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

Shares of Apollo Hospitals Enterprises rallied 7% intra-day to Rs 1,454 apiece on the BSE on this Friday. It is also 52-week high, on strong June quarter results for FY20 (Q1FY20). The stock has increased 10% at the bourses this 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% away from its all-time high level of Rs 1,544 touched on March 2016.

Operational revenue during the quarter grew 16% at Rs 2,572 crore against Rs 2,210 crore in the corresponding quarter of the last fiscal year.

On a standalone basis, the company’s net profit increased by 32% year on year to Rs 79 crore. The net sales increased by 17% to Rs 2,229 crore over the last year quarter. EBITDA (earnings before interest, taxes, depreciation, and amortization) margin increased 270bps to 14.6% from 11.9%.

The company has guided for debt reduction by Rs 700 crore in FY20. It was helped by the liquidation of an asset and cash generation from restructuring the pharmacy business. The management has also guided to cut down on the promoter pledge by 40 to 50% in the coming six months, from the current 71% via the proceeds that are received from Munich stale sale monetization.

According to Elara Capital analysts in a quarterly update:

“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 the momentum to continue, with a 20 percent EBITDA CAGR over FY19-21E, led by better case mix, reducing losses from Apollo Health & Lifestyle (AHLL) and increasing profit from new hospitals.”

JP Morgan analysts said:

“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, the ramp-up in new hospitals and lower Apollo Health & Lifestyle Limited losses are signs of an earnings inflection.”

The brokerage company believes that 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.