Apollo Hospitals is well placed in all its segments

For one, the hospitals business has seen a strong rebound. Besides, rising non-Covid revenues have helped normalize the business mix, which has boosted profit margins. In addition, there is reasonable optimism on the pharmacy business. The company has spun off its front-end pharmacy business and Apollo 24/7 into a subsidiary, Apollo Healthco Ltd., to grow its e-commerce platform. The strong growth outlook for the platform and an imminent fundraising have created excitement around the division.

Analysts at Motilal Oswal Financial Services Ltd said, “We expect its omni-channel differentiated factor to be the preferred method for online pharmacies going forward, helping Apollo achieve 14% market share in e-pharmacy over the next five years. Will help.” Here, a strong network of 4,300 offline stores assures faster delivery and wider reach than online-only peers.

Meanwhile, the company’s back-end pharmacy business is also performing well. The increased sales and engagement of private labels also helps. As such, the Hospitals business registered a sequential growth of 13% in the September quarter (Q2FY22). Its year-on-year growth stood at 77%. New hospitals are growing rapidly. In Q2, their revenue grew 84%, beating mature hospitals’ 70% growth. New hospital occupancy stood at 66%, compared with mature hospital occupancy of 65%.

With its profits beating expectations in the second quarter, many analysts raised their earnings estimates for Apollo for fiscal 2012 and fiscal 2013. But the growth in the current quarter may be a bit lower. Analysts say the arrival of foreign patients may take time, given the threat to Omicron.

Meanwhile, Motilal Oswal’s target price for the stock 5,900 is nearly 21% higher than the current share price. According to the brokerage, key risks include delays in improving profitability of new hospitals and a lower-than-expected share of private labels in the pharmacy business.

For now, the sharp outperformance in Apollo Enterprises stock suggests that a good chunk of near-term growth potential is already being factored in. This could prevent significant volatility in the near future.