Apollo scores over Max with a strong revenue, margin outperformance in Q1

The country’s largest listed hospital chains by market capitalisation, Apollo Hospitals (Apollo) and Max Healthcare (Max), outperformed expectations for the June quarter. While Max Healthcare’s revenues rebounded after two quarters of sluggish growth, Apollo maintained an upward year-on-year (Y-o-Y) sales trajectory for its hospitals business for the fourth quarter in a row.

Operating performance of both hospital chains was better than estimates, though Apollo’s operating metrics stood out. Going ahead, while the demerger of the pharmacy business will unlock value for Apollo Hospitals, rising occupancies and operating efficiencies could boost the prospects of Max Healthcare. On the returns front, Apollo is the clear leader, with gains of about 10 per cent over the past year, while Max has struggled with a 17.5 per cent drop. The Nifty50 is flat over this period.

Powered by the hospitals segment, Apollo posted consolidated sales growth of 21 per cent Y-o-Y. The hospitals segment saw growth of 22 per cent, with established hospitals, in operation for five years, growing 18 per cent. The hospital segment’s performance was led by 11 per cent volume growth in acute therapies, 4 per cent growth in pricing, and a 3 per cent uptick in case and payor mix. Insurance and self-pay accounted for most of the revenues and grew 25 per cent and 16 per cent, respectively, over the year-ago period.

Overall occupancy saw an improvement of 500 basis points Y-o-Y compared to 65 per cent in the year-ago quarter. Average revenue per patient (ARPP) increased 8 per cent Y-o-Y to just under ₹186,600 and was on account of a better clinical case mix. The company expects rising clinical complexity to remain an important driver of growth in ARPPs. Average length of stay also improved from 3.09 to 3.14 days Y-o-Y. HealthCo, which houses pharmacy and digital operations/Apollo 24/7, saw revenue growth of 20 per cent Y-o-Y.

Apollo expects overall hospital revenue growth of 18-20 per cent during FY27, with established hospitals sustaining 13-14 per cent growth over the next two years, while new hospitals are expected to contribute 7 per cent incremental revenue. New-hospital losses may temporarily increase by ₹20 crore per quarter, with the new hospital cluster expected to approach overall break-even by Q3-Q4 of FY28.

Max delivered 15.3 per cent revenue growth in Q1 FY27, led by higher volumes and better realisation. The gains came from higher volumes at existing hospitals and 630 bed additions over the past year. The revenue growth was healthy and came despite the impact of oncology drugs, following regulatory changes related to high-value cancer drugs.

Occupancy has remained strong at 75 per cent despite a 13 per cent Y-o-Y addition in beds over the past 12 months. While occupancies have remained strong, the hospital chain is adding beds through acquisitions, brownfield and greenfield expansion. The ongoing expansion is expected to boost its bed capacity by 2,800 beds over the next two years, raising its bed capacity by half of the current level. These additions would entail a capital expenditure outlay of ₹6,100 crore.

The operating performance of the two health care majors was healthy, with Apollo having the edge. Apollo’s operating profit margin expanded by 92 basis points Y-o-Y to 15.5 per cent, driven by lower digital cash losses at ₹9.7 crore, against ₹48.7 crore in Q1 FY26. Its established hospitals delivered a 25.9 per cent margin, while new hospitals reported a ₹38 crore loss at the operating level during the initial ramp-up phase.

Max reported 15 per cent Y-o-Y growth in operating profit and a 2.9 per cent increase quarter-on-quarter (Q-o-Q). Margins remained flat Y-o-Y and contracted 206 basis points Q-o-Q to 24.6 per cent due to brownfield capacity expansion and the Kalinga Hospital acquisition.

Analysts are positive on both companies. On Apollo, JM Financial Research believes that in terms of growth, both key businesses, hospital and pharmacy, would sustain 18-20 per cent growth for the year. Further, the pharmacy demerger is expected to conclude by Q4 FY27, which, according to analysts led by Amey Chalke of the brokerage, will unlock value. The brokerage has maintained a buy rating with a target price of ₹10,446.

For Max, Choice Institutional Equities says that rising occupancy and average revenue per operating bed (ARPOB) at newer facilities are projected to progressively unlock operating leverage and operating profit growth. The Kalinga turnaround, potential medical education with 25 per cent return on capital employed (ROCE), and scaling up of Max@Home and Max Lab further support the company’s growth, point out Deepika Murarka and Stuti Bagadia of the brokerage. They expect 24-27 per cent growth in revenues and profit over the next three years and have an add rating with a target price of ₹1,160.