Pharmacy growth helps Apollo offset hospital business pain

Pharmacy growth helps Apollo offset hospital business pain


ET Intelligence Group: Apollo Hospitals is betting big on the pharmacy business amid a sharp fall in the occupancy rates at its hospitals due to Covid-19. In the fourth quarter ending March, while the hospital business performance was subdued at 4% growth year on year, the pharmacy business grew at a strong 33%. The management has given strong growth guidance for the latter.

“We will take the number of stores to over 5,000 and more than double the revenues to ₹10,000 crore in five years,” said Krishnan Akhileswaran, CFO, Apollo Hospitals.

Adapting to the current situation, the largest hospital chain in India has started online services including pharmacy, healthcare consultancy and diagnostic services. It has launched Apollo 24×7, India’s largest end-to-end, omni-channel healthcare digital platform to access services. “With 11 million downloads so far, this can be a significant revenue contributor going forward,” Akhileswaran said.

Pharmacy Growth Helps Apollo Offset Hospital Business Pain

The momentum in online pharmacy bodes well for Apollo Hospitals’ stock given the success of some of the players in the startup ecosystem in attracting venture capital. These include 1Mg, Pharmeasy, Medlife, Netmeds and Medplus. Among them, Netmeds received a valuation of $700 million (approximately ₹5,000 crore) in 2019 despite its loss-making operations.

Apollo Hospitals is valued at ₹19,200 crore including all its businesses. With ₹5,100 crore in FY20 revenue, the pharmacy business is 46% of the consolidated revenue and operates at 9.9% margin before depreciation and amortisation (Ebitda margin). It added 380 stores in FY20, taking the count to 3,766 stores. It plans to add 300-350 stores every year. In FY21, its revenue is estimated to touch ₹5,700 crore or over half of the full year’s expected revenue.

The hospital business is likely to remain subdued in the current fiscal. At Monday’s closing stock price of ₹1,366.5, Apollo’s enterprise value (EV) was 14 times its FY20 Ebitda. Given slightly higher forward multiples of 15-17 by analysts, the stock may show a marginal upside.

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