Target: ₹5,074

CMP: ₹4,614.05

Revenue beats but margin misses due to higher costs Apollo Hospital Q3-FY23 operating performance was mixed, with revenue beating BNPPe by 2.1 per cent , but its EBITDA margin of 11.9 per cent missed by 120bps (BNPPe: 13.1 per cent) due to its 24x7 arm costs, which rose 16 per cent q-q to ₹200 crore.

Overall, revenue grew 17.2 per cent y-o-y, but EBITDA margins fell 430 bp y-o-y to 11.9% on a high base and increased costs of its 24x7 arm. However, the Hospitals business margin improved 290 bps y-y but fell 50bps q-o-q to 24.7 per cent.

Offline pharmacy business’ margin also improved 40 bps y-o-y to 7.8 per cent. We expect EBITDA margins to gradually improve on higher hospital occupancy and declining costs for its 24x7 unit from FY24 onward.

We tweak our estimates to factor in higher revenue across its hospitals and pharmacy, lower growth in AHLL, and 24x7 arm’s higher costs. We remain positive on APHS’ margin outlook and believe lower costs for the 24x7 arm should drive long-term gains.

We roll forward our valuation base to Mar-25E (Sep-24E earlier) and cut target EV/EBITDA for AHLL to 22x from 25x due to its lower growth and margin. We retain Buy with a higher SoTP-based TP of ₹5,074 (₹4,864 earlier).