Saturday, July 16, 2011
Apollo Hospitals Enterprise Ltd’s (Apollo’s) Q4FY11 results exceeded
expectations on higher revenues from the newly established hospitals,
low interest cost and the decline in losses from associates. We remain upbeat
on the growth prospects of the healthcare services industry and Apollo’s
leadership position in the organised healthcare delivery market. Although
Q4FY11 results were above our expectations, we maintain our earnings
estimates after factoring in slight delays in commissioning of the new beds. We
maintain our fundamental grade of 5/5.
Key developments: 57 pharmacy stores were added during Q4
During the quarter, Apollo added 57 pharmacy stores, totaling ~1,200 stores
as of FY11. The company is going slow on new store additions and is focusing
on increasing profitability of the existing stores. We remain positive on the
retail pharmacy business and expect profitability to improve to 3.9% in FY13
from 0.5% in FY11.
Valuations: Current market is aligned
We continue to use the discounted cash flow method to value Apollo. We
maintain our fair value of Rs 533 per share. At this fair value, the implied P/E
multiples are 31.1x FY12 and 27.5x FY13 EPS. Given the current market price,
the valuation grade is revised to 3/5 from 4/5.