Outlook on Apollo Hospitals’ Q2 outlook picks up

The company’s hospital business has mostly been free from Covid-related disruptions and has improved significantly. Rising patient numbers and engagement have boosted Average Revenue Per Operating Bed (ARPOB). What’s more, the increase in contribution from elective surgeries, along with the declining number of COVID patients and normalization of business, bodes well for profitability and margins. There is promise in the pharmacy business as well.

Apollo Hospitals witnessed a growth in consolidated revenue of Healthcare Services Division by 75% year-on-year (Y-o-Y) during Q2FY22 and 12% sequentially. While the sequential gains are on account of a strong revival in the non-Covid business and local market share gains, better contribution from new hospitals is also helping the overall growth. Mature hospitals’ revenue increased by 70%, while new hospitals’ revenue increased by 84 percent. During Q2FY22, the firm’s recorded occupancy across the group stood at 65%, as against 56% in the year-ago quarter. This is again being helped by new hospitals which registered 66% occupancy during Q2FY22, which was equivalent to 65% occupancy in mature hospitals. The firm’s ARPOB also showed a gradual improvement of 15%, which analysts say was helped by higher-end elective surgeries. This was helped by a 24% increase in inpatient volume sequentially.

Hospitals overall posted decent growth resulting in an improvement in EBITDA margin of about 300 basis points (bps) broadly. Ebitda means earnings before interest, tax, depreciation and amortization.

“The acquired hospitals in Kolkata, Lucknow and Guwahati have registered good improvement in growth and profitability,” said the company’s chief financial officer, Krishnan Akhileshwaran. Margin improvement and the next phase of growth is expected to come from improving global trade. (medical tourism) and further operational capability in the units. Meanwhile, revenue of Apollo Health & Lifestyles Ltd (AHLL) has more than doubled year-on-year. However, pharmacy business revenue declined 23% sequentially due to a higher basis for Q1 to Q2FY22. Exceptionally high offtake was witnessed due to covid.

Analysts at HDFC Securities Ltd said the outlook for the pharmacy business remains intact, while diagnostics will provide further impetus to growth. In the medium term, Apollo is confident of growing this business at a compound annual growth rate (CAGR) of 20%. Adding stores at 400 stores per year should help. The company is also expanding its diagnostics business, which holds promise. “The core Hospitals and AHLL business (Ex-Diagnostics) witnessed strong sequential growth on the back of recovery of the non-Covid business, while the outlook for the high-growth Pharmacy and Diagnostics businesses remains intact,” said analysts at HDFC Securities Ltd.

The firm had spun off the front-end pharmacy business and Apollo 24/7 into a separate subsidiary, Apollo Healthco Ltd., to develop its e-commerce platform. As the business grows, the hopes of joining new financial partners are adding to the optimism of the market. Apollo Healthco is about to close a fundraising deal with two partners, which should add to the growth outlook. “The entry of a new pool of investors (according to Apollo Hospitals, likely in the next few weeks) will help it increase its user base and market penetration,” analysts at HSBC Securities and Capital Markets (India) said. ) Private Limited

The investment will help in its goal of reaching EBITDA break-even for Apollo 24/7 in the next 2-3 years (currently annual loss). Analysts at Jefferies India Pvt Ltd said in a note, “In our view, Apollo Hospitals presents an overall drama in the healthcare sector in India with a presence across the entire value chain spanning primary to tertiary care, e-health, diagnostics and pharmacy. does.” He believes Apollo has room to optimize its performance and increase engagements, while international patients will promote ARPOB.