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Hold Apollo Hospitals Enterprise, target Rs 990: ICICI Direct

Hold Apollo Hospitals Enterprise Ltd. at a price target of Rs 990.0 .

ETMarkets.com|
Last Updated: Jun 06, 2018, 10.09 AM IST
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ICICI Direct has a hold call on Apollo Hospitals Enterprise Ltd. with a target price of Rs 990. The current market price of Apollo Hospitals Enterprise Ltd. is Rs 937.7 Time period given by the brokerage is 12-15 months when Apollo Hospitals Enterprise Ltd. price can reach defined target.

Apollo Hospitals Enterprise Ltd., incorporated in the year 1979, is a midcap company with a market cap of Rs 13047.16 crore.

Investment rationale by ICICI Direct

The new hospitals and AHLL contributed 18% of total revenues in FY18 but continue to drag overall EBITDA margins (new hospital EBITDA margin of 0.7% and AHLL EBITDA loss of | 115 crore vs. mature hospitals EBITDA margins of 20.9%). Margins for mature hospitals are expected to remain under pressure due to stent pricing regulation, higher competition and recruitment of skilled doctors (laparoscopic surgeons, etc) besides negative GST implementation impact. On the pharmacy front, margins have showed a substantial improvement in the last few quarters. The trend is likely to continue. The RoCE for pharmacy has also improved to 15%. To sum up, lower ROCE of the overall business is likely to weigh on stock in the near term. We value the stock on an SOTP basis by valuing the healthcare business (existing hospitals & JV) at 12x FY20E EV/EBITDA, healthcare business (new hospitals) at 0.8x and FY20E pharmacy business at 1.0x FY20E EV/sales. We ascribe a target price of Rs 990.

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