Geojit Financial Services has reiterated its BUY recommendation on Apollo Hospitals Enterprise Limited, increasing the target price to Rs 7,764. Apollo has delivered exceptional performance in Q2FY25, with consolidated revenue climbing 15.6% YoY to Rs 5,628 crore. The robust growth was fueled by strong contributions from healthcare services, digital health, and pharmacy distribution. Apollo's strategic expansion into key metro markets, coupled with a focus on digital health and innovative treatment methods, solidifies its long-term growth trajectory. With an improving EBITDA margin and strong execution record, the stock offers an attractive upside potential of 15%.

Key Financial Highlights

Revenue Growth:

Consolidated revenue rose 15.6% YoY to Rs 5,628 crore in Q2FY25.
Healthcare services revenue grew 13.8% YoY to Rs 2,920 crore, driven by a 13% increase in insured patient revenue and a 15% rise from cash-paying patients.
Digital Health and Pharmacy Distribution:

Revenue surged 17.3% YoY to Rs 2,282 crore, with daily average orders increasing to 76,000 compared to 62,000 in Q2FY24.
EBITDA and Margins:

EBITDA increased 31.4% YoY to Rs 854 crore, with margins expanding by 190 bps to 15.2%.
The improvement was attributed to reduced employee costs as a percentage of revenue and a higher topline.
Profitability:

Adjusted PAT surged 64% YoY to Rs 379 crore, translating to an EPS of Rs 26.3.

Strategic Expansion and Growth Drivers

Hospital Network Expansion:

Apollo plans to add over 1,400 operational beds across NCR, Hyderabad, Kolkata, Pune, and Bengaluru by FY26.
A 500-bed hospital in Worli, Mumbai, and a 200-bed expansion in Lucknow are under development.
Digital Health Initiatives:

Apollo's digital platform reported revenue of Rs 268 crore, underscoring its role as a growth engine.
The company is leveraging its telemedicine and e-pharmacy platforms to expand its footprint in underserved regions.
Innovative Treatments:

The Apollo Prostate Institute introduced water vapor thermotherapy for treating enlarged prostate, demonstrating Apollo's commitment to medical innovation.

Operational Metrics

ARPOB and Occupancy:

Average Revenue Per Occupied Bed (ARPOB) increased 3% YoY to Rs 59,011.
Occupancy rates improved to 73%, up from 68% in Q2FY24, driven by higher inpatient volumes and an optimal case mix.
Inpatient and Tertiary Care:

Inpatient volumes grew 8%, with notable contributions from neuroscience, oncology, and gastroenterology specialties.
Challenges like flooding in Mumbai and Ahmedabad were mitigated by increased surgical volumes.

Growth Outlook

Revenue Projections:

FY25E revenue is expected to grow 16.8% to Rs 22,379 crore, followed by 15.8% growth in FY26E to Rs 25,920 crore.
Margin Expansion:

EBITDA margins are projected to improve from 13.8% in FY25E to 14.9% in FY26E, supported by operational efficiencies and synergies from integrated operations.
PAT Growth:

Adjusted PAT is forecasted to increase by 58.2% in FY25E to Rs 1,419 crore and by 37.8% in FY26E to Rs 1,955 crore.

Valuation and Target Price

Valuation Metrics:

The stock trades at an EV/EBITDA multiple of 32.8x FY25E and 26.1x FY26E, reflecting Apollo's premium positioning in the healthcare sector.
ROE is expected to rise from 13.5% in FY24 to 21.5% in FY26, showcasing improved capital efficiency.
Target Price:

Geojit’s SOTP valuation assigns a value of Rs 7,764 per share, translating to a 15% upside from the current market price of Rs 6,744.

Key Risks

Economic Slowdowns:
A deceleration in discretionary healthcare spending could impact revenue growth.
Regulatory Challenges:
Changes in healthcare regulations and pricing caps on treatments may pose risks to margins.
Competition:
Intensifying competition in digital health and diagnostics could exert pressure on Apollo’s market share.