Kotak Institutional Equities has issued a BUY recommendation on Apollo Hospitals (APHS), assigning a fair value of Rs8,530 per share. The report highlights a major corporate restructuring that will see the listing of Apollo’s omnichannel pharmacy and digital health business, Apollo Healthtech (New Co), within 18 to 21 months. This move is expected to unlock value, sharpen investor focus on the flagship hospital segment, and address concerns over cash drain into digital ventures.

Summary: Apollo Hospitals’ Strategic Restructuring Unlocks Value

Apollo Hospitals is embarking on a transformative restructuring, consolidating its pharmacy, digital health, and telehealth businesses under a new entity, Apollo Healthtech. This entity is slated for a separate listing, providing direct value discovery and reducing complexity for investors. Kotak Institutional Equities maintains a BUY rating, raising the fair value to Rs8,530 per share, underpinned by robust hospital free cash flows, a streamlined business model, and a compelling growth outlook. The report details the transaction structure, financial projections, and the anticipated impact on both the hospital and pharmacy segments, positioning Apollo as a preferred pick in India’s healthcare sector.

Kotak Institutional Equities Reiterates BUY: Fair Value Rs8,530

Kotak Institutional Equities maintains a BUY call on Apollo Hospitals, with a revised fair value of Rs8,530 per share, reflecting the incremental value from the planned listing of Apollo Healthtech.

The current market price (CMP) stands at Rs7,496, offering a potential upside of approximately 14% for investors.

Restructuring: Pharmacy and Digital Health to be Listed Separately

Apollo Hospitals will consolidate its pharmacy distribution (offline and online), Keimed (third-party distribution), and telehealth businesses into Apollo Healthtech (New Co), which will be listed on the BSE and NSE within 18–21 months.

Post-listing, APHS will retain a 15% stake (17.5% including ESOPs), while minority shareholders will hold 42% in New Co.

The restructuring addresses a key investor concern: eliminating cash drain from the hospital business into loss-making digital ventures and reducing operational complexity.

Valuation: New Co Pegged at Rs400 Billion+ Enterprise Value

Apollo Healthtech is valued at an enterprise value (EV) of over Rs400 billion, based on June 2027E estimates.

The company forecasts a FY2027E exit run rate of Rs250 billion in sales and a 7% reported EBITDA margin for the new entity.

Kotak’s estimates for New Co’s FY2027E EBITDA are ~20% lower than company guidance, reflecting a conservative stance on the digital business’s profitability.

Hospital Segment: Core Growth Engine Remains Intact

The restructuring will revive focus on Apollo’s flagship hospital segment, enabling better peer comparison and potentially driving a re-rating of the hospital business.

The hospital division is projected to deliver robust free cash flow (FCF), mitigating concerns about group-level capital allocation.

Expansion plans include adding 4,372 beds across 12 locations, with a capital expenditure of approximately Rs55 billion over the next four years.

Key Financial Metrics and Stock Levels

Stock Levels:

Current Market Price (CMP): Rs7,496

Fair Value (Target): Rs8,530

52-week Range: Rs7,585 (high) – Rs6,001 (low)

Transaction Structure and Shareholder Impact

For every 100 shares of APHS, shareholders will receive 195.2 shares of New Co.

After the scheme’s completion, New Co will have approximately 667 million shares outstanding (FV Rs2 each).

APHS will continue to have a nominee director on New Co’s board, ensuring strategic alignment.

Strategic Rationale: Value Discovery and Investor Focus

The separate listing of Apollo Healthtech will enable direct value discovery, eliminating the “hold-co discount” and simplifying the group structure.

Investors will gain direct exposure to India’s largest omnichannel pharmacy and digital health platform, while APHS sharpens its focus on core hospital operations.

The deal accelerates the timeline for value unlocking and provides an exit opportunity for private equity investors such as Advent.

Operational Outlook: Growth Drivers and Segmental Performance

Hospital Segment: Projected to maintain strong growth, supported by bed additions, operational leverage, and a robust pipeline in diagnostics and specialty care.

Pharmacy & Digital Health: While the offline pharmacy is expected to improve margins, the digital arm remains loss-making but is targeting EBITDA breakeven by end-FY2026E, aided by higher GMV, synergy benefits, and monetization initiatives.

Private Label & Insurance: Apollo is ramping up its private label business and expects the insurance vertical to turn EBITDA positive by FY2027E.

Risks and Considerations

The valuation of New Co will ultimately be determined post-listing, introducing some uncertainty around the final market capitalization.

Execution risk remains in the integration of digital and offline businesses and in achieving the ambitious margin targets for the digital arm.

Regulatory approvals and timely completion of the transaction are critical for the anticipated value unlocking to materialize.

Investor Takeaway: Levels and Recommendation

Buy Apollo Hospitals at current levels (Rs7,496) with a target of Rs8,530, as per Kotak Institutional Equities’ revised fair value.

The restructuring is expected to unlock significant shareholder value, with the hospital segment poised for a potential re-rating post the demerger and listing of Apollo Healthtech.

Investors should monitor the timeline and execution of the restructuring, as well as quarterly updates on margin improvement and digital business profitability.

In conclusion, Kotak Institutional Equities’ BUY call on Apollo Hospitals is underpinned by a transformative restructuring, robust hospital free cash flows, and the potential for value unlocking through the separate listing of Apollo Healthtech. The stock offers a compelling risk-reward profile for long-term investors seeking exposure to India’s premier healthcare franchise.