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Apollo Hospitals shares fall the most since 2020 — one of the top losers on the Nifty 50
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
The street has raised concerns on the complex structure of Apollo Hospitals’ latest deal, calling for stronger execution from the hospital chain.
Shares of Apollo Hospitals Enterprises Ltd. are the biggest losers on the Nifty 50 index on Monday, declining as much as 8%. This is the biggest single-day drop the stock has seen since March 2020.
The drop comes after the hospital chain announced that it plans to raise a sum of ₹2,475 crore or $300 million through Private Equity firm Advent for its unit Apollo HealthCo.
In an interaction with CNBC-TV18, Suneeta Reddy of Apollo Hospitals said that the deal for Apollo 24/7 will further strengthen its balance sheet.
Apollo also plans to merge Keimed, a promoter-owned wholesale pharma distribution business over the next 24-30 months. Keimed is said to have a 2x scale compared to the nearest competitor.
Out of the funds raised, ₹890 crore will be used to retire some debt, while ₹860 crore will be used as Growth Capital for Apollo HealthCo.
The merged entity is projected to have ₹25,000 crore in revenue and 7% to 8% margins by financial year 2027.
The street has raised some concerns with regards to the deal.
Brokerage firm Jefferies said that Apollo Hospitals will need strong execution, given the complex structure of the deal. Valuations of the deal are also lower than expected.
It also said that Apollo HealthCo is valued at ₹14,478 crore, lower than the ₹17,000 crore SoTP valuations.
CLSA also highlighted that Apollo HealthCo is valued at a discount of ₹5,600 crore (₹390 per share) in comparison to CLSA’s valuations.
Addressing the valuation concerns, Reddy mentioned that Apollo HealthCo is being valued at a 15% premium compared to its listed peers. Additionally, she also raised the guidance for Apollo HealthCo’s margin for financial year 2027 to 10% to 11% from 7% to 8% earlier.
Elara believes that it does not see the deal significantly altering the consolidated value of Apollo Hospitals.
Morgan Stanley remains “overweight” on Apollo Hospitals with a price target of ₹7,181, while CLSA has a price target of ₹7,000, with an “outperform” recommendation. Jefferies has a target of ₹7,500 on the hospital chain.
Shares of Apollo Hospitals are trading 7.6% lower at ₹5,785. With Monday’s drop, the stock has given up all the gains it had made in 2024.
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