BofA Securities keeps Buy rating on Apollo Hospitals stock, boosts target with solid margin outlook
On Thursday, BofA Securities adjusted its position on Apollo Hospitals (APLH:IN), increasing the price target to INR 7,200 from INR 6,750, while reiterating a Buy rating on the stock. The revision follows Apollo Hospitals’ announcement of a 15% increase in consolidated revenue and an EBITDA of INR 6.75 billion, which aligns with BofA Securities’ forecast.
This financial performance was bolstered by stronger-than-anticipated hospital trends, including a rise in occupancy rates to 68%, which is up by 300 basis points, and a 50 basis points sequential improvement in margins during what is traditionally a slower quarter.
The hospital chain’s growth was partly attributed to its operational efficiency, with Apollo Hospitals managing to maintain operational expenditure for its HealthCo division despite lower than expected top-line growth. The HealthCo division reported a 15% year-over-year growth in offline distribution revenue and a 2% quarter-over-quarter increase in Gross Merchandise Value (GMV). Despite these figures being below estimates, Apollo Hospitals succeeded in keeping operational expenses flat and expressed confidence in achieving higher GMV growth moving forward.
The report from BofA Securities further highlighted the potential for margin expansion in the fiscal year 2025, particularly due to improving seasonality in hospital trends. The ability of Apollo Hospitals to balance GMV growth with its target to reach breakeven within 6 to 7 quarters is anticipated to be a critical factor for the stock’s potential re-rating.
Adjustments were made to the fiscal year 2025 EBITDA estimates, with a 3% increase, and less than a 1% increase for fiscal year 2026. These revisions were accompanied by a six-month roll-forward in the valuation model. The new price objective of INR 7,200, up from the previous INR 6,750, reflects these updated expectations and the company’s financial performance.
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