Apollo Hospitals: Expanding scale, improving profits

Apollo Healthcare scrip gained a further 2%, adding to its 7% gains in the last four trading sessions after the company said it will expand its footprint in Bangladesh. The company will be setting up a second hospital in Chittagong Stock Market Trading Tips

The stock has been on the investors' radar recently after CLSA put out a buy call early last week.

Investor interest in the hospitals space has also gone up after Malaysia-based healthcare services provider IHH Healthcare Berhad purchased 74% stake in Global Hospitals, which runs a chain of five hospitals in the country (1,100 beds) for Rs 1,284 crore.

The Malaysian healthcare major has a 10.85% stake in Apollo Hospitals. 

A key growth trigger for the company is capacity expansion over the next three years as well as the proportion of matured beds from the capacity additions between FY12-15. Of its own hospitals and beds of 7,217 at the end of FY15, only 10% is below one year and about 61% is five years or older. Including managed hospitals, the total bed capacity of the company is 9,215. The company intends to add about 1,600 beds over the next three years (till FY18) Himanshu Tiwari Astrologer Blog

Despite the expansion, Crisil Ratings says that the company will sustain its operating margins of 13-14%, aided by strong operating profitability of its matured hospitals along with improving operating performance of its joint ventures and subsidiaries as well as retail pharmacy business. 

While the retail pharmacy division has been a drag on the company’s overall profitability, the company’s focus on improving in-store profitability has helped it to improve its operating margins from 2.7% in FY12 to 3.3 in FY15. 

CLSA expects FY17 to be the inflexion point for an accelarated earnings per share growth. The research firm believes that the company will see a strong 36-45% EPS growth in FY17 and FY18 as new hospitals scale up and capex is completed. Earnings growth between FY14-FY16 (estimates for this fiscal) is in the range of 4.1% to 7.8%. 

About half the analysts who track the stock have a 'buy' on the scrip with the consensus target price of Rs 1,439, which translates into a marginal 5% gain from the current levels. Given the recent run up and valuations at 38 times its FY17 earnings, investors with a horizon of at least two years should await further correction before adding it to their portfolio Commodity Market Astrology Tips