Overweight on Apollo Hosp as margins improve
We value the hospital business at 15xFY14e Ebitda (in line with current valuations), pharmacy at 1x (earlier 0.5x) sales and add Rs 23 per share on account of associate to arrive at an implied equity value of R982. We have increased our target EV/sales for pharmacy on the back of improving margins and impending catalyst of tie-up with a strategic partner post FDI allowance in retail in India.
We remain overweight as Apollo maintains leadership in both hospital and pharmacy businesses with a strong brand presence in India. While both hospital and pharmacy growth is on track, average revenue per occupied bed (ARPOB) improvements in key Chennai and Hyderabad hospitals will be the key growth driver. Finalising a strategic partner for SAP will be key trigger for the stock.
Apollo Hospitals reported Q2FY13 net profit of R83.8 crore (52.4% y-o-y) on a consolidated basis, c2% higher than HSBC estimate of R82.3 crore and 6.5% higher than consensus estimate of R78.7 crore. Net revenues at R960 crore (22.6% y-o-y) were higher than HSBC estimate of R910 crore with strong sales reported from its key Chennai cluster hospitals and standalone pharmacy (SAP) segment.
Ebitda margins at 16.8% (up 13 bps y-o-y) came in better than our expectations of 15.7% on case-mix improvement and operating leverage
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