Apollo Hospitals Enterprise Limited, India's largest hospital chain, continues to face scrutiny over its margin performance despite its leadership position and nationwide presence. The company's consolidated margins remain significantly lower than peers, raising questions about profitability in an integrated healthcare model.

Financial Performance Overview

The company delivered steady growth in Q2 FY26 with revenue rising to ₹6,304.00 crores compared to ₹5,589.00 crores in Q2 FY25, representing 12.80% year-on-year growth. Quarter-on-quarter performance showed improvement from ₹5,842.00 crores in Q1 FY26, reflecting 7.90% sequential growth.

Over the past five years, Apollo has demonstrated strong growth trajectory with revenue CAGR of 14.00%, profit CAGR of 34.00%, and price CAGR of 24.00%. The company maintains ROE of 18.40% and ROCE of 16.60% with debt-to-equity ratio at 0.88.

Margin Comparison with Industry Peers

Despite its scale and market leadership, Apollo's margin performance lags behind focused hospital operators. The company reported EBITDA margin of 15.00% in Q2 FY26, significantly lower than competitors.

Standalone vs Consolidated Performance Analysis

The margin gap becomes clear when examining standalone versus consolidated performance. Apollo's standalone hospital operations demonstrate competitive margins with EBITDA margin of 25.00% and net profit margin of 17.50%, broadly aligned with industry leaders. This indicates core hospital business operates efficiently and profitably.

Impact of Diversified Business Segments

The margin dilution occurs at consolidated level due to Apollo's presence across multiple healthcare segments beyond hospitals. Two key segments significantly impact overall profitability:

The pharmacy distribution business, while generating substantial revenue as the second-largest contributor, operates on thin margins inherent to the distribution model. The diagnostics segment currently reports losses, further pressuring consolidated margins.

Strategic Demerger Initiative

To address margin concerns and unlock value, Apollo Hospitals is demerging its pharmacy and digital health businesses into Apollo Healthtech Ltd (AHTL). The demerger will consolidate Apollo Health Enterprise, Apollo Healthco, Keimed, and 74.50% stake in Apollo Medicals under one platform. This strategic move aims to provide clearer business focus and potentially improve consolidated margins while allowing shareholders direct participation in India's largest digital health and pharmacy business.

Shareholding Structure

As of Q3 FY26, the company maintains strong institutional investor presence with foreign institutional investors holding the largest stake at 43.54%. Promoters maintain 28.02% equity stake, while domestic institutional investors hold 21.51%. Government of Singapore holds 2.34% with minimal direct government stake at 0.23% and public shareholding at 6.71%.

Apollo Hospitals' lower consolidated margins reflect its diversified healthcare ecosystem approach rather than operational inefficiencies in core hospital business. While competitors focus primarily on hospital-only models achieving higher margins, Apollo's integrated strategy prioritizes scale, reach, and long-term ecosystem building, often at the expense of near-term consolidated profitability.

Shares of hospital majors Apollo Hospitals Enterprise Ltd. and Max Healthcare Institute Ltd. declined on Friday following Macquarie's reiteration of 'Underperform' ratings on both stocks. The foreign brokerage expressed concerns about aggressive sector expansion and its potential impact on earnings.

Revised Price Targets and Ratings

Macquarie maintained its cautious stance while adjusting price targets for both hospital operators:

Max Healthcare's price target of ₹825 represents the lowest target on the Street and remains the only analyst projection below ₹1,000.

Underperformance Concerns

Both hospital stocks have struggled against broader market indices in 2025. According to Macquarie's analysis, Apollo Hospitals and Max Healthcare shares have underperformed the Nifty 50 by 14% year-to-date. The brokerage anticipates that further consensus earnings downgrades will continue to weigh on both stocks throughout 2026.

Sector Capacity Expansion Risks

Macquarie highlighted significant capacity expansion plans across the hospital sector as a key concern. The brokerage noted that eight listed hospital chains have provided guidance to add more than 6,000 beds by the end of FY27. This expansion represents the largest annual capacity addition witnessed in the hospital sector over the past eight years.

The aggressive expansion timeline raises concerns about potential EBITDA drag from new hospital operations. Macquarie emphasized that current consensus estimates do not adequately reflect the earnings impact from these new facilities, creating downside risks to projected financial performance.

Market Performance

On Friday's trading session, both stocks reflected the bearish sentiment:

The market reaction underscores investor concerns about the hospital sector's expansion strategy and its potential impact on near-term profitability. Macquarie's analysis suggests that the sector's ambitious growth plans may face execution challenges that could affect earnings visibility in the coming quarters.