Apollo Hospitals slips 8% as deal valuations disappoint Street

Apollo Hospitals share price: Shares of Apollo Hospitals slipped over 8 per cent in the morning deals on Monday (April 29). The scrip touched the day's low of Rs 5,738 apiece. The downtrend in the stock can be attributed to the healthcare company making two key announcements last week. They are as below:

1.  Company's subsidiary Apollo Healthco to raise funds

As per the filing, Apollo Healthco Limited (AHL) proposed to raise Rs 2,475 crore from private equity firm Advent International in two tranches. 

>>70 per cent at first close: Rs 1,732 crore 

>> Balance 30 per cent in 12 months of the first close: Rs 743 crore.

The funds will be used for growth. 

2. Integration of Keimed Private Limited (“Keimed”) with AHL

Keimed is the pharma distribution arm of Apollo Group, and its merger with AHL will be completed in 24–30 months. Currently, Keimed has a 15 per cent market share in core regions. 

Valuations

The aggregate enterprise value of AHL and Keimed is Rs 22,481 crore.

>>AHL is valued at Rs 14,478 crore, which implies an over 15 per cent premium to its closest peer’s listed multiple. 

>>Keimed is valued at Rs 8,003 crore, which implies an over 20 per cent discount to its closest peer’s listed multiple.

>> The agreed swap ratio for the proposed merger is capped at 0.81 shares of AHL for every share of Keimed.

>> After the merger, Advent will hold 12.1 per cent in the combined entity;

>> Keimed shareholders will own a maximum of 25.7 per cent while AHEL will continue to be the largest controlling shareholder with at least 59.2 per cent; and ESOPs of 3 per cent.

As per Zee Business research, deal valuations are much lower than expected; the AHL valuation is at a 20 per cent discount. AHL's enterprise value is around Rs 14,478 crore, with an with an EV/sales of 1.9x, and Keimed's enterprise value is around Rs 8,003 crore, with a 23x FY24E EBITDA combined entity value of Rs 22,500 crore and an EV/sales of 1.7x.

JP Morgan maintained an 'overweight' rating on Apollo Hospitals and cut the target to Rs 7,100 from Rs 7,450 apiece. 

At around 12:41 p.m., shares of Apollo Hospitals traded 4.13 per cent or Rs 258.55, lower at Rs 6,000 apiece. The market capitalisation of the company at around the same time stood at Rs 86,270.79 crore. The stock closed 4.66 per cent lower at Rs 59,66.75 apiece. 

Apollo Hospitals share price: Past performance 

In a year, shares of Apollo Hospitals have given a return of over 33 per cent as against Nifty50's rise of 24 per cent. 

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