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Apollo Hospitals (APLH.BO)
Buy: Solid Growth Continues
Growth Continues Unabated — APLH’s 2Q results were largely in line, with robust
growth in hospitals & pharmacies. More importantly, the numbers once again
indicate that the biz (especially hospitals) appears to have attained enough scale
to absorb additional beds without materially affecting profitability.
Strong 2Q — Sales grew 29% YoY, in line with our estimates, with good traction in
hospitals & pharmacies. EBIDTA margin improved 97bps on higher ARPOBs,
better case-mix in key hospitals & retail pharmacies turning EBIDTA positive. PAT
growth (+45% YoY) was higher than our expectations – buoyed by higher other
income, which offset higher interest & depreciation charges.
Retail Pharmacies: Turning Profitable — Retail pharmacy sales grew 40% YoY, led
by c60% growth in new pharmacies (net addition of 44 stores in 2Q) & 18%
growth in same store sales. Moreover, EBIT margins turned positive – the
management expects EBIT to remain positive for the full year. Focus on
operational efficiency & closure of some non-profitable stores has worked.
Hospitals: Growth all-round — Hospitals biz continued to see healthy revenue
growth (+25% YoY) & higher EBIT margin (+34bps YoY). New beds (up by 253
vis-à-vis 2QFY10), higher ARPOBs, price hikes, better case mix and a quicker
turnaround of new hospitals led to this growth. Sales from hospital-based
pharmacies also saw good growth.
Other Key Takeaways – a) Plan to add 2,600 beds by FY14, requires investment of
Rs 11bn; b) Retail Pharmacy biz targeting total 1,400 stores in the next three
years, to maintain positive EBIT going forward; c) Will look to extract value from
pharmacy and health street businesses in the future by divesting stake; d)
Insurance biz is core to the business but will not require further investments; e)
Confident of 25-30% revenue growth for FY11.
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