Apollo Hospitals Enterprise Ltd shares hit a new 52-week of ₹7,859.50 on Thursday after surging around 8% the previous day on the back of impressive June-quarter (Q1FY26) results.
Consolidated net profit jumped 42% year-on-year to ₹433 crore, with digital health and pharmacy seeing a turnaround. The segment swung to a net profit of ₹57 crore versus a loss of ₹13 crore in Q1FY25 on the back of revenue growth and narrowing losses in Apollo 24/7, the digital consultation and treatment business.
In its mainstay healthcare services or hospitals business, Apollo has changed its traditionally reported metric of average revenue per occupied bed (ARPOB) to average revenue per patient (ARPP). Management believes ARPP blends pricing, length of patient stays and occupancy into one figure.
Vital signs
ARPP rose 9% year-on-year to ₹1.72 lakh in Q1FY26, driving 11% revenue growth to ₹2,935 crore. ARPP growth was driven by more complex cases that fetch higher realisation, better payer mix and improved tariffs.
Cardiac, oncology, neurology, gastro and ortho (or CONGO) patients accounted for 63% of the total. The rise in CONGO patients vis-à-vis general surgeries boosted overall revenue. Insured patients were higher at 45% versus self-pay at 40%. Insured patients tend to choose better rooms, raising charges for all other services, including nursing.
In-patient discharges, similar to volume, grew 3% to 1.52 lakh. International patients (about 5% of revenue) hurt the growth rate by 150 bps owing to a drop in Bangladeshi patients because of visa restrictions. Management hopes to offset this with patients from new markets in Africa and the Middle East, including Iraq. International revenue could contribute 7% to total revenue by FY26 and 10% by FY27, it said.
Management has guided for hospital business Ebitda margin to improve from 24.5% in Q1FY26 to 25% by the end of FY26, and there could be a 100 bps drop from this point as new hospitals start operations. New hospitals are likely to incur losses of about ₹150 crore over the next couple of years. However, management is confident of achieving breakeven 12 months after commencing operations.
Pressure on ROCE
The return on capital employed (ROCE) in Apollo’s hospital business came in at a healthy 28% for Q1FY26. The capital employed currently excludes capital work-in-progress of ₹842 crore towards new hospitals. Capital employed is likely to rise nearly 40% from the current ₹7,900 crore by the end of FY26 as new hospitals come on stream. Such a large expansion within a year would put pressure on ROCE in the near term, but such lumpy, intermittent investments are typical of the hospital industry.
Financing this capital expenditure won’t be hard for Apollo as its balance sheet has a net cash position that leaves scope to borrow when needed. Nevertheless, the performance of new hospitals to be commissioned in FY26 must be closely monitored over the next couple of years. If the ramp-up turns out to be good, investors will be less worried about the next phase of expansion, worth ₹4,438 crore.
Despite a strong Q1FY26, some analysts are concerned about the stock’s valuation. Nomura has ‘neutral’ rating with a sum-of-the-parts target price of ₹6,856. It values the healthcare services business at 25 times the one-year forward EV/ Ebitda and assigns a multiple of 30 for the asset-light pharmacy business Apollo Health Co.
