Apollo Hospitals - Other income positive surprise; Buy - Anand Rathi

Apollo Hospitals (Apollo) 2QFY13 performance was better than our expectation. Apollo reported 19.5% yoy revenue growth, led by its continuing strong performance in Indian hospitals and a ramp-up in its pharmacy business. EBITDA increased 20% yoy in line with revenue growth. Adjusted PAT grew 41.1% yoy, led by strong revenue growth and higher other income. We retain our estimates and a Buy with a target of Rs.797 based on FY14e EBITDA.

- 2QFY13 better than expected. Revenues grew 19.5 % to Rs.8.4bn, higher than our estimate of Rs.8.2bn, led by strong growth in domestic hospitals and continuing ramp-up in its pharmacy business. EBITDA margin improved by 10bps to 17.2%, higher than our estimate of 17%. Other income almost doubled to Rs.144m, against our estimate of Rs.33m. Adjusted PAT grew 41.1% yoy to Rs.832m, largely driven by the revenue growth and other income.

- Hospitals, pharmacy growth drivers. Hospital business revenue grew 13.6% yoy to Rs.5.6bn, (vs our expected 15%), led by rising occupancy levels and steady increase in average revenue per operating bed (ARPOB). Segment EBIT margin improved 110bps to 19.9%. Pharmacy business revenue grew 33.2% yoy, (vs our expected 20%) on account of continuous increase in the number of pharmacies and rise in revenue per store as more pharmacies are becoming mature now and closure of unviable pharmacies.

- Steady growth to continue. We expect revenue to continue to grow 18-20% led by strong demand for hospital beds in India and ramp-up in its pharmacy business with the continuous addition of new pharmacies. We believe that EBITDA margin would continue to improve 50-100bps each year resulting in 29.8% adjusted PAT CAGR over FY12-15.

- Valuation. The stock trades at 18x FY13e and 14.8x FY14e EV/EBITDA. We maintain a Buy on it with a target of Rs.797, factoring in 14.5x FY14e EBITDA. Risks. Delay in executing expansion plans and high gestation period.

Source : Equity Bulls

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