Event
Apollo Hospitals has announced receipt of all regulatory approvals for stake sale in Apollo Munich Health Insurance business
Key highlights
Apollo Munich stake sale transaction – an overview
o Apollo promoters have 34% shareholding in the firm with 20% being held by the family holding company.
o Mgt / promoters indicated that the shares have been pledged to initially generate funds to buy Apollo hospital shares between the 2008 to 2012 time period and to make the initial promoter equity contribution in Apollo Munich – the Health insurance venture where promoters own ~40% stake. The investment in Apollo Munich has turned out to be a pretty good investment for the promoters as it has scaled up well in a fast growing health insurance industry.
Closure of the transaction and likely pledge share reduction will significantly reduce investor concerns on this issue (a key investor concern in recent times) and keep the focus on business aspects
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 last 8 qtrs now. 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 steadily. While the Standalone Pharmacy (SAP) business will sustain its 20%+ EBITDA growth, sharp turnaround in AHLL will further aid consolidated profitability growth. We estimate EBITDA growth to bounce back to 18% CAGR over FY19-21E. Mgt guidance indicates potential for upsides to our estimates. Maintain Outperformer with a SOTP price target of Rs1738. One of our top picks in 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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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