Apollo Hospitals Enterprise Ltd - Q2FY21 Result Update - YES Securities

Apollo Hospitals (Q2 FY21) - SELL (Target Rs1,300 Downside 38%)

Our view: Apollo Q2 FY21 numbers remained on the recovery path though occupancies will take remainder of fiscal to reach pre COVID levels (mature hospitals occupancies at 45% vs 70% in H1 last year - Oct being 20% better still leaves an occupancy shortfall of ~15 ppts). We marginally lower mature hospitals EBIDTA estimate based on H1 results and retain SELL with unchanged TP of Rs1,300, based on ~9x FY22 hospital EBIDTA. While bolt on acquisition of 200 to 300 bed hospital would not require more than Rs2bn, actually there is no pressing need for fund raising in our view. While organic capex has been capped at Rs2.5bn and ruled out in FY22, we believe any incremental bolt on acquisition, while cover market share gaps, would not move the needle in terms of consolidated EBIDTA. At the same time, it is not in sync with an asset light strategy being pivoted for hospitals. We have lowered FY21 estimates (-7%) after H1 performance and lower FY22 by 4% to account for lower EBIDTA (80%) capture in the back end after the pharmacy restructuring. A slower than expected revival in hospitals which can lead to, say, 300bps decline in mature hospital EBIDTA margin (20% vs estimated 23%) can result in 15% lower EPS in FY22. While we do not build in such a scenario, we flag off sensitivity risk to hospital margins.

Q2 FY21 call takeaways

Organic capex will not be more than Rs2.5bn while bolt on acquisitions will depend on the opportunity - hopeful of some presence in Delhi in the future. Looking at 300-beds in larger cities and 200 beds in smaller ones. A portion of fund raised will be used for investment in 24/7 digital app

September saw some patients from outstation patients and Oct is 20% better in revenues and occupancy vs Q2 average

Sep occupancy was over 60% and similar number for Oct - breakeven is around 50%

Seen a significant increase in local market share and believe these patients will be sticky

COVID ARPOB is 20% lower than overall ARPOB and COVID occupancy is 30% of total occupancy

80% EBIDTA will be captured by backend Apollo and in the listed entity; once initial costs are absorbed in the back end, can capture up to 85% of EBDITA of the pharmacy business

Capex of ~Rs500mn in pharmacy would be incurred by front end so that represents a savings

AHLL - just 5% below Q2 last year so regaining ground

Mature hospital ROCE of 20-21% and new hospitals in mid-teens after 5 years of operation

Shares of APOLLO HOSPITALS ENTERPRISE LTD. was last trading in BSE at Rs.2283.25 as compared to the previous close of Rs. 2269.15. The total number of shares traded during the day was 13744 in over 1448 trades.

The stock hit an intraday high of Rs. 2324.15 and intraday low of 2270.4. The net turnover during the day was Rs. 31530553.

Source : Equity Bulls

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