Apollo Hospitals shares crash over 8% after Advent deal; brokerage firms remain positive

Shares of Apollo Hospitals Enterprises Ltd (AHEL) tumbled more than 8 per cent during the trading session on Monday as it gears up for a Rs 3,000 investment deal with Advent. The blue-chip counter registered its biggest fall in a single day since March 20202, during the pandemic-led sell-off.
Apollo HealthCo Limited or Apollo 24/7, a subsidiary of Apollo Hospitals Enterprise Limited, announced plans to raise Rs 2,475 crore ($339 million) in equity capital from Advent International, one of the world’s largest private equity investors. Apollo 24/7 also plans to integrate Keimed, India’s leading wholesale pharmaceutical distributor, over the next two years.
The deal grants Advent a 12.1 per cent stake in the merged entity, with the remainder split between Apollo HealthCo (59.2 per cent) and Keimed (25.7 per cent). The combined entity is valued at an enterprise value of Rs 22,481 Crores ($3 billion).
Of the total Rs 2,475 crore consideration, Rs 860 crore will be used for the expansion of Apollo HealthCo and Rs 890 crore will be paid to the parent company AHEL. Advent will invest in compulsory convertible instruments over two tranches in the next 12 months.
The combined entity is expected to deliver Rs 25,000 crore of revenue in three years with 7-8 per cent Ebitda, up from around Rs 13,600 crore and 1.5 per cent now. This growth will be achieved through Apollo 24/7 breakeven in six to eight quarters, higher margin realisation through supply chain efficiencies, and accelerated growth in the private label business, said the company.
However, shares of Apollo Hospitals tumbled more than 8.30 per cent on Monday in a knee-jerk reaction to Rs 5738, with a total market capitalization less than Rs 85,000 crore. The scrip had settled at Rs 6258.55 in the previous trading session on Friday.
Apollo Hospital’s proposed deal was long overdue, its valuation is a let-down and doubling of Keimed’s valuation in a year is aggressive. That said, fund-raise shall minimise 24/7 cash burn,support future expansion and enable integrated pharmacy distribution, said Nuvama Institutional Equities.
“It could leverage Keimed’s over 70,000 store network to push private label sales and unlock synergies. We are reducing pharmacy target valuation from 25 times EV/Ebitda to 22 times, and our SoTP valuation by Rs 290 per share. However, rolling over to FY26E yields a revised target price of Rs 7,300, added Nuvama with a ‘buy’ tag.
Apollo Hospitals has been expanding across the healthcare services, comprising hospitals and both offline/online pharmacy businesses, said Motilal Oswal, which expects  48 per cent earnings CAGR over FY24-26 overall. “We value AHEL on an SOTP basis to arrive at a target price of Rs 7,280,” it said.
The agreement will create a leading integrated pharmacy distribution business complemented by a fast growing omnichannel digital health business. While stake sale of AHL to Advent was done below our estimates by $0.8- 0.9bn; likely merger of Keimed with AHL is a positive step and removes overhang of any leakage, said Prabhudas Lilladher with a ‘buy’ tag and a target price of Rs 7,050.