Value Pick: Healthcare vertical poised for growth; brokerages see Apollo Hospitals among top beneficiaries with 25% upside

With fears of a fourth Covid-19 wave rising its head, hospital stocks are likely to come back in focus, many brokerages opine while putting Apollo Hospitals Enterprise Limited stock as their key bet. They see robust returns on the promise of strong outlook and fundamentals and attractive valuations. 

At least three brokerages - Equirus Securities, Edelweiss  Research and SMIFS explain the near to long-term view on the stock. It has been on the declining trend for many sessions now. In the last five sessions, the counter has slipped over 4 per cent on the BSE as compared to around 3 per cent rise in the S&P BSE Sensex. 

See Zee Business Live TV Streaming Below:

Equirus Securities 

Apollo Hospital plans to grow its pharmacy business by increasing the number of stores by at least 400 stores each year. Moreover, the Apollo 24*7 platform is growing at a rapid pace with over 6000 consultants on platform and has almost doubled its coverage to over 19000 pin-codes in Q2FY22.  

The brokerage expects the hospital business to clock a 27 per cent CAGR (Compound Annual Growth Rate) over the next three years with occupancy in mature/new hospitals set to touch 75%/65% by FY24; and better margins aided by cost optimization measures undertaken in FY21. 

The brokerage suggests to add this stock at current levels for an upside of around 25 per cent to Rs 5954 per share.  

Edelweiss Research

Apollo Hospitals during December-end quarter of this fiscal saw volumes recovering to pre-covid levels with the Chennai cluster clocking its best occupancy of 66 per cent. While hospitals margin was impressive, pharmacy business is yet to gain steam.  

The hospital chain is well poised for long-term sustainable growth as focus remains on improving asset utilisation to achieve best-in-class occupancy of 75 per cent and improve margins; and strong balance sheet to support future growth.  

The brokerage maintains a Buy rating for a target price of Rs 5,500 per share, which implies an upside of over 15 per cent. 

SMIFS Limited 

The healthcare vertical is poised to deliver superior growth in the next 1 -2 years through better asset utilisation and rise in ARPOBs (Average Revenue Per Occupied Bed). International revenues should also pick up in the next 1-2 years. Being positive about the prospects of Apollo, we maintain a “Buy" rating on the stock for a target price of Rs 5,671 apiece, upside of 19 per cent. 

Both the healthcare services and pharmacy including 24x7 should perform robustly in the future. AHLL (Apollo Health and Lifestyle Limited), an arm of Apollo Hospitals should also report superior performance.