Apollo Hospitals recorded standalone revenues growth of 14% yoy to Rs.8.5bn, below our estimate of Rs8.8bn. Consolidated revenues expanded 12.9% to Rs9.5bn compared to Rs8.3bn in Q4FY12.

The miss was largely led by disappointing results for hospital segment. Revenues of the hospital division consisting of hospital services, hospital-based pharmacies and consulting, increased by just 11% in the quarter to Rs5.6bn.

The growth in hospital segment was muted due to extended weekend holidays during the quarter leading to lower inpatient volumes. However, the pharmacy business growth, at 20.3% yoy, was strong, led by higher revenue per store and the addition of pharmacies

Apollo Hospitals comercilaised 340 beds in the quarter. Higher cost pressure along with addition of news beds adversely impacted the margins. The reported EBITDA margin declined 47bps yoy to 15.7%.

The lower revenue and margin along with higher interest cost, should have resulted in lower net income. However, the lower effective tax rate assist PAT to grow by 19.7% yoy, to Rs710mn.

Chennai cluster (1,267 bed), the largest of the company, recorded muted growth of 10.3% yoy. The lower growth in 4QFY13 was due to decrease in occupancy levels and extended weekend holidays. Hyderabad clusture grew by just 7.5% but improvement in occupancy level, ARPOB growth along with the lowering ALOS was notable in this quarter. Management commented that the growth was driven by volume growth in neuro, ortho and onco segments. We expect improvement in both occupancy and ARPOB in the next year. Others cluster revenues grew by 15.8% yoy largely led by 500 bps growth in occupancy at 76%. Even the newer hospitals continued to display steady progress and improvement in operating parameters.

The pharmacy division maintained a steady growth momentum with a 20.3% yoy growth in revenue. The EBIT margin in the pharmacy division increased by 20bps yoy to 1.7%. Buying efficiencies,  operating leverage and higher contribution from private labels are the drivers for the margin. Apollo Pharmacies (SAPs) added 139 new net stores Q4 FY13 leading to total capacity of 1,503 operational stores currently. The new store addition will get impacted in FY14 due to delay in receiving licenses for new stores.