Apollo Hospitals announces deal with Advent; stock down 8% on valuation concerns

Advent International's concern successful the merged entity volition assistance it a 12.1 percent stake, valuing the combined entity astatine an endeavor worth of ₹22,481 crore. Apollo 24/7 is valued astatine an endeavor worth of ₹14,478 crore, portion Keimed is valued astatine ₹8,003 crore.

Read here: IDFC First Bank shares autumn implicit 5% aft Q4 nett net dips. Time to buy?

Investors expressed interest astir the valuation assigned to Apollo 24/7, which is little than expected. Most brokerages besides agreed.

The banal fell arsenic overmuch arsenic 8.3 percent to its intra-day debased of ₹5,738. It is present 16.5 distant from its highest of ₹6,871.30, deed connected February 22, 2024 but is inactive up 30 percent from its 52-week debased of ₹4,410.05, deed connected May 19, 2023. The banal has precocious 39 percent successful the past 1 twelvemonth but is level successful 2024 YTD. Just successful April, the banal shed astir 8 percent.

Nuvama Institutional Equities noted that the $1.7 cardinal valuation of Apollo 24/7 was importantly little than the estimated $2.7 billion, calling it a "negative surprise" and a "huge letdown." Concerns were besides raised astir the doubling of Keimed's valuation for the woody wrong a year. The brokerage said it seemed 'aggressive'.

Read here: IRCON International shares surge 6.4% connected ₹1,198 crore bid win

Based connected the little valuation, Nuvama reduced its people terms for the banal by 3 percent to ₹7,300 portion retaining its 'buy' call, indicating a 27 percent upside now.

Despite the valuation concerns, the woody is seen arsenic beneficial for Apollo Hospitals, believes Nuvama. "Apollo’s penchant for a timely fund-raise overvaluation should trim the resistance from 24/7's operating outgo and fortify some its pharmacy and infirmary businesses. The fund-raise could minimise 24/7's currency burn, enactment aboriginal enlargement and alteration integrated pharmacy distribution. The merged entity could leverage Keimed’s implicit 70,000 store web to propulsion backstage statement income and unlock synergies," it pointed out.

Meanwhile, brokerages similar Jefferies and Prabhudas Lilladher echoed akin sentiment, acknowledging the discounted valuation but recognising the imaginable affirmative interaction of the merger.

Read here: ICICI Bank: Brokerages stay bullish connected banal station Q4 earnings

Jefferies noted that Apollo HealthCo is prioritising accelerated growth. However, it emphasised that Apollo HealthCo would necessitate a stronger enforcement to negociate the analyzable organisational operation of the merged entity resulting from the planned merger of Keimed. Despite this imaginable challenge, Jefferies maintained a "buy" telephone connected Apollo Hospitals and acceptable a terms people of ₹7,500.

Prabhudas Lilladher besides acknowledged that the involvement merchantability of Apollo HealthCo was carried retired astatine a discounted valuation. Despite this, the brokerage views the merger of Keimed with Apollo HealthCo arsenic a affirmative step, arsenic it addresses concerns astir immoderate leakage successful operations. Additionally, Prabhudas Lilladher pointed to management's guidance indicating an EBITDA of ₹1,750-2,000 crore for the merged entity by FY27 arsenic a root of comfort, suggesting a affirmative outlook for the fiscal show of the combined businesses successful the future. It besides retained a ‘buy’ telephone with a people of ₹7,050.

Read here: ITC, Bajaj Auto, RVNL, IRFC, Divi's Labs among 10 stocks to bargain for abbreviated term

Meanwhile, Motilal Oswal Financial Services besides noted that the partial involvement merchantability successful Apollo HealthCo would supply maturation superior for the company. Overall, the steadfast anticipates a 48 percent compound yearly maturation complaint (CAGR) successful net for the merged entity implicit the fiscal years 2024-2026. This affirmative outlook led the brokerage to support a "buy" telephone connected Apollo Hospitals with a terms people of ₹7,280, indicating assurance successful the company's aboriginal show and imaginable maturation prospects.

Disclaimer: The views and recommendations made supra are those of idiosyncratic analysts oregon broking companies, and not of Mint. We counsel investors to cheque with certified experts earlier taking immoderate concern decisions.

Unlock a satellite of Benefits! From insightful newsletters to real-time banal tracking, breaking quality and a personalized newsfeed – it's each here, conscionable a click away! Login Now!

Published: 29 Apr 2024, 11:36 AM IST