Maintain ‘buy’ on Apollo; pharmacy business strong

By: |
September 17, 2020 8:32 AM

Overall, revenues declined 15.6% YoY to Rs 21.7 billion due to 41.2% fall in the hospital business, although pharmacy business reported revenue growth of 21.0%.

Apollo Hospitals Enterprises, Ebitda margin, AHEL Q1FY21 performance, CAGR, Pharmacy business, Covid-19Hospital business margin stood at (12.7)% vs 17.8% YoY due to significant decline in sales.

Apollo Hospitals Enterprises’ (AHEL’s) Q1FY21 performance was impacted by lockdown across the country. However, pharmacy business remained strong cushioning Covid-19 impact on the company’s performance. Overall, revenues declined 15.6% YoY to Rs 21.7 billion 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’.

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 after 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 July-August-September 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 Rs 3.4 million were the key triggers. We expect 300 store additions each year and 7.3% CAGR in revenue per store.

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 resources, 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.

We expect the performance to improve in coming quarters, supported by higher occupancy, cost control initiatives and continued growth momentum in the pharmacy segment. We expect 8.8% revenue and 13.5% ebitda CAGRs over FY20-FY23E.

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