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Monday, December 29, 2008

Apollo Hospitals - Good large cap stock in Healthcare

Apollo Hospitals has been growing its sales at an annual rate of 21 per cent in the last five years.

The company has leveraged its core healthcare services business to launch pharmacies, and testing centres, and is now looking at manufacturing its own drugs and offering clinical trials. A focus area will be the growing medical tourism market (current market size of Rs 2,000 crore, and expected CAGR of 55 per cent till 2012). For Apollo, while foreign patients account for 17 per cent of the total patient volumes and roughly a third of revenues, the company expects this to improve to 25 per cent and 40 per cent, respectively.

The pharmacy segment, which accounts for a fifth of the revenues, is expected to grow at a much faster pace as the company ramps up the number of centres to 1,000 in FY09 from 750 currently. While operating margins are hovering around 17 per cent, numbers will improve going ahead, when the pharmacy segment (yet to make a profit at the EBIDTA level) turns corner and the company's asset light strategy (manage hospitals rather than build) comes into play.

With strong demand for quality medical services, Apollo, a leader with a network of 43 hospitals (10,000 beds) will be able to grow its current revenues of Rs 1,123 crore by about 30 per cent over the next two years. At Rs 429, the stock trades at a reasonable EV/Ebidta of around 11. Expect returns of about 18-20 per cent over the next one year.
Source: Business Standard

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