprise value and EBITDA sand for earnings before interest, taxes, depreciation, and amortization. EV/EBITDA is a valuation multiple that measures how many times a company's EBITDA exceeds its enterprise value.)

Motilal Oswal is positive on Apollo Hospitals given (1) its consistent efforts to improve growth and profitability in healthcare services, (2) cost management measures to reduce the loss in Healthco, and (3) a robust expansion in the pharmacy network across India.

Brokerage firm Kotak Institutional Equities also maintained a 'buy' call on the stock with a target price of 5,550 while it said Apollo Hospitals posted a subdued Q4FY23 due to lower footfalls and higher 24/7 losses.

The brokerage firm, however, observed that the company’s hospital EBITDA almost tripled in the past five years.

"With ample scope to improve occupancies, we expect hospital profitability to expand further. Given the expected sturdy FCF generation over FY2024-26E driven by hospitals and offline pharmacies, Apollo Hospitals’ fundamentals stay strong even without the Healthco fundraise," said Kotak.

Kotak expects overall sales and EBITDA CAGRs of 18 per cent and 24 per cent, respectively, over FY2023-26E, for Apollo Hospitals. The brokerage firm said the current market price for the core hospital segment implies an undemanding about 17 times FY2025E pre-Ind AS 116 EV/EBITDA, suggesting further room for an upside.

 

Brokerage firm Prabhudas Lilladher maintained its buy recommendation on the stock, pegging the target price at 5,300. It said Apollo Hospitals' consolidated EBITDA was below its estimate, however, it believes the company has created a solid growth platform across segments and digital foraying has further made it a strong Omni channel play.

"The company also has a good presence in an offline format, making it more of a formidable player than just pure play online company. Though the stake sale in Apollo HealthCo has been delayed, scale-up in business is on track," Prabhudas Lilladher said.

"Our FY24 and FY25E EBITDA stands reduced by nearly 3 per cent. Overall we estimate an 18 per cent EBITDA CAGR over FY23-25E (ex 24x7). We ascribe 22 times EV/EBITDA multiple to the hospital segment and 20 times to offline pharmacy and Apollo Health and Lifestyle, also assign zero value to the 24/7 business," Prabhudas Lilladher said.

Read all market-related news here

Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 01 Jun 2023, 11:50 AM IST
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