Apollo Hospitals announces deal with Advent; stock down 8% on valuation concerns
Apollo Hospitals Enterprise fell over 8 percent in intra-day trading today (April 29) after the firm announced that it will raise ₹2,475 crore (approximately $300 million) through private equity firm Advent International for its unit Apollo HealthCo. This unit manages Apollo's Apollo 24/7 vertical. Additionally, there are plans to merge Keimed, a promoter-owned wholesale pharma distribution business, with Apollo HealthCo over the next 24 to 30 months.
Advent International's investment in the merged entity will grant it a 12.1 percent stake, valuing the combined entity at an enterprise value of ₹22,481 crore. Apollo 24/7 is valued at an enterprise value of ₹14,478 crore, while Keimed is valued at ₹8,003 crore. Investors expressed concern about the valuation assigned to Apollo 24/7, which is lower than expected.
Most brokerages also agreed. The stock fell as much as 8.3 percent to its intra-day low of ₹5,738. It is now 16.5 away from its peak of ₹6,871.30, hit on February 22, 2024 but is still up 30 percent from its 52-week low of ₹4,410.05, hit on May 19, 2023.
The stock has advanced 39 percent in the last 1 year but is flat in 2024 YTD. Just in April, the stock shed almost 8 percent. Nuvama Institutional Equities noted that the $1.7 billion valuation of Apollo 24/7 was significantly lower than the estimated $2.7 billion, calling it a "negative surprise" and a "huge letdown." Concerns were also raised about the doubling of Keimed's valuation for the deal within a year.
The brokerage said it seemed 'aggressive'. Based on the lower valuation, Nuvama reduced its target price for the stock by 3 percent to ₹7,300 while retaining its 'buy' call, indicating a 27 percent upside now. Despite the valuation concerns, the deal is
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