Upcoming Urban Facilities And Digital Platform Will Improve Patient Access And Volumes

Key Takeaways

• Strategic capacity expansion and urban facility introduction aim to boost revenue growth and profitability through increased patient volumes and occupancy rates.
  
• Strong insurance revenue and digital platform scaling are set to improve net margins, profitability, and long-term earnings growth.
  
• Expansion and operational challenges, including external market disruptions and rising costs, could strain financial resources and impact revenue growth and profitability.

Catalysts

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

• Apollo Hospitals is planning to expand capacity by commissioning six facilities with over 1,400 operational beds in key metro markets such as NCR, Hyderabad, Kolkata, Pune, and Bangalore by FY '26. This expansion is expected to drive future revenue growth through increased capacity and patient volumes.
  
• Expansion in insurance penetration seems promising, with the hospital noting a 13% increase in insurance patient revenue. This will likely improve margins due to a more favorable payer mix, indicating a positive impact on net margins.
  
• The hospital's digital platform, Apollo 24/7, is adding new users and is on track to achieve breakeven in the online segment in five to six quarters. This could enhance overall earnings with increased digital revenue and reduced operating costs.
  
• Apollo HealthCo's performance improvement, reporting its first quarterly profit, signals a positive trajectory in profitability, which may contribute positively to long-term earnings growth.
  
• The introduction of new facilities in high-demand urban areas suggests the potential for increased occupancy rates and higher ARPOB (Average Revenue Per Occupied Bed). Such strategic positioning in high-growth regions is expected to enhance revenue growth and profitability.

Apollo Hospitals Enterprise Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Apollo Hospitals Enterprise's revenue will grow by 18.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.8% today to 8.8% in 3 years time.
• Analysts expect earnings to reach ₹29.7 billion (and earnings per share of ₹178.47) by about December 2027, up from ₹11.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹19.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.2x on those 2027 earnings, down from 88.9x today. This future PE is greater than the current PE for the IN Healthcare industry at 23.7x.
• Analysts expect the number of shares outstanding to grow by 5.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.15%, as per the Simply Wall St company report.

Apollo Hospitals Enterprise Future Earnings Per Share Growth

Risks

• External headwinds such as reduced patient flow from Bangladesh and disruptions in key markets like Kolkata and Mumbai could impact revenue growth and patient volumes.
  
• The ambitious expansion plans, which include building over 1,400 beds across multiple cities, carry the risk of delayed execution and hefty capital outlay, potentially affecting capital expenditures and operational cost pressures.
  
• The rising cost of constructing new hospitals, such as in Mumbai, could strain financial resources, impacting net margins and delaying returns on new investments.
  
• Changes in the medical case mix with more emphasis on secondary care procedures over high-value tertiary care could lead to lower ARPOB growth, impacting revenue per patient.
  
• Challenges with the 24/7 online pharmacy business, including slower-than-expected GMV growth and competitive pressures from quick commerce, could limit revenue and delay profitability improvements.

Valuation

• The analysts have a consensus price target of ₹7899.69 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 ₹8702.0, 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 2027, revenues will be ₹337.6 billion, earnings will come to ₹29.7 billion, and it would be trading on a PE ratio of 62.2x, assuming you use a discount rate of 12.2%.
• Given the current share price of ₹7340.8, the analyst's price target of ₹7899.69 is 7.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.