Q4FY23 Review: Apollo Hospitals: Robust FY24 outlook across segments

1 Jun 2023 , 10:20 AM

Apollo’s Q4 Ebitda, excluding 24/7 losses, was 6% ahead of analysts of IIFL Capital Services estimates primarily driven by better-than-expected topline growth in the Hospitals business (up 18% YoY vs IIFLe of 12%). Apollo HealthCo also posted 31% YoY revenue growth in Q4, with 24/7 Ebitda loss of Rs1.9bn being in-line with our estimates. Apollo’s FY24 outlook remains strong across segments, with the mgmt guiding for (a) 15% revenue growth and 100bps margin expansion for the Hospitals business driven by improving occupancies, (b) 28- 29% revenue growth for the Pharmacy business, with Apollo 24/7’s GMV likely to double in FY24 and the business expected to achieve Ebitda neutrality by Q4FY24, and (c) 35-40% core revenue growth expected to sustain in AHLL.

Mgmt is targeting to improve Hospital business occupancies from 64% in FY23 to 70% by 4QFY24, driven by incremental doctor hiring, rationalization of institutional beds which will aid to improve the case mix, and ramp-up in corporate/international patients. International patient revenue contribution can potentially increase from 7% to 10% going forward. These efforts should help Apollo to drive 15% revenue growth in its Hospitals business and improve its Hospital business Ebitda margins by ~100bps from 24.5% in FY23 to 25.5% in FY24.

Achievement of Ebitda neutrality in Apollo 24/7 by Q4FY24 would provide an upside to analysts of IIFL Capital Services estimates, as they have factored-in Ebitda loss of Rs5.8bn in FY24 vs Rs6.8bn in FY23. Mgmt is aiming to reduce 24/7 operating costs by Rs200-250m on a quarterly basis as Apollo’s discounts have narrowed from 18-19% earlier to 15% now, while the targeted doubling of GMV in FY24 will also help to drive operating leverage and reduce the margin drag. Analysts of IIFL Capital Services expect HealthCo revenue to clock 25% Cagr over FY23-26, with margins in the offline segment sustaining at 7.8-8%.

Analysts of IIFL Capital Services expect Apollo’s overall Ebitda margins to expand 100-120bps p.a. over FY24-26, driven by an improving case mix, price-led ARPOB growth of 4-5%, & reducing losses from 24/7. Accordingly, they project the company to deliver 19% revenue & 30% Ebitda Cagr over the next 3 years.

With robust execution in the Hospitals business like most of the other peers and upbeat growth outlook across segments, analysts of IIFL Capital Services largely maintain their Ebitda estimates and BUY rating on Apollo (TP Rs5,315). Their TP implies USD2.2bn valuation for the HealthCo entity and achievement of Ebitda neutrality in Apollo 24/7 by 4QFY24 would provide an upside to their estimates.