Non-COVID business recovered, saw 40% pick-up – Apollo Hospital

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Excerpts of an interview with Ms. Sunita Reddy, MD, Apollo Hospital (APOLLOHOSP)  with CNBC -TV18 dated 15^th February 2021

• Total hospital occupancy is at 63 percent. Out of these, 17 percent of the revenue is coming from COVID.
• The non-COVID business has recovered, they have seen 40 percent pick-up in non-COVID work. There has been a 36 percent improvement in elective surgical work.
• This has reflected in the average revenue per occupied bed (ARPOB) which was at Rs 38,000 in 2QFY21 moving up to Rs 40,100 in 3QFY21.
• In terms of international patient inflow, it was barely 2 percent. Most of the international patients were from countries like Bangladesh and Myanmar. Definite improvement is expected from March when travel opens up.
• The digital business peaked during COVID. They had done about 250,000 teleconsults during the first two quarters and in Q3 they are doing about 2,000 a day.
• Many of the doctors are now coming back to the offices, they are seeing growth again in the OP.
• They have seen 21 percent growth in the pharmacy business, with both the front end and the back end. Margins have been good at ~6.5 percent and this is after they added 150 stores in 3QFY21 and about 400 stores for the full year.  They are currently at 4,000 stores in the pharmacy.
• Pharmacy business revenues have picked up by 16.4 percent and continue to grow. Margins continue to improve.
• Going forward they are expected to see healthy margins because in the mature stores they are seeing margins of 9 percent.
• They are still seeing strong growth in the diagnostic business in spite of tapering off of COVID.

Asset Multiplier comments:

• Rapid expansion and maturity of older hospitals have kept overall growth higher. Health care technology investment and deals continue to provide opportunities.
• The health care industry’s response to COVID 19 has been one of persistence and commitment, especially by front-line caregivers. The pandemic has significantly shifted industry trends and accelerated the pace of change.
• Digitalization has become a major component in a sustainable healthcare model. Virtual care and telemedicine enabled the continuity of care during the recent health crisis, and these solutions are expected to continue growing in importance as patients value efficiency and convenience.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of APOLLOHOSP was ₹ 3,205/- as of 16-February-2021.  It traded at 348x/ 65x/ 44x the consensus earnings estimate of ₹ 9.2/ 49.1/ 72.8 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 2,898/- which trades at 40x the earnings estimate for FY23E of ₹ 72.8/-

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