Apollo Hospitals Enterprise's Q3FY19 results (Outperformer) - Good quarter; turnaround gaining strength

Q3FY19 result highlights

• Consol revs grew 16.5% yoy to Rs24.9bn; in-line with est. Existing hospitals grew 11% vs est +6% growth; New hospital growth was broadly-inline- +23%. SAP revs grew +18% yoy below est +20
• Consol EBITDA came at Rs2.77bn vs est Rs2.68bn; +27% growth yoy; EBITDAM – 11.1% vs 10.2% last year; 10.8% est; Standalone EBITDA was Rs2.76bn vs est Rs2.55bn; 12.3% vs est 11.9%. Consol EBITDA impacted by performance in some sub / JV hospitals like Ahmedabad etc.
• Mature hospital EBITDA came at Rs2.17bn vs est Rs2.05bn; 15% growth yoy; 21.5% margins – up +90bps yoy; est 21.2%; Notably, company has guided to +23% margins over next qtrs in this cluster. New hospital EBITDA was Rs212m in line; flat qoq; Navi Mumbai marginally lower qoq.
• SAP EBITDA came at Rs549m – in line vs Rs508m in Q2; 5.4% margins (+10bps qoq) vs 5.2% est; Highest ever EBITDA. AHLL losses at Rs167m were higher qoq / est – Rs138m/ Rs130m
• Consol PAT came Rs547m; Standalone PAT was Rs869 vs est Rs749m

Key positives: Mature hospitals performance

Key negatives: QoQ increase in AHLL losses; increase in pledged shares

Impact on financials: Increase EBITDA est for FY19/20/21 by 11%/ 9% /8%

Valuations & view

With its leadership position, national footprint and a multi-pronged healthcare delivery model, Apollo is a strong EM healthcare model. Apollo recently conclude big ticket expansion has created a strong growth platform. Post a long weak earnings phase, earnings recovery is visible from H2FY18 onwards. Led by sharp improvement in Navi Mumbai unit, the new hospital cluster has begun to contribute positively and the existing hospital profitability has also started to inch up gradually. While the Standalone Pharmacy (SAP) business will sustain its 20%+ EBITDA growth, reduction in retail health platform (AHLL) operating losses should further aid consolidated profitability growth. Post 3% CAGR EBITDA growth in FY15-18, we estimate EBITDA growth to bouncing back to 20% CAGR over FY18-21e. We take comfort on mgt guidance on sharp reduction in pledged shares over next 6m and believe it is unlikely to be a medium term issue (refer page 3). Maintain Outperformer with a price target of Rs1542. Top pick in healthcare services space.