Apollo Hospitals shares rise 5% amid demerger plans; check details & latest price targets

Shares of Apollo Hospitals Enterprise Ltd surged nearly 5 per cent during the trading session to Rs 7583.30, hitting its new 52-week high, on Tuesday after the leading hospital chain announced the composite scheme of arrangement for the demerger of its pharmacy distribution and digital health operations and will be carved out into a separate entity.

Apollo Hospitals Enterprises announced the spin-off of its digital health, pharmacy distribution, and telehealth businesses into a new entity, NewCo, aiming to unlock value through a direct listing.  The healthcare player said that the combined entity is expected to report FY25 revenues of approximately Rs 16,300 crore, with a target to reach Rs 25,000 crore by FY27.

For every 100 shares of Apollo Hospitals, its shareholders will receive 195.2 shares of the new entity. Listing of the entity expected in 18-21 months, said the company. Post-restructuring, Apollo Hospitals Enterprise will retain a 15 per cent stake in NewCo to ensure integration across the patient journey and healthcare continuum.

The proposed demerger shall ensure direct ownership in the high-growth combined entity. Following the completion of the scheme, the total outstanding shares in NewCo, including a 3 per cent ESOP pool, will stand at approximately 667 million shares, said Motilal Oswal Financial Services Ltd.

"The listing of NewCo on the stock exchanges is expected to take place within the next 18-21 months, subject to necessary regulatory and statutory approvals. It allows for a sharper strategic focus, with AHEL concentrating on core healthcare services, while NewCo drives growth in digital health and pharmacy distribution under dedicated leadership," it said.

For investors, the key value drivers include – renewed focus on hospital bed expansion, consolidation of the pharmacy business, growth of the 24x7 online healthcare platform, integration of specialty clinics and margin expansion in the diagnostics business, said JM Financial Ltd in its IC report on Apollo Hospital.

With 1,717 beds being added, an 8 per cent annual increase in pharmacy outlets, and improving operating leverage in the 24x7 segment, we project Apollo to deliver 17 per cent, 21 per cent and 28 per cent CAGR revenue EBITDA and PAT for FY25-FY28 respectively, comparable to or better than smaller peers in the hospital industry," it added with a 'buy' rating and a target price of Rs 8,800.

Overseas brokerages also continue to remain positive on Apollo Hospital Enterprises. Among the global brokerage firms Citi has maintained buy on Apollo Hospitals with a target price of Rs 8260 per shares, while Morgan Stanley has an 'overweight' rating on the stock with a target price of Rs 8,058 apiece.