Apollo Hospitals announces agreement with Advent

Investors raised concern about Apollo 24/7's lower-than-expected valuation
Apollo Hospitals announces agreement with Advent

Apollo Hospitals Enterprise shares dropped over 8% in intra-day trading today (April 29), following the firm's announcement that it will raise ₹2,475 crore (roughly $300 million) from private equity firm Advent International for its unit Apollo HealthCo. This unit is in charge of Apollo's Apollo 24/7 vertical. In addition, Keimed, a promoter-owned wholesale pharma distribution company, is set to join with Apollo HealthCo during the next 24 to 30 months. Advent International will own a 12.1% share in the merged business, with an enterprise value of ₹22,481 crore. Apollo 24/7 has an enterprise value of ₹14,478 crore, whereas Keimed is valued at ₹8,003 crore.Investors raised concern about Apollo 24/7's lower-than-expected valuation. Most brokerages also agreed.

The stock dropped up to 8.3% to an intra-day low of ₹5,738. The stock is currently 16.5 percent lower than its 52-week low of ₹4,410.05 on May 19, 2023, but still up 30% from its top of ₹6,871.30 on February 22, 2024. The stock has risen 39% in the last year, but it is flat year to date in 2024. Just in April, the stock fell about 8%. Nuvama Institutional Equities described Apollo 24/7's $1.7 billion value as a "negative surprise" and a "huge letdown." Concerns were also raised regarding Keimed's deal valuation doubling in a year. The brokerage called it 'aggressive'.Nuvama decreased the stock's target price by 3% to ₹7,300 while maintaining a 'buy' call, indicating a 27% upside.

Nuvama sees the purchase as favorable to Apollo Hospitals. "Apollo's preference for a timely fund-raising overvaluation should mitigate the impact of 24/7's operating costs and boost both its pharmacy and hospital operations. The fund-raising might reduce 24/7's cash burn, boost future expansion, and enable integrated pharmacy distribution. "The merged entity could use Keimed's over 70,000-store network to boost private label sales and unlock synergies," it stated.According to Jefferies, Apollo HealthCo prioritizes rapid growth. It did, however, underline that Apollo HealthCo would need a stronger executive to manage the complicated organizational structure of the amalgamated firm as a result of Keimed's proposed merger. Jefferies maintains a "buy" call on Apollo Hospitals, with a price objective of ₹7,500, despite potential challenges.Prabhudas Lilladher also admitted that Apollo HealthCo's equity sale was done at a discounted price. 

Despite this, the brokerage sees Keimed's merger with Apollo HealthCo as a positive step because it answers worries about potential operational leakage. Prabhudas Lilladher cited management's forecast of an EBITDA of ₹1,750-2,000 crore for the amalgamated organization by FY27 as a source of optimism for the combined businesses' financial success in the future. The stock remains a 'buy' with a target price of ₹7,050.

Motilal Oswal Financial Services stated that Apollo HealthCo's partial stake sale would give growth money to the company. Overall, the firm expects the amalgamated entity's earnings to expand at a CAGR of 48 percent between 2024 and 2026. The firm maintains a "buy" call on Apollo Hospitals, with a price objective of ₹7,280, reflecting confidence in the company's future performance and growth possibilities. All of these analyzes and information will work better after taking advice from investors to check with certified experts before making any investment decisions.