Apollo Hospitals demerger: What small shareholders should know; target prices

The spinoff of pharmacy distribution and digital businesses into a new listed entity could unlock value for Apollo Hospitals Enterprise Ltd shareholders, said stock analysts as they gave target prices that hinted at up to 40 per cent upside for the scrip. On Tuesday, the Apollo Hospitals stock climbed 3.5 per cent to settle at Rs 7,496.15 apiece. 

Apollo Hospitals intends to demerge the businesses including the Apollo 24/7 platform and the pharmacy distribution business under Apollo HealthCo (AHL). It also wants the merger of Keimed into the same entity. This combined entity called NewCo would then be listed on stock exchanges within 18-21 months. 

For every 100 shares of Apollo Hospitals, its shareholders will receive 195.2 shares of New Co. 

Valuing the remainder of the Apollo businesses using SOTP, JM Financial suggested a 40 per cent absolute upside return for Apollo Hospitals from the current market cap over the next 21 months. 

"We value the hospital business at 30 times EV/Ebitda—at par with Max Healthcare and Medanta—owing to size of business, on par or better clinical excellence and comparable operational excellence," said JM Financial. 

This brokerage said the Apollo Health & Lifestyle business is expected to grow at a rate exceeding market averages, as it assigned a 20 per cent discount to listed diagnostic and single-specialty peers for valuation purposes as this business is currently subscale.

"At current market prices, this deal implies a 20x FY28 trading multiple to the hospital business, which is a 56 per cent discount to that for larger peer such as Max," JM said.

As per BSE, a total of 1,25,583 small shareholders held 53,36,685 Apollo Hospitals shares, accounting for 3.71 per cent stake in the company as of March 31. 

Apollo Hospitals has guided for the demerged NewCo to achieve Rs 25,000 crore in revenue by FY27, with a targeted Ebitda margin of 7 per cent, driven by a scale-up in digital health and deeper pharmacy penetration.

The strategic realignment is aimed at unlocking value, enhancing operational focus, and establishing a comprehensive pharmacy and digital healthcare platform.

Elara Securities suggested 'Accumulate' rating on Apollo Hospitals with a target of Rs 7,479, saying the deal removes holding company discount on the pharmacy business and enables direct public participation. It also improves transparency and benchmarking against digital and offline pharmacy peers, it said.  

However, execution risks remain, particularly integration timelines, regulatory clearances, and margin discipline amid high Gross Merchandise Value (GMV) growth targets. 

"Apollo 24/7’s independent monetization  prospects also remain unproven. Focused leadership, arm’s-length commercial agreements  between AHEL and NewCo, and a formal business framework agreement offer comfort on  governance and synergies," Elara Securities said.