Apollo Hospitals remains in favour with growth triggers ahead

The hospitals business grew 18.2% sequentially and 145% year-on-year as occupancy level and average revenues per operating bed (ARPOB) improved in Q1FY22. Occupancy in mature hospitals was at 3,500 beds or 64% occupancy in the quarter. New hospitals had occupancy of 1,607 beds or 73% occupancy, said the company. The ARPOB, excluding vaccination, was at ₹41,102 versus ₹38,065, registering a year-on-year growth of 8% in Q1FY22. Covid-related business contributions were at 26% during the June quarter. 

The growth hereon is seen much healthier with normalising business mix and increase in elective surgeries among others that bode well for margins. Even new hospitals have been profitable and most achieved breakeven. The company has over the past spent significantly on adding capacities and is now set to reap benefits.

Analysts at ICICI Securities Ltd expect the company’s performance to improve in the coming quarters as the situation normalises. “We expect strong 57.5% growth in hospitals business in FY22 on a low base, consolidation of Kolkata hospital and incremental revenue from vaccination,” they said

While the growth in the hospitals business is catching pace and margins expanding across mature and new hospitals, the performance of other segments also remains supportive.

The pharmacy business grew by 35% sequentially and reported decent improvement in the margin to 7.5% which was up about 44 bps sequentially. This was aided by an increased share in private labels to 13.24%, which is much better than 9% historically.

Apollo 24/7 platform is scaling up well and is expected to reach $50-60 million in revenue by FY22-end. The company maintains its long-term guidance of $2.5 billion revenue by FY26 for Apollo Healthco Ltd (pharmacy, Apollo 24/7). Analysts at HDFC Securities Ltd expect Apollo 24/7 to break even by FY24. They also say the company’s diagnostics business continues to see a steady ramp-up and is on track to achieve ₹500 crore revenue by FY23, growing at 68% CAGR over FY21-23. CAGR is short for compound annual growth rate.

“We expect improvement in performance to continue in the ensuing quarters supported by higher occupancy, cost control initiatives and continuous growth momentum in the pharmacy segment,” said analysts at ICICI Securities Ltd. They expect 25.5% revenue and 51.8% Ebitda CAGR over FY21-FY23 on a low base of FY21. Ebitda is short for earnings before interest, taxes, depreciation, and amortization.