Apollo Hospitals - Part-Stake Sale At ‘Healthco’ Infuses Growth Capital: Motilal Oswal

Motilal Oswal Report

Apollo Hospitals Enterprises Ltd. has proposed to infuse equity capital (Rs 24.8 billion) from Advent international at Apollo HealthCo level and integrate Keimed Pvt. Ltd (distribution arm of Apollo group) with Apollo HealthCo.

The deal values Apollo HealthCo at Rs 145 billion ($1.8 billion) at an expected valuation of enterprise value/sales of 1.9 times. Keimed is valued at Rs 80 billion (23 times FY24E Ebitda of Rs 3.5 billion).

The deal establishes a strong pharmacy franchise that spans the entire value chain from distribution to direct and online customer engagement. This expansion not only increases scale but also boosts efficiency throughout the value chain, leading to enhanced profitability.

Apollo Hospitals has been expanding across the healthcare services comprising hospitals and both offline and online pharmacy businesses. Overall, we expect 48% earnings compound annual growth rate over FY24-26.

We value Apollo Hospitals on an SOTP basis (26 times enterprise value/Ebitda for hospitals, 12 times EV/Ebitda for retained pharmacy, 20 times EV/Ebitda for front-end pharmacy, 25 times EV/Ebitda for Apollo Health and Lifestyle Ltd. and two times EV/sales for Apollo 24/7) to arrive at a target price of Rs 7,280. Maintain Buy.

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