India's Apollo Hospitals stock slides as unit's valuation underwhelms

(Reuters) - Shares of India's Apollo Hospitals Enterprise fell as much as 8.4% on Monday, after the hospital chain sold a stake in its digital unit in a deal that brokerages said undervalued the subsidiary.

The stock trimmed some losses and was last down 4.5%, set for its worst day since June 2, 2022. The stock was the second biggest percentage loser on India's bluechip Nifty 50 index, which was last up 0.65%.

Apollo Hospitals, the country's largest hospital chain by bed capacity, said on Friday that Advent International will invest nearly $297 million in its digital unit Apollo HealthCo. The hospital chain will also merge its online pharmacy business with pharmacy distributor Keimed. Advent will own a 12.1% stake in the merged entity.

The valuation of Apollo HealthCo from the investment is smaller-than-expected, brokerages Nuvama Institutional Equities, Jefferies, CLSA and Prabhudas Lilladher said.

"HealthCo's $1.7 billion valuation came as a negative surprise since $2.7 billion was expected, and management also accepted that (Apollo's pharmacy business) 24/7 did not receive the valuation it deserved," analysts at Nuvama said in a note.

Apollo HealthCo, which includes offline, online pharmacies and a tele-medicine business, has been pressuring the hospital operator's bottom line, hurt by its cash-guzzling business Apollo 24/7.

The fundraise and the merger with Keimed are positive, as they will enable Apollo HealthCo to expand as an integrated pharmacy player while not having to worry about cash burn, the analysts said.

Nuvama, Jefferies, and Prabhudas Lilladher maintained their "buy" rating on Apollo Hospitals' stock while CLSA kept its "outperform" rating.

The stock's rating on an average is "buy", per LSEG data, with the average price target at 6,953.5 rupees, 14% higher than its current price of 5,979 rupees.

(Reporting by Rishika Sadam and Varun Hebbalalu; Editing by Mrigank Dhaniwala)