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UBS downgrades Apollo Hospitals as Tata's 1MG, Reliance's Netmed bring competition in e-pharmacy biz

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UBS downgrades Apollo Hospitals as Tata's 1MG, Reliance's Netmed bring competition in e-pharmacy biz

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UBS has downgraded Apollo Hospitals stock to ‘neutral’ rating from ‘buy’ cutting the target price to Rs 5,250 from Rs 6,100.

UBS has downgraded its rating on Apollo Hospitals' stock to ‘neutral’ from ‘buy’ and slashed its target price to Rs 5,250 from Rs 6,100.
Apollo Hospitals' e-pharmacy business, Apollo Pharmacy, is facing stiff competition from other players like Tata's 1MG and Reliance's Netmed.
Private equity-backed PharmEasy is also emerging as a big player in the market with its Aamir Khan helmed advertisements making a show at the Indian Premier League this season.
The UBS report gives a thumbs up to Apollo Pharmacy calling it the “best integrated e-Pharmacy proxy” but also goes on to say that it works with a related party distributor and lacks an in-house distributor, implying missing out on 2-3 percent gross margins.
“Despite ranking Apollo as our favourite in the ePharmacy space and being positive on its hospitals, rising competitive intensity in the e-pharmacy segment concerns us,” the report reads.
UBS expects discounts to remain elevated in this segment over the near-to-medium term as leading digital firms try to gain scale.
Online checks by the research firm indicate a significant rise in discounting in the past 3-4 months and therefore a likely higher burn rate.
The valuation picture
Apollo’s money-raising exercise for this this 24X7 verticle has put a question mark over its valuations. A delay in the fundraising or sharp fall in the valuations could mean a contraction in multiples and hence UBS has downgraded the stock removing it from the AsiaPacific key call list.
Watch the accompanying video of CNBC-TV18’s Nimesh Shah for more details.
To watch other videos in this series, click on the Standout Brokerage Report tab below.
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