Apollo Hospitals Falls Drastically After Valuation Concerns

Apollo Hospitals Enterprise Ltd. is an Indian multinational healthcare group, headquartered in Chennai. The group has a network of 71 owned and managed hospitals. Along with this chain, the group also operates pharmacies, primary care, diagnostic centres and digital health services through its subsidiaries, The hospital chain announced that it plans to raise a sum of Rs.2,475 crore through Private Equity firm Advent for its unit Apollo HealthCo.

Why have the shares seen such A fall?

The stock price of Apollo hospitals fell by 8% on Monday and made a low of Rs.5733.00, the closing price settled at -4.60% at Rs.5968. This fall was mainly driven by the street’s concern for the valuations assigned to Apollo 24/7. 

The company will raise ₹2,475 crore through private equity firm Advent International for its unit Apollo HealthCo. This unit manages Apollo’s Apollo 24/7 vertical. Furthermore, there are plans to merge Keimed, a promoter-owned wholesale pharma distribution business, with Apollo HealthCo over the next 2-3 years.

Advent International’s investment will grant a 12.1% stake in the merged entity, valuing the combined entity at Rs.22,481 crore. Apollo 24/7 is valued at Rs.14,478 crore, while the other entity Keimed is valued at Rs.8,003 crore. These lower-than-expected surprised valuations of Apollo 24/7. have raised concerns for investors. The stock fell as much as 8.2 % to its intra-day low of Rs.5,733. It is now 16.5 %away from its 52-week high of Rs.6,871.30, hit on February 22, 2024.

Analysts on This Deal

The analysts also have raised the same concerns as the investors regarding the valuations of Apollo 24/7, The analysts have noted that the $1.7 Billion valuation for Apollo 24/7 has been much lower than expected and this had been called a negative surprise for them. Concerns are raised that the valuations for Keimed have been aggressively doubled for this deal.

Conclusion: The merged entity is estimated to have Rs.25,000 crore in revenue and 7%-8% margins by 2027, Though the investors have raised concerns about the lower-than-estimated valuation of Apollo 24/7 the merged entity also possesses several benefits when it comes to business, This will support future expansions and will enable integrated pharmacy distribution. The merged entity will also have the option to take advantage of Keimed’s store network to push private label sales and unlock synergies. The Company would require a strong executive who can make the required things happen under this complex merged structure.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.