Apollo’s hospital expansion, 24/7 breakeven to shape its health | Stock Market News
Apollo Hospitals Enterprise’s June quarter (Q1FY27) earnings beat Street expectations, with the consolidated Ebitda margin expanding to 15.5% from 14.6% a year earlier. Profitability was led by better operating leverage, thanks to strong volumes of patients treated, higher average revenue per in-patient and a smaller loss from the digital platform in the Apollo HealthCo business.
Apollo’s healthcare services business, which contributes about 51% of its consolidated revenue, grew 22% year-on-year to ₹3,567 crore. Occupancy increased to 70% from 65% last year. In-patient volumes grew 13%, while average revenue per in-patient rose 8%.
The next leg of hospital growth is visible in the capacity pipeline. Apollo has commissioned five new hospitals with about 1,000 census beds. Excluding Gurgaon, 380 of these beds have already been operationalized, while the remaining 620 will be ready over 12-18 months. The expansion costs about ₹11,150 crore, of which ₹7,500 crore is still to be spent.
Capacity addition also explains why margins need to be viewed alongside growth. Established hospitals remain the main growth engine, while new facilities will initially dilute consolidated margins before they ramp up. In the near term, investors can track Gurgaon for execution, given the scale of expansion in the region.
The management expects the hospital segment to deliver 18-20% revenue growth in FY27, led by 13-14% growth in established units and about 7% contribution from new capacity over the next 24 months. It also aims to sustain an Ebitda margin of 26% for established hospitals.
However, consolidated hospital margins will face a near-term drag from the Gurgaon launch. The management reiterated its FY27 loss guidance of ₹150 crore for new hospitals.
Apollo HealthCo, the pharmacy distribution and digital health platform, contributed 42% of the company’s consolidated revenue and grew 20% year-on-year to ₹2,977 crore. Apollo HealthCo’s Ebitda margin improved sharply to 5.8% from 3.8%.
The improvement came largely from the reduction in Apollo 24/7’s loss to ₹10 crore in Q1 from ₹49 crore last year. The digital business that offers online consultation, diagnostic and pharmacy services, is approaching an inflection point.
“While 24/7 costs remain comfortable on the back of tight opex control, slower transactional volume ramp up has pushed digital cash breakeven to Q2FY27E and full breakeven, including ESOP costs, to Q3FY27E,” Nuvama Research said in a report.
Overall, Apollo Hospitals’ consolidated revenue grew 20.5% year-on-year to ₹7,043 crore. The company’s near-term earnings trajectory rests on three factors: continued growth from established hospitals; activation of new beds and break even in the digital business.
The expansion pipeline gives visibility to hospital revenue, while HealthCo’s improving profitability can reduce the drag from Apollo 24/7. HealthCo’s demerger remains on track and a key re-rating trigger, as per Nuvama.
The healthcare sector continues to benefit from favourable demand trends and the Apollo stock could well remain on investors’ radar if it delivers on expansion plans and growth guidance.
Motilal Oswal Financial Securities values Apollo Hospitals on a sum-of-the-parts basis, assigning 30x EV/Ebitda for the hospital business; 25x EV/Ebitda for offline pharmacy; 24x EV/Ebitda for diagnostics and retail business, and 2x EV/sales for Apollo 24/7.
Based on these assumptions, it arrives at a 12-month roll-forward target price of ₹10,160 versus current market price of ₹8,847.
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.