APHS’ Q1FY22 results were ahead of our estimates, with sales/Ebitda/ adjusted profit 9%/16%/16% ahead. Sales and Ebitda were higher than our estimates across all segments owing to benefit from the COVID pandemic and vaccination drive across the country. Overall occupancy for hospitals improved q-o-q from 63% to 67%.
COVID-19 patients accounted for ~24-26% of healthcare services revenues. COVID-19 vaccinations accounted for Rs 1.9 bn of overall company revenues. AHLL also benefited from vaccination and reported its highest-ever Ebitda and Ebitda margins. Pharmacy back-end Ebitda margins (ex-Apollo 24/7 operating costs) improved 38bp q-o-q owing to strong top-line growth and an increase in private-label sales.
Apollo 24/7: Operating expenses increased q-o-q. Mgmt expects an annualised revenue run-rate of $50-60 mn from Apollo 24/7 by FY22-end. Currently, the company is doing 2,000-3,000 teleconsultation and ~30,000 pharmacy deliveries a day. Further, the company added over 4.7mn new users during the quarter.
Change in estimates: We raise FY22F EPS by 28% owing to benefit from the pandemic. Our estimate for FY23F EPS is increased slightly by 2%.
Valuation: We continue to like the narrative on APHS, as it presents a comprehensive play on India Healthcare. The hospital business has scope to grow organically and inorganically. The company has significantly expanded its retail presence and is the largest organised pharmacy chain in the country, and is also expanding its presence in diagnostics. Consistent improvement in Ebitda margin of pharmacy and AHLL is encouraging. We see the 24×7 digital platform as an enabler of growth for the company’s existing business segments. The narrative on digital healthcare has gained strong traction. The 24×7 platform is better placed vs peers given wide service offering.
Maintain Buy: Based on SOTP valuation of business segments, we see a fair value range of Rs 3,908-5,009. Our TP implies a multiple of 28.2x one-year forward EV/Ebitda vs 25x earlier. Our expectation of sustained growth narrative and benign market conditions lead us to set TP towards the higher end of the valuation range.