Apollo Hospitals gains 4% on growth plan, brokerages also positive

Shares of Apollo Hospitals Enterprise rose over 4 percent in early trade on June 1, buoyed by the company’s growth plans. After putting a strong earnings show for the March quarter, the management has also chalked out a plan to support growth.

The company plans to take bed occupancy levels for its core hospital business to 70 percent by the end of FY24, Apollo Hospitals managing director Suneeta Reddy said in an earnings call. The bed occupancy level in Q4 was at 64 percent.

According to Reddy, the healthcare services company will reach its occupancy goal through several strategies, which include reducing dependence on institutional patients, prioritising international patients, increasing the recruitment of doctors, and improving the payor mix. Additionally, the company plans to capitalise on its corporate relationships to stimulate additional growth.

Moreover, the healthcare major also plans to reduce investments in its Apollo 24/7 arm by Rs 135-150 crore, which will ease pressure on its operating margins.

Investors seem to cheer the plan. At 10.31 am, shares of Apollo Hospitals Enterprise were trading at Rs 4,810, with gains of 4.10 percent on the NSE. The stock was also the top Nifty 50 gainer.

Volumes in the counter were also high. Seven lakh shares changed hands on the exchanges, as against the one-month daily traded average of four lakh shares.

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Brokerages’ view

Brokerages also seem impressed with the plan and have a largely positive stance on the hospital major.

Motilal Oswal maintains a positive outlook on Apollo Hospitals, citing the company’s consistent efforts to improve growth and profitability in healthcare services, effective cost management measures to reduce losses in Apollo HealthCo and a strong expansion in the pharmacy network across India.

Also Read: Apollo Hospitals’ occupancy to reach 70%, Apollo 24/7 on path to breakeven: MD

The brokerage house, however, still revised its earnings-per-stock (EPS) estimates for FY24 and FY25 downwards by 7 percent each to account for higher operating expenses in the pharmacy business, a gradual increase in occupancy, and increased spending on the diagnostic business. It has a “buy” call for the stock, with a price target of Rs 5,450.

Nuvama Institutional Equities believes Apollo’s consistent pharmacy growth and strong business standard provides comfort. In addition, the guidance of doubling gross merchandise value (GMV) for Apollo 24/7 and breakeven by the end of FY24, while curtailing cash burn is encouraging, Nuvama analysts said in a report.

The broking firm not only retained its “buy” call for Apollo but also raised its target price for the stock by 4 percent to Rs 5,555.

Jefferies also highlighted its belief on the management to drive up hospital occupancy and reduce losses in Apollo 24/7. Despite maintaining a “buy” call, it cut the price target for the stock to Rs 5,300 from Rs 5,375 to factor in lower-than-estimated operating margins in Q4.

Choice Broking, too, has a positive outlook. The firm credited Apollo’s aggressive store expansion plan, presence across the healthcare delivery chain, cost optimisation measures, improvement in international patients share, and increase in the occupancy level as the major factor behind the bullish outlook.

Choice Broking initiated coverage on Apollo Hospitals with an “add” recommendation and a price target of Rs 5,160.

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