Apollo Hospitals up 10% in two days on strong Q1 results; nears record high

Shares of Apollo Hospitals Enterprises rallied 7 per cent intra-day to Rs 1,454 apiece on the BSE on Friday, also its 52-week high, on strong June quarter results for FY20 (Q1FY20). The stock has surged 10 per cent at the bourses since Tuesday, when it reported more than double consolidated net profit at Rs 49 crore. The company had a profit of Rs 23 crore in the year-ago quarter. The stock is 6 per cent away from its all-time high level of Rs 1,544 touched on March 2, 2016.

Operational revenue during the quarter grew 16 per cent at Rs 2,572 crore against Rs 2,210 crore in the corresponding quarter of previous fiscal.

On standalone basis, the company’s net profit jumped 32 per cent year on year (YoY) to Rs 79 crore, while net sales grew 17 per cent to Rs 2,229 crore over the previous year quarter. EBITDA (earnings before interest, taxes, depreciation, and amortization) margin improved 270bps to 14.6 per cent from 11.9 per cent.

The company has guided for debt reduction by Rs 700 crore in FY20, aided by cash generation from restructuring the pharmacy business and liquidation of an asset. The management has also guided to reduce the promoter pledge by 40-50 per cent over next six months, from the current 71 per cent, via the proceeds received from Munich stale sale monetisation.

“Apollo has pursued an aggressive expansion plan, which has resulted in subdued earnings over FY15-18. Further, regulatory headwinds have delayed earnings recovery. Post strong growth in FY19, we expect momentum to continue, with an 20 per cent EBITDA CAGR over FY19-21E, led by better case mix, reducing losses from Apollo Health & Lifestyle (AHLL) and increasing profit from new hospitals,” analysts at Elara Capital said in a quarterly update. The brokerage firm has ‘buy’ rating on the stock with the target price of Rs 1,625 per share.

“We are positive on the company’s long-term growth opportunity and strong revenue visibility following the completion of capex. While the stock has underperformed over the past few years due to earnings disappointment, we believe the stabilization in existing hospital margins, ramp-up in new hospitals and lower Apollo Health & Lifestyle Limited (AHLL) losses are signs of an earnings inflection,” said analysts at JP Morgan.

The brokerage firm believes the regulatory risk in the sector is priced into the stock at current levels and that an improving earnings trajectory should drive outperformance over the next year. It has a March 2020 target price of Rs 1,580 per share.

At 12:30 pm, Apollo Hospitals was trading 6.6 per cent higher at Rs 1,448, as compared to a 0.14 per cent decline in the S&P BSE Sensex. The trading volumes on the counter jumped three-fold with a combined 2 million shares changing hands on the NSE and BSE.