Apollo Hospitals plans pharmacy restructuring; Nuvama ups target price, retains 'Buy'

Apollo Hospitals Enterprise Ltd (AHEL) has announced a strategic restructuring of its pharmacy business, aiming to list its omni-channel pharmacy unit within 18–21 months. As part of the plan, Apollo will offer 195.2 shares of the new listed entity (NewCo) for every 100 shares of AHEL. The move is seen as a significant value-unlocking initiative for shareholders, as it provides access to a fully integrated pharmacy chain and allows Apollo to sharpen its focus on its core hospital operations.

According to Nuvama Institutional Equities, the proposed acquisition of front-end pharmacy operations and the timeline for listing are welcome steps, establishing a clearer value discovery pathway for investors. The brokerage has retained its 'BUY' rating on Apollo Hospitals, raising the target price to Rs 8,635 from Rs 8,200, factoring in earnings estimates up to June FY27.

The management has guided for an aggressive 20 per cent-plus CAGR in revenue, aiming to scale the business to Rs 25,000 crore with margins improving by 350 basis points (bps) to 7 per cent. If executed successfully, analysts from the domestic brokerage believe it could trigger a re-rating of the stock. Notably, Apollo aims to break even in its 24/7 digital pharmacy business by the end of FY26E, and any progress in its insurance vertical will be closely monitored.

Nuvama highlighted three key positives from the restructuring: a defined value unlocking opportunity, access to a scalable and integrated pharmacy chain and better valuation reflectiveness for the hospital business. The previous transaction with Advent, which valued the combined HealthCo-Keimed entity at $2.7 billion, had disappointed the market. However, the brokerage now pegs the value of the pharmacy business at $3.7 billion under its sum-of-the-parts (SotP) valuation.

With the new roadmap in place, analysts suggest that Apollo Hospitals is well-positioned to capitalise on the growing demand in the retail health and wellness space. Execution will remain key, especially in achieving profitability benchmarks and capitalising on synergies between digital and offline pharmacy operations.

Meanwhile, shares of Apollo Hospitals were trading 0.24 per cent higher at Rs 7,511.85 on Wednesday, indicating a potential upside of 14.95 per cent based on Nuvama’s revised target price.