Apollo Hospitals surges 21% in 2 weeks post Q1 results; stock hits new high

Analysts see Apollo going back to its hospital margin expansion trajectory in FY22 to help drive cash generation and debt reduction

Shares of Apollo Hospitals Enterprise hit a fresh record high of Rs 1,938, up 6.5 per cent on the BSE on Thursday in an otherwise weak market on expectation of improved earnings going forward. In comparison, the benchmark S&P BSE Sensex was down 1.7 per cent at 37,023 points, at 11:35 am.

In the past two weeks, the healthcare facilities company's stock has rallied 21 per cent, after reporting good operational performance in the April-June quarter (Q1FY21).  The benchmark index was down 4 per cent during the same period.

Apollo Hospitals Enterprise reported consolidated earnings before interest, tax, depreciation, and ammortisation (EBITDA) loss adjusted for IND AS116 of Rs 43 crore against estimated of a loss of Rs 110 crore on account of lower losses at the hospital business than analysts has expected.

While hospital revenue declined 40 per cent year on year (YoY) in Q1FY21, analysts at JP Morgan believe the positive commentary from the company does indicate the possibility of YoY growth in the December quarter (exit run-rate).

“We see Apollo going back to its hospital margin expansion trajectory in FY22 to help drive cash generation and debt reduction. Beyond the near-term, the completion of Stand Alone Pharmacies (SAP) restructuring provides value unlocking opportunity over 3-4 years and with Apollo Health & Lifestyle Limited (AHLL) and Apollo 24/7 being other growth businesses for the future,” the brokerage firm said in result update. It maintains ‘overweight’ rating on the stock with 12-month target price of Rs 1,950 per share.

Analysts at Elara Capital believe the company has headroom to achieve accelerated growth, without the necessity of making further large capital investments. In the near term, the drop in occupancy would impact profitability. However, the brokerage firm remains structurally positive; given that the COVID-19 issue is temporary.

“Occupancy is gradually increasing, with 47 per cent in July, 55 per cent in August and 60 per cent expected in September. The company also has seen significant increase in COVID-19 patients in July and August. The company has tied-up with charter flights to get in patients from Bangladesh and Sri Lanka. In the Proton segment, 40 per cent of patients were overseas and APHS expects ramp-up from Q3. Elective procedures are increasing as there is also pent-up demand,” the brokerage firm said in quarterly update.