 "Value unlocking boost for Apollo Hospitals")
While the subsidiary is growing its revenues it is yet to make money at the operating profit level. Analysts estimate that it could breakeven at the net level by FY19. The investment will not only provide impetus to AHLL's growth but also help reduce overall debt and in turn boost valuations of the company.
Analysts at Kotak Institutional Equities say that it is a positive step towards unlocking value of retail healthcare subsidiary while aiding in the reduction of debt. Post current infusion of equity, AHLL is valued at Rs 1,500 crore. Since Apollo's share now will be at 71 per cent in the subsidiary, it will be valued at Rs 1,080 crore implying Rs 78 a share.
The company's investments in AHLL and hospital bed expansion could fuel future growth. The company recently made a soft launch of 120 beds of 480-bed capacity at Navi Mumbai. This hospital is at 50-bed occupancy levels, say analysts at HSBC. The company expects the hospital to break even by FY18-end. It is aggressive expansions like this over the past few years that have been impacting margins and in turn leading to subdued Street sentiments. At the end of September quarter, analysts at Edelweiss said that upfront investments at Navi Mumbai hospital and AHLL will squeeze near-term margins. The stock prices has declined from 52-week highs of Rs 1,544 in March to lows Rs 1,147 in November and the stock now trades at Rs 1,200.
Apart from margin compression there are concerns of demonetisation impacting December quarter earnings. Analysts at HSBC say that Apollo witnessed a 10 per cent fall in outpatient foot fall, which will also reflect in a decline in patient volumes across clusters. HSBC though remains positive on company's fundamental growth from new capacity, improvement in pharmacies and AHLL-led volume growth.
