Apollo’s hospitals biz to drive growth but cost pressure may rise
Apollo Hospitals Enterprise Ltd’s performance for the quarter ending June (Q1FY24) was broadly in line with expectations. Consolidated revenue grew 16% year-on-year to ₹4,418 crore. Apollo’s mainstay hospitals business saw 13% growth. The other segme-nts, Apollo Health and Lifestyle Ltd (AHLL) and Apollo HealthCo continued to improve.
But there is some disappointment. For one, the hospitals segment’s occupancy was lower, down from 64% in Q4FY23 to 62% in Q1. While this was mainly on account of seasonality, it needs to be monitored. Overall Ebitda margin fell to 11.5% from 12.9% in Q1FY23. This is due to lower occupancy and higher operating costs in the hospitals segment on account of hiring new doctors and higher marketing expenses.
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The company has planned multiple business expansions across its segments including hospitals and diagnostics. According to Kunal Randeria, director, Nuvama Institutional Equities, “The operating costs are expected to increase in coming quarters considering expansion planned. While operating leverage is expected to help to an extent, sustaining margin at FY23 levels may not be easy.”
That said, there are a few levers in place which could aid revenue growth and, in turn, support margin. In the hospitals segment, the management has planned 2,000-bed expansion for the next three years, particularly across markets like Bengaluru and Kolkata. This is expected to aid occupancy. The management targets an occup-ancy of 70% in hospitals business. Apollo has effected tariff revisions in the hospitals segment, which would aid margin improvement ahead. This, and increasing contribution of revenue from international patients bodes well for the outlook.
Further, in AHLL, which includes the diagnostic business, the company plans to increase the number of collection centres to over 3,000 by FY24 and expand its specialty care services..In its HealthCo segment, which includes online and offline pharmacy distribution and 24/7 business, the company plans to add 500-600 new offline stores in FY24. Apollo has taken initiatives to lower the costs in its 24/7 business. While the 24/7 segment continues to report loss, the management expects it to breakeven by Q4FY24.
Meanwhile, the stock is trading 10% below its 52-week high seen in July. “There may not be scope for significant rerating until HealthCo segment breakeven, but the stock’s upside depends on consistent improvement in the occupancy and profitability in hospitals segment,” said Param Desai, research analyst, Prabhudas Lilladher.
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Updated: 16 Aug 2023, 12:09 AM IST
