The online pharmacy and 24/7 business of Apollo Hospitals Enterprise Limited continues to be loss making and this is putting a strain on the overall profitability. This has been one factor that has weighed on the stock’s performance. Over the past year, shares of Apollo have declined about 3%, despite continued strong momentum in its healthcare vertical.
It is encouraging that the Apollo 24/7 business is witnessing growth in the December quarter (Q3 FY 2023) with gross merchandise value increasing by 85% sequentially. 543 crores. 24/7 business is under Apollo Healthco, which also includes offline and online pharmacy delivery. Offline pharmacy business is making profit, but it is not enough to offset the losses of online and 24/7 business considering the increase in operating expenses of the latter.
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As a result, Apollo Health remained in the red at the EBITDA (earnings before interest, tax, depreciation and amortization) level. loss increased 63 cr in Q3 44 crores in Q2.
The company is still far from break even in Apollo Healthco. In business 24/7, it aims to break even by FY25. Needless to say, progress on this will be significant. The company believes that investment in 24/7 has peaked in the third quarter and expects losses to remain moderate.
In the healthcare business, there are multiple growth drivers. There is scope to increase the occupancy level. Apollo expects occupancy levels of 70% in the fourth quarter, compared to 65% in the third quarter, which was impacted by weather.
Average revenue per bed is expected to increase due to improving payer mix, especially in non-metros. Apollo plans to add 2,000 beds in the next 3-4 years, which requires capital expenditure 3,000 crores. Meanwhile, 24/7 is of the view on the stake sale that it is difficult to get the right valuation in the current environment. But analysts are not losing sleep over this delay.
Analysts at Kotak Institutional Equities said in a report on February 16, “Given the strong free cash flow generation expected across hospitals and offline pharmacies in FY2023-25E, Apollo Hospitals’ fundamentals remain strong even without the HealthCo fund.” ” has projected cumulative free cash flow of 3,000 crore over FY2023-25E.
Here, continued growth in the healthcare business would bode well for the stock. However, investors will watch for a decline in the losses of Apollo Health Company in the coming quarters.
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