JPM-INDIAFIRSTTO MARKET Top Stories-20250723

All eyes on FY27; expansion-led growth, demerger and digital breakeven catalysts coming up

Apollo Hospitals (+39% in last two years) has significantly underperformed the BSE Healthcare index by 30% over the past twoyears driven by softer than expected margin improvement in the hospital segment and delayed turnaround of digital healthvertical (part of Apollo Healthco). With the recent demerger announcement of Apollo Healthco, we see potential valuediscovery and fair value recognition for the hospital business which should be supported by acceleration of EBITDA growthstarting FY27 that could drive ~20% potential upside returns in the stock. We expect significant bed addition in hospitals, mid-teen growth in offline pharmacy and breakeven of digital business (losses reduced from Rs6bn in FY24 to Rs4.4bn in FY25) todrive 15%/20% revenue/EBITDA CAGR over FY25-28 for Apollo Hospitals. Despite its scale (largest bed capacity & absoluteEBITDA in hospital segment), Apollo’s hospital business trades at an implied valuation of 29x/24x EV/EBITDA on FY26/27E,which is a ~15-25% discount to peers like Medanta/Max and in line with Fortis. Reiterate OW with a PT of Rs8,600 (~20%potential upside).