Apollo Hospitals' Q2FY19 results (Outperformer) - Another solid quarter
Q2FY19 result highlights
- Standalone revs grew 13% yoy vs est 10%; Consol revs grew +15%.
- Standalone Pharmacy (SAP) grew 20% for the quarter. Mature hospitals grew +5% yoy while new hospitals grew +22%
- Standalone EBITDA came Rs2.57bn vs est Rs2.47bn; Consol EBITDA was Rs2.7bn up from Rs2.3bn in Q1; H1 Consol EBITDA is Rs5.04bn. There has been steady all around improvement in the business
- QoQ EBITDA growth was driven by 10% qoq growth in mature hospitals and continued EBITDA increase in new hospitals led by Navi Mumbai hospital. New hospital EBITDA increased to Rs211m from Rs154m in Q1.
- Additionally, SAP EBITDA improved to 5.3% from 4.7% in Q1 along with reduction in AHLL loss to Rs 138m (from Rs197m in Q1FY19 and Rs231m in Q2FY118).
- Standalone PAT came at Rs790m – in-line. Consol PAT was Rs619m
- Company announced restructuring in the SAP business as a precursor to unlocking value at a later stage.
Key positives: QoQ improvement across all segments
Key negatives: Sluggish growth in mature hospitals; increase in debt
Impact on financials: Maintain earnings estimates.
Valuations & view
With its leadership position, national footprint and a multi-pronged healthcare delivery model, Apollo is one of the stronger EM healthcare models. Apollo is nearly finished an aggressive expansion phase (2430 beds commissioned across 13 new hospitals in last 48months), which has created a strong future growth platform. Post a prolonged weak earnings phase, earnings stabilization / recovery has begun to become visible from H2FY18 onwards. Led by the 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% + Rev / EBITDA growth momentum, 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 16% CAGR over FY18-21e. Maintain Outperformer with a price target of Rs1483. Apollo is our top pick in the healthcare services space
Apollo Hospitals Enterprise is a hospital group based in India. Co. offers diagnostic facilities (MRI, CT scanners) and specialist departments that can support major operations. Co. operates a 465 bed multi-speciality hospital, a 200 bed cancer hospital, a diagonostic centre at Chennai, and a 75 bed cancer hospital at Hyderabad. Co. provides services such as managed hospitals, Apollo Health and Lifestyle Clinics, pharmacy operations, managed care and family health plans. Co. maintains a presence in Sri Lanka, Bangladesh, the U.A.E., Nepal, Ghana, Nigeria, the U.K. and the Kingdom of Saudi Arabia.
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