Apollo Hospitals Enterprise Ltd Q2 FY2025 Concall Summary

Key Takeaways

• HealthCo turns profitable, hospital margins recover: Apollo HealthCo delivered its first-ever quarterly PAT of ₹19 crore, while hospital EBITDA margins rebounded to last year's levels after a period of doctor-led investment.
• Volume over value this quarter: ARPOB growth slowed to 2.5%–3% in H1, the weakest in recent memory, as a seasonal surge in medical cases and a deliberate volume push compressed the case mix. Management expects a return to ~6% ARPOB growth.
• The 24/7 reset is real and deliberate: GMV growth was sacrificed to slash unsustainable digital marketing spend; the business is not de-growing despite the cut. The ₹4,000 crore GMV target may be a stretch, but the five-quarter breakeven commitment holds.
• Expansion capex is compressing IRRs: Cost per bed has risen 20%–25% in Tier-1 metros, and while ~80% has been recovered through pricing, project IRRs have dipped from 17%–18% to 16%–17%.
• What to watch next quarter: Whether the insurance corporate agency license arrives and starts contributing, the pace of Bangladesh patient volume recovery, and any ARPOB uplift as the seasonal case mix normalizes.

Hospital Performance & Margins

• Volume-led growth: Broad-based IP volume growth across Tier-1, Metro and Tier-2 cities, driven by strategic doctor recruitment in neurosciences, oncology and gastro sciences. Neuroscience growth was particularly strong across multiple centers.
• ARPOB compression: The slowest ARPOB growth seen (2.5%–3% in H1) reflects a deliberate volume focus, a seasonal 17% YoY surge in medical admissions (viral fevers, gastrointestinal disorders), and a blend of Tier-1 and Tier-2 city realizations. Management expects a return to ~6% ARPOB growth in the next couple of quarters.
• Margin recovery: EBITDA margins had previously dipped due to adding doctors ahead of expected ramp-up in AP, Telangana and North. Margins have now recovered to last year's levels, and management expects 100 bps expansion from existing businesses over the next 12 months through volume growth and cost efficiency.
• Bangladesh drag: IP volume growth in Tamil Nadu was 4% versus a potential 6%, with Bangladesh patient volumes down 25% versus historical levels. Revenue from Bangladesh fell 27% in H1, but the international revenue mix held at 6% of total as other markets (proton beam therapy, complex valve surgery) compensated. Management is hopeful the market returns in the next couple of quarters.
• Western region reset: Ahmedabad drove a volume decline in the Western region after management dropped some low-paying schemes, a one-time effect now overcome.
• Pricing power intact: Management sees ~4% annual pricing aligned to inflation as achievable every year. Where capacity limits are reached, Apollo is being more selective on payer mix and case mix. On insurance pushback, management stated surge pricing did not happen at Apollo and that having Apollo in-network is critical for insurers.

Suneeta Reddy: "The surge pricing did not happen at all at Apollo. I am very sure of this, and you have our commitment that we would never do something like this."

Apollo HealthCo & Pharmacy Platform

• First profit milestone: Apollo HealthCo reported a PAT of ₹19 crore in Q2 FY25, its first-ever quarterly profit. EBITDA jumped significantly to ₹50 crore, with insurance and concierge services expected to contribute in H2 FY25.
• Combined platform ambition: The merged entity (including Keimed) targets ₹25,000 crore in revenue within three years at a 7%–8% combined EBITDA margin. Management stated 7%–8% is "not a challenge" once the online segment reaches breakeven. The NCLT application for the Keimed merger has begun, and the first tranche of the ₹2,475 crore capital commitment from Avendus has been received.
• 24/7 GMV reset: Technical changes in GMV measurement and a deliberate cut in unsustainable digital marketing spend slowed reported GMV growth. Despite the marketing reset, the business is not de-growing. Management declined to confirm whether 50% GMV growth is still possible, calling the ₹4,000 crore target "maybe a little bit of a stretch" and stating they will not chase it with increased marketing spend.
• Quick commerce response: Pressure from quick commerce on non-Rx products (OTC, health essentials) prompted a 19-minute delivery pilot in Delhi and Noida. AOV has come down but customer acquisition has increased. The company intends to roll out the model across other markets.
• Omni-channel behavior: Customers who spend both offline and online show a 30%–35% increase in spends due to wallet share consolidation, reinforcing the strategy of leveraging 6,800 pharmacy outlets alongside hospitals and clinics.
• Margin trajectory: 24/7 margins are stuck at 12%–13%, pulled down by online unit economics. Management expects improvement to 17%–20% over the next three to four quarters and is sticking to the original operational breakeven target of Q3 FY26.

Madhivanan: "Whether it's 50% growth or not, we will sort of reserve our comments, but from a profitability perspective, we will hold on to the five-quarter profitability that we have committed for, and growth will also come back. It's just that it's much more sustainable growth."

Expansion & Capex

• New beds commissioned: Six facilities with over 1,400 operational beds to be commissioned in FY26 across NCR, Hyderabad, Kolkata, Pune and Bangalore. Roughly half will be operationalized next year, the other half the year after. Post-commissioning, each facility will phase operationalization over 12 months to avoid material downside on EBITDA margins.
• Mumbai entry: A 575-bed facility in Worli, Mumbai, with a ₹1,300 crore outlay (₹400 crore lease, ₹850 crore construction and equipment) and an expected IRR of 16%–17%.
• Lucknow expansion: Facility enhancement to 500 beds (incremental 200 beds) on adjacent land acquired by Apollo Medics.
• Cost inflation biting: Cost per bed has risen 20%–25% in Tier-1 metros to ₹1.75–2.25 crore, driven by construction costs, land value appreciation (Bangalore up 50%–60%), and medical technology costs. About 80% has been recovered through pricing, but IRRs have compressed from 17%–18% to 16%–17%.
• Project cost phasing: Out of the ₹1,700 crore balance project cost, ₹1,200–1,300 crore will be incurred next year. Pune will complete in two years; Gurgaon's first phase commissions next year with ₹100–150 crore pending for the year after.
• New hospital margin impact: New hospitals are expected to bring down overall EBITDA margins by no more than 1%–1.2%, with all new hospitals reaching profitability within 12–14 months.

A. Krishnan: "The cost has definitely gone up by at least a clear 25%–30% across. And I think, yes, we would like to believe that if not full, at least around 80% of that has played out with the increased overall pricing etc., in the market."

Insurance & New Initiatives

• Corporate agency license: Apollo has applied to IRDAI for a corporate agency license for 24/7 and is "reasonably confident" of receiving it in Q3 FY25. Once received, the company can expand its portfolio of insurance partners, with the impact expected to play out in Q4 FY25.
• Insurance penetration: 44% of Apollo's revenue now comes from insurance, and management stated that insurers consider Apollo in-network as critical, keeping margins intact.
• Private label pharma: Apollo has started in the vitamin segment and is working on a larger portfolio; details promised for the next call.
• Digital asset monetization: Started in September, with upside expected in Q3.
• Corporate engine for 24/7: Building around five to six large corporate clients, expected to provide growth support.

Suneeta Reddy: "44% of our revenue is now coming from insurance, and they all say it keeps our margins, the price at which they keep our margins also intact."

Guidance & Commitments

Key Metrics