Motilal Oswal Recommended Buy This Multibagger Large Cap Hospital Stock For 22% Potential Gains

Motilal Oswal's recent report on Apollo Hospitals Enterprise Limited (Apollo Hospitals) recommended buy the stock of the company a target price of Rs 5,110 apiece. Apollo Hospitals is a large cap Hospital company having a market capitalization of Rs 60,608.83 crore. Considering the stock's current market price and the estimated target price, the stock could surge around 22% in 12 months.

Stock Outlook

The Current market price of the stock is Rs 4,215.25 apiece. The 52-week low is Rs 3,361.55 apiece recorded on May 26, 2022, and the 52 week high is Rs 5,935.40 apiece recorded on November 26, 2021.

Returns over the Past 5 Years

Over the week, the stock gained 1.93%. Whereas, in the past 1 and 3 months, it gave a positive return of 2.56% and 15.08%, respectively. Over the past 1 year, it gave a negative return of 10.32%. In the past 3 years, the stock gave a multibagger return of 188.52%. In the past 5 years, the stock also gave a multibagger return, it gave 289.15%.

Healthcare services: Journey from EBITDA neutral to 18% margin in ‘new' hospitals over FY17-22; optimizing operations in mature hospitals

Apollo Hospitals doubled its healthcare services revenue (mature/new hospitals and Proton) over FY17-22, fueled by 26% sales CAGR in new hospitals segment, and addition of business from Proton (INR2b revenue in FY22 v/s a mere INR5m in FY19). The mature hospitals segment reported 10% revenue CAGR during similar period. Healthcare services posted an EBITDA CAGR (Pre-IND AS 116 basis) of 19% during FY17-22, powered by healthy ramp-up in new hospitals and Proton as well as changing payor mix across hospitals.

Pharmacy: Transformation underway to build omnichannel healthcare platform

Apollo Hospitals is working on building an infrastructure to support Apollo 24/7. It spent INR2b in FY22 and already expended INR1.3b in 1QFY23. Further, it added ~2k front-end pharmacy stores over the past five years on a base of 2.5k in FY17. This coupled with a rise in private label share (11% in FY22 from 6% in FY17) led to 19% revenue CAGR in overall pharmacy over FY17-22. Apollo Hospitals intends to build omnichannel healthcare platform with a focused approach through Apollo Healthco comprising back-end pharmacy, Apollo 24/7 digital platform, and pharmacy retail including private labels.

AHLL: Achieved turnaround over FY17-22 and heading for better profitability going forward

AHLL delivered 28% revenue CAGR over FY17-22, propelled by: a) 57% revenue CAGR in diagnostic segment (28% of AHLL sales), b) 29% revenue CAGR in primary care (33%) and c) 19% topline CAGR in secondary care segment (39%). The operating leverage has led to strong turnaround over the past five years from an operational loss of INR1b in FY17 to an EBITDA (pre-Ind AS 116) of INR1.2b (9% EBITDA margin) in FY22. Apollo Hospitals is incurring higher expense towards upgrading the abilities for home collections; further, digital logistics services in diagnostic segment may keep margins under check over the near term. However, the growth as well as margin outlook remains intact in the medium term.

RoE at an all-time high with good scope of further uptrend

After declining over FY14-18, Apollo Hospitals delivered 620bp expansion in RoE over FY18- 20, led by 17% revenue CAGR and 450bp margin expansion. Better operational performance underpinned by lower capex resulted in FCFF turning positive in FY18 (reached INR8b in FY20). While RoE took a severe hit in FY21 due to Covid induced restrictions, APHS rebounded strongly in FY22, partly supported by the Covid-led vaccination business. While RoE will remain under check in FY23 due to higher investment towards Apollo 24/7, we expect it to improve to nearly 18% from FY24, led by: a) improving occupancy in 'new' hospitals; b) better ARPOBs, partly led by international patients; and c) increasing footfalls in primary and secondary care segments of AHLL (which will offset the incremental spend on Apollo 24/7).

Mobilizing resources for another healthy take off, buy for target price of Rs 5,110

Commenting on the stock, the brokerage said, "We project 15% sales CAGR over FY22-24 to INR194b driven by back-end Pharmacy/Healthcare/AHLL revenue CAGR of 21%/12%/5%, respectively, over the same period. The EBITDA CAGR is likely to moderate due to the ongoing huge investments towards Apollo 24/7. APHS remains well placed to deliver: a) improved occupancy/ARPOB in healthcare services, partly supported by international patients and higher share of insurance-linked patients, b) enhanced offerings to patients through Apollo 24/7 platform and c) better footfalls in AHLL network. We value APHS on an SOTP basis (22x EV/EBITDA for healthcare services, 25x EV/EBITDA for front-end pharmacy, 15x EV/EBITDA for retained pharmacy, 30x for AHLL and 4x EV/sales for Apollo 24/7) to arrive at our Target Price of INR5,110. Maintain BUY."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.