Strong Q3 performance and strategic restructuring push brokerages to maintain buy ratings with 20% upside as hospital margins hit 24.8% and pharmacy business nears breakeven
Apollo Hospitals Enterprise is executing a transformation that goes well beyond quarterly earnings beats. India’s largest hospital chain delivered a consolidated EBITDA of Rs 9.7 billion in the third quarter of FY26 — up 27% year-on-year and 3% above estimates. A planned demerger of its pharmacy and digital health businesses into a separately listed entity, an aggressive 1,500-bed expansion cycle, and the scaling of Apollo HealthCo toward a Rs 25,000 crore revenue run-rate by Q4FY27 are on the anvil.
Brokerages Prabhudas Lilladhar, Choice Broking have maintained buy ratings with a target price of Rs 9,000, implying approximately 20% upside from current levels of around Rs 7,507, based on the conviction that Apollo is building a multi-engine healthcare platform with sustained earnings visibility.
Hospital Segment Delivers 18% EBITDA Growth
The hospital business, which remains Apollo’s core earnings engine, posted strong performance in the December quarter with EBITDA growth of 18% year-on-year and operating margins expanding 70 basis points to 24.8%. This was driven by a combination of 3% price hikes and improved case mix toward higher-complexity procedures.
“Overall hospital EBITDA growth was strong at 18% year-on-year with OPM of 24.8%, up 70 bps year-on-year primarily aided by price hike of 3% and improved case mix,” Prabhudas Lilladhar noted in its report.
Average revenue per paying patient (ARPP) grew 11% year-on-year to approximately Rs 180,900, supported by higher-complexity procedures including cardiac, oncology, neuro, gastro, ortho, and transplant cases. Choice Broking highlighted that higher-complexity procedures grew 15% year-on-year, with transplant revenue rising approximately 50% quarter-on-quarter at the group level.
Overall hospital revenues grew 14% year-on-year, with occupancy at 67% — down slightly from 69% in Q2 due to seasonal factors, but with metro facilities already operating at approximately 70%, providing substantial operating leverage headroom.
The 1,500-Bed Expansion
Apollo is entering a significant capacity expansion cycle that brokerages believe will drive sustained revenue growth over the next several years. The company plans to add approximately 1,500 incremental beds in a phased manner across Hyderabad, Kolkata, Bangalore, and Gurgaon.
“Plans to add approximately 1,500 incremental beds in a phased manner, with approximately 40–50% expected to be operationalised in FY27,” Prabhudas Lilladhar stated.
Choice Broking elaborated on the phasing: “Of these, 40–50% will be operationalised by Q1FY27, with the balance coming online by early FY28. New hospitals operating initially at approximately 40% occupancy and ramping up, thereafter, creates strong revenue optionality.”
This represents roughly 45% expansion over the current capacity of 10,325 beds over the next five years. The brokerage estimates that new beds could add 3-4% incremental revenue growth over and above the 13-14% growth expected from the existing network.
Apollo HealthCo: Scaling Toward Rs 25,000 Crore
The pharmacy business under Apollo HealthCo has emerged as a major growth driver and a central piece of management’s value-unlocking strategy. HealthCo reported EBITDA of Rs 1.3 billion in Q3 versus Rs 1.1 billion in Q2, with revenues growing 20% year-on-year.
“Apollo HealthCo (pharmacy) is set to achieve approximately 20% CAGR by FY28E, expanding its footprint from 6 major cities to 25 cities, underpinned by stronger penetration in high-potential emerging cities and deeper integration across the healthcare ecosystem,” Choice Broking wrote.
HealthCo is projected to reach a Rs 25,000 crore revenue run-rate by Q4FY27, up approximately 25% from the existing Rs 20,000 crore annualised level. This growth is being driven by approximately 20.5% pharmacy revenue growth, roughly 16% same-store growth, approximately 600 net new store additions annually, and rising private label share of around 15.5%.
Adjusted for 24×7 digital app losses, pharmacy operating margins improved by a further 50 basis points year-on-year to 8.9%. Management guided that the digital business is on track for EBITDA breakeven in the next two quarters.
Unlocking Consumer Healthcare Value
Perhaps the most strategically significant announcement was management’s plan to demerge its omnichannel pharmacy business, 24×7, and telehealth business into a newly listed entity, with an estimated listing by Q4FY27 end post all approvals.
“Management has also announced the demerger of its Omnichannel Pharmacy business, 24×7, and telehealth business into a newly listed entity with an aim to unlock value by creating a focused, high-growth platform in the pharmacy and digital healthcare space, which is more consumer centric in nature,” Prabhudas Lilladhar explained.
This follows the earlier stake sale in HealthCo to private equity firm Advent and the merger with Keimed — moves aimed at creating an integrated pharmacy and digital health platform. Management’s guidance of Rs 17.5 billion EBITDA for the merged entity by Q4FY27 exit run-rate provides visibility on profitability trajectory.
Diagnostics Business (AHLL) Gaining Momentum
Apollo Health and Lifestyle Limited (AHLL), the company’s diagnostics arm, reported EBITDA of Rs 476 million — up 39% year-on-year — with operating margins of 10.2%. The business is expected to drive sustained high-teen revenue growth and mid-teen EBITDA margins beyond FY27, according to Choice Broking, driven by expansion in primary care and diagnostic services.
“AHLL’s expansion in clinics and diagnostics continues, enhancing cross-referrals and cluster economics. We believe that, together, these businesses are expected to contribute meaningful, diversified revenue growth with improving margin, supporting mid-teens growth in the medium term,” the brokerage noted.
Valuation: Sum-of-the-Parts Approach
Both brokerages employ a sum-of-the-parts methodology to value Apollo’s diversified healthcare platform. Prabhudas Lilladhar ascribes 25x EV/EBITDA multiple to the hospital and offline pharmacy businesses and 20x to AHLL. Choice Broking values hospitals at 22x EV/EBITDA (up from 20x previously), AHLL at 10x EV/EBITDA, and HealthCo at 3x EV/EBITDA.
With the stock currently trading at approximately Rs 7,507, the Rs 9,000 target represents roughly 20% upside — a premium justified by the rare combination of a dominant hospital franchise operating at scale, a rapidly scaling consumer healthcare platform approaching profitability, and a multi-year capacity expansion cycle that provides clear earnings visibility in an otherwise uncertain macro environment.
