Expanding Into High-End Specialties And Emerging Markets Will Strengthen Future Prospects

Key Takeaways

• Focus on high-end specialties and strategic payer mix optimization is expected to enhance revenue intensity and net margins.
  
• Expansion into emerging markets and international patient growth could drive significant revenue increases.
  
• The company's reliance on high-end specialties and planned expansions face risks from market saturation, regulatory changes, and potential execution delays, impacting growth and profitability.

Catalysts

Engages in the provision of healthcare services in India and internationally.

• Apollo Hospitals is focusing on high-end specialties such as cardiac sciences, oncology, and neurosciences, which are expected to increase revenue intensity and improve margins over time.
  
• The company is expanding its facility network to capitalize on growth opportunities in emerging markets, which will likely drive revenue growth.
  
• Strategic efforts to optimize payer mix and increase revenue from cash and insurance patients are expected to enhance net margins.
  
• Improvement in international patient intake from regions outside Bangladesh, like the Middle East and Africa, could offset current declines and potentially increase revenue in the next few years.
  
• The Apollo 24/7 platform, which is adding insurance products, is expected to broaden its service offerings and improve earnings, aiding the digital segment's path to profitability.

Apollo Hospitals Enterprise Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Apollo Hospitals Enterprise's revenue will grow by 16.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.2% today to 9.0% in 3 years time.
• Analysts expect earnings to reach ₹30.1 billion (and earnings per share of ₹207.96) by about March 2028, up from ₹13.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 53.0x on those 2028 earnings, down from 67.3x today. This future PE is greater than the current PE for the IN Healthcare industry at 38.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Apollo Hospitals Enterprise Future Earnings Per Share Growth

Risks

• The company's international patient revenue was negatively impacted by a decline in footfall from Bangladesh, which previously contributed significantly to revenue, indicating potential revenue risk.
  
• Competition and high operational costs in the digital e-commerce segment, especially in pharmacy, could impede profitability and margin sustainability.
  
• The introduction of planned new facilities in competitive markets may face slower-than-expected patient intake, impacting revenue and profitability if these facilities take longer to achieve breakeven.
  
• The business's reliance on high-end specialties for growth could be vulnerable to market saturation, shifts in payer or case mix, or regulatory changes, potentially impacting net margins and earnings.
  
• Any execution challenges or timeline delays in expansion plans, such as the construction and operationalization of new hospitals, might lead to increased costs and potential impacts on future revenue growth projections.

Valuation

• The analysts have a consensus price target of ₹7827.069 for Apollo Hospitals Enterprise based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹9036.0, and the most bearish reporting a price target of just ₹5700.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹332.9 billion, earnings will come to ₹30.1 billion, and it would be trading on a PE ratio of 53.0x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of ₹6134.8, the analyst price target of ₹7827.07 is 21.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.