Buy Apollo Hospitals; target of Rs 1349: Axis Direct
Axis Direct’s research report on Apollo Hospitals
Capex cycle (bed capacity up 50% from FY14) coming to an end in FY19. Most beds added in the last 3 years are likely to mature and contribute majorly to earnings from FY19. We expect ~20% EBITDA and 35% PAT CAGR over FY17-20. Mgmt focus now is on consolidating existing operations and improving occupancy levels across hospitals.
We expect EBITDA swing of Rs 1.5 bn over FY17-19E, as Navi Mumbai hospital (EBITDA loss of Rs 0.4 bn) and clinics (EBITDA loss of Rs 1.1 bn) breakeven. Apollo’s growth to be led by (1) 2,400 new beds achieving maturity, (2) Matured hospital’s EBITDA margin to recover to 23% (21.4% currently) as (a) Apollo increases procedure prices and (b) guarantee fee reduces as doctors migrate from fixed fee to ‘fee for service’, and (3) margin expansion in pharmacies as stores mature and proportion of in-house brands rises. Maintain BUY with DCF-based TP of Rs 1,349 (implies 20x FY19E EV/ EBITDA).
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