Apollo Hospitals Enterprise's Q4FY19 results (Outperformer) - Strong quarter; better days ahead

Q4FY19 result highlights

• Consol revs grew 19% yoy to Rs25.2bn – in line with est. Positive surprise from existing hospitals which grew 23% comparable to new hospitals which grew at 24%. SAP revs grew +18% yoy
• Consol EBITDA were in-line at Rs2.83bn (+52% growth yoy on a low base); EBITDAM – 11.2% vs 8.8% last year;  Standalone EBITDA was Rs2.68bn vs est Rs2.7bn.
• Mature hospital EBITDA came at Rs2.17bn vs est Rs2.1bn; 27% growth yoy; 21.4% margins – up +70bps yoy; est 21.2%; Notably, company has guided to +23% margins over next few qtrs in this cluster. New hospital EBITDA was Rs245m in line; 16% qoq
• SAP EBITDA came at Rs557m – in line vs Rs549m in Q3; 5.5% margins (+10bps qoq) vs 5.3% est; Highest ever EBITDA. AHLL losses at Rs97m were higher qoq / lower than est – Rs167m/ Rs140m
• Consol PAT came Rs844m; Standalone PAT was Rs767 vs est Rs824m
• FY20 guidance – 10% rev growth for existing and 30% revs for new hospitals with margin improvement; EBITDA breakeven for AHLL; 18-20% rev growth in SAP with EBITDA margin improvement; Net debt reduction to ~Rs25b (Rs32bn – FY19); Reduction in pledged shares by 50% by Sept-Oct19 and possible nil pledged shares by FY20 end.

Impact on financials: Maintain estimates

Valuations & view

With its leadership position, national footprint and a multi-pronged healthcare delivery model, Apollo is a strong EM healthcare model. Apollo’s recently concluded 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. Mgt guidance on sharp reduction in pledged shares over next 6m is on track and believe it is unlikely to be a medium term issue. Maintain Outperformer with a SOTP price target of Rs1629. Top pick in healthcare services space.