Apollo Hospitals Enterprises - Recovering well from COVID-19 impact - ICICI Securities

Apollo Hospitals Enterprises' (AHEL) Q1FY21 performance was impacted by lockdown across the country, however, pharmacy business remained strong cushioning COVID-19 impact on company's performance. Overall, revenues declined 15.6% YoY to Rs21.7bn due to 41.2% fall in the hospital business, although pharmacy business reported revenue growth of 21.0%. EBITDA margin (pre-Ind-AS 116 adjustment) stood at (2)%, down 1610bps YoY with significant drop in revenue. We expect performance to improve gradually in the coming quarters as occupancy level improves. We remain positive on AHEL's long-term outlook considering its strong brand and pan-India presence in the hospital segment, margin expansion also supported by cost control, and 13.5% EBITDA CAGR over FY20-FY23E. Maintain BUY.

- Revenue growth impacted by lockdown, expect gradual recovery: Hospitals business witnessed significant fall in revenue of 41.2% owing to reduced occupancy at 38% vs 66% YoY. This fall in occupancy was visible across the states post implementation of lockdown and postponement of elective surgeries by patients. The company's digital outreach for consultations and OPDs has supported growth. The occupancy level has risen gradually in Jul-Aug-Sep and Q2FY21 occupancy is expected to be above 50%. Pharmacy business continued to grow strong with revenues rising 21.0%. Addition of 284 new stores (YoY) to 3,780, and 11.9% increase in revenue per store to Rs3.4mn were the key triggers. We expect 300 store additions each year and 7.3% CAGR in revenue per store.

- Margins to recover but gradually: Hospital business margin stood at (12.7)% vs 17.8% YoY due to significant decline in sales. Gradual improvement in occupancy level (~50% currently) and various cost control exercises (human resource, administrative expenses etc.) undertaken by the company would help in gradual margin expansion. The consolidated margin (pre-Ind-AS 116) was negative in Q1FY21 and we expect positive margin Q2FY21 onwards. Overall, we estimate EBITDA margin to improve by 190bps over FY20-FY23E.

- Outlook: We expect the performance to improve in coming quarters supported by higher occupancy, cost control initiatives and continued growth momentum in pharmacy segment. We expect 8.8% revenue and 13.5% EBITDA CAGRs over FY20-FY23E. Minimal capex requirement in the near term would help generate FCF of ~Rs31bn over FY21E-FY23E which would help reduce leverage.

- Valuations: We lower FY21 revenue/EBITDA estimates by 5.5/26.1% to factor in lockdown impact and weak Q1FY21 but largely maintain FY22 estimates. Maintain BUY with a revised target price of Rs1,936/share based on SoTP valuation (earlier Rs1,666/share). Key downside risks are: higher competition in areas where AHEL has dominant position, prolonged lockdown and longer breakeven for newer hospitals.

Shares of APOLLO HOSPITALS ENTERPRISE LTD. was last trading in BSE at Rs.1688.9 as compared to the previous close of Rs. 1672.95. The total number of shares traded during the day was 78107 in over 5648 trades.

The stock hit an intraday high of Rs. 1738.65 and intraday low of 1678.95. The net turnover during the day was Rs. 133263189.

Source : Equity Bulls

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