On Thursday, BofA Securities showed confidence in Apollo Hospitals (NS:APLH) (APHS:IN), raising its price target to INR 8,225 from INR 7,925 while reiterating a Buy rating. The adjustment reflects the firm's positive outlook on the hospital chain's financial prospects despite some operational challenges.
The analyst from BofA Securities highlighted that Apollo Hospitals maintained flat year-over-year hospital margins at 24.9%, even with an increased occupancy rate of 73% compared to 68% in the second quarter of the fiscal year 2024. This performance was noted despite disruptions, particularly a decrease in patient flow from Bangladesh into the high-margin Tamil Nadu cluster.
Management at Apollo Hospitals has kept its occupancy guidance steady at 70%. However, they anticipate that hospital margin expansion will be modest, with an expected increase of 50 to 60 basis points in fiscal year 2025. The company's large pipeline addition scheduled for fiscal year 2026 is also factored into the financial outlook.
The firm's analyst pointed out that growth in existing hospitals and a measured approach to bed expansion are likely to mitigate the impact on margins over the medium term. Consequently, the analyst has adjusted the EBITDA estimates by approximately 3-4% and rolled forward the valuation to December 2025, resulting in the updated price target of INR 8,225.
In conclusion, BofA Securities maintains a positive stance on Apollo Hospitals, underpinned by the company's strategic growth initiatives and operational management, which are expected to support margin expansion and sustain profitability moving forward.
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