ICICI Securities Limited Apollo Hospitals (APOHOS)

ICICI Securities Limited
Result Update
Rating matrix
Rating : Buy
Target : | 545
Target Period : 12 months
Potential Upside : 13%
Key Financials
FY10 FY11 FY12E FY13E
Net Sales 2026.5 2605.3 3241.0 4077.3
EBITDA 301.3 418.9 502.4 615.7
Net Profit 130.0 174.0 251.0 277.3
EPS 11.1 14.7 20.9 22.2
Valuation summary
FY10 FY11 FY12E FY13E
PE (x) 43.3 32.7 23.0 21.7
Target PE (x) 48.9 37.0 26.0 24.5
EV to EBITDA (x) 22.5 16.2 13.5 11.0
Price to book (x) 3.8 3.4 2.9 2.6
RoNW (%) 6.9 8.7 12.5 10.5
RoCE (%) 7.3 10.1 10.5 11.4
Stock data
Market Capitalisation |.6,011 Crore
Debt |.958 Crore
Cash |.178 Crore
EV |.6,791 Crore
52 week H/L 599/353
Equity capital |.62.4 Crore
Face value |.5
MF Holding (%) 3.1
FII Holding (%) 29.4
Price movement
600
6500
6000
500
5500
5000
4500
400
4000
3500
300
3000
May-10 Aug-10 Nov-10 Feb-11 May-11
Analyst’s name
Apollo Hospitals (LHS) NIFTY (RHS)
Rashesh Shah
rashes.shah@icicisecurities.com
ICICIdirect.com | Equity Research
WHAT’S CHANGED…
May 30, 2011
PRICE TARGET ....................................................................................................Unchanged
EPS (FY12E)........................................................................................................Unchanged
EPS (FY13E)........................................................................................... (Introduced) | 22.2
RATING...............................................................................................................Unchanged
Results in line, outlook remains intact…
Apollo Hospitals’ revenues grew 28.7% YoY to | 621.4 crore (I-direct
estimate: | 618.9 crore) with the revenue of the hospital and pharmacy
segment growing 25.6% and 36.7% YoY, respectively. The growth in
revenues was in line with our expectations and mainly came in from an
improvement in in-patient volumes (up 13.4% YoY) and average revenue
per patient per bed (ARPOB) (up 12.9% YoY). As a result, operating
margins also improved by 223 bps YoY to 15.2% (I-direct estimate:
15.3%). However, interest costs continued to remain higher on the back
of higher debt. As a result, the net profit remained marginally below our
expectations at | 47.1 crore (I-direct estimate: | 48.9 crore). However, it
registered a growth of 61.3% YoY on account of the low base effect of
last year.
� Revenue grows at healthy pace, remains in line our expectations
During the quarter, operating revenues registered growth of 28.7%
YoY and 3.4% QoQ, respectively. The growth remained in line with
our estimates on account of healthy growth in both the hospitals as
well as pharmacy segments. The pharmacy segment (that accounts
for nearly 30% of topline) registered strong topline growth of over
36% due to a 19% YoY jump in revenue per store for the quarter.
The revenue of the hospital segment also grew by over 25% YoY to
| 439.5 crore backed by strong topline growth reported by the
Hyderabad cluster (growth of 28.4% YoY). Overall, for the full year,
ARPOB and average occupancy levels witnessed growth of 25.0%
and 200 bps YoY, respectively, backed by a 25.0% rise in in-patient
volumes.
Valuation
Apollo Hospitals (APOHOS)
| 483
At the CMP of | 483, the stock is trading at 13.5x and 11.0x its FY12E and
FY13E EV/EBITDA, respectively. The company has consistently
maintained its growth trajectory. Strong company fundamentals and
healthy sector outlook support our positive view on the company
although likely capex of | 1,100 crore is expected to impact its return
ratios marginally, going ahead. We value the stock at 12.5x FY13E
EV/EBITDA and maintain our target price of | 545 with a BUY rating on it.
Exhibit 1: Performance Highlights
| Crore Q4FY11 Q4FY11E Q4FY10 Q3FY11 YoY Gr .(%) QoQ Gr. (%)
Net Sales 621.4 618.9 482.9 600.9 28.7 3.4
EBITDA 94.8 94.7 62.9 94.3 50.7 0.5
EBITDA Margin (%) 15.2 15.3 13.0 15.7 Up 223 bps Down 44 bps
Depreciation 18.3 18.9 14.4 17.8 26.9 2.6
Interest 15.8 15.2 10.7 13.4 47.4 18.1
Net Profit 47.1 48.9 29.2 45.8 61.3 2.8
EPS | 2.1 2.2 1.3 2.0 61.3 2.8
Source: Company, ICICIdirect.com Research

ICICI Securities Limited
The Chennai cluster reported lower growth of 20.4% in
revenues on account of moderate growth of 8.5% in inpatient
volumes. In Hyderabad, it reported growth of 25.1%
in total revenues mainly backed by 13.4% and 26.9% rise in
in-patient and outpatient volumes
The revenue per store has increased by 19% YoY as
against growth of 22.3% YoY reported in the last quarter
We will continue to remain cautious until we see a
sustainable operational turnaround of the pharmacy
business that in the medium-term remains a key
challenge for the company
ICICIdirect.com | Equity Research
Exhibit 2: Hospital performance
Particulars
AHEL Standalone Chennai Cluster Hyderabad Cluster Others*
(|. Cr) FY10 FY11 Growth FY10 FY11 Growth FY10 FY11 Growth FY10 FY11 Growth
Inpatient volume 144,218 163,525 13.4 65,220 70,766 8.5 36,029 39,776 10.4 42,969 52,983 23.3
Outpatent volume 386,490 490,379 26.9 198,997 226,373 13.8 84,799 113,413 33.7 102,694 150,593 46.6
Inpatient ALOS (days) 5.15 5.04 -2.1 4.67 4.67 0.0 4.74 4.82 1.7 6.22 5.64 -9.3
Occupancy (%) 73.0 75.0 200.0 75.0 82.0 700.0 70.0 65.0 -500.0 73.0 73.0 0.0
ARPOB (Rs. Per day) 17,769 20,063 12.9 21,552 23,907 10.9 13,229 15,114 14.2 7,540 9,405 24.7
Inpatient Revenue 11,122 13,899 25.0 5,129 6,176 20.4 1,925 2,471 28.4 1711 2349 37.3
Outpatient Revenue 2,080 2,623 26.1 1441 1730 20.1 334 430 28.7 305.0 463 51.8
Total Revenue 13,202 16,522 25.1 6570 7906 20.3 2,259 2,901 28.4 2016 2812 39.5
Source: Company, ICICIdirect.com Research
* Others include Madurai, Mysore, Vishakhapatnam, Pune, Karur, Karimnagar, Bilaspur and Bhubaneshwar.
Pharmacy division performance improves during the quarter
During the quarter, the pharmacy segment reported an operating profit of
| 2.4 crore as against negative EBITDA reported last year on account of a
19% YoY jump in revenue per store (i.e. | 15.2 lakh) and better cost
control management. Overall, net revenues in this segment grew by over
36% YoY to | 182.1 crore. There has been a net addition of 57 pharmacy
outlets during the quarter. Despite the improved performance of the
pharmacy segment in this quarter, we continue to remain cautious until
we see a sustainable operational turnaround of the pharmacy business
that in the medium term remains a key challenge for the company.
Exhibit 3: No of pharmacy outlets
Nos
1400
1200
1000
800
600
400
200
883
1.1
922
1.1
972
1.2
1,035 1,049 1,066
1.3
1.3
1.3
1110
1.5
1199
1,142
1.5
1.5
Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11
Source: Company, ICICIdirect.com Research
No of Stores (LHS) Revenue per store (RHS)
Exhibit 4: Trends in operating margins of pharmacy business
|. crore
190.0
140.0
90.0
40.0
-10.0
99.5
-4.6
-4.6
118.9
-1.9 -2.1
-2.2
131.7
-2.7
133.6
0.1
139.5
-2.0
166.3
1.8
173.4
0.3
182.1
0.2 3.0 0.5 2.4
-2.8
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11
Source: Company, ICICIdirect.com Research
Revenues EBITDA EBITDA margin (%)
1
2.0
0.0
-2.0
-4.0
-6.0
-8.0
1.6
1.5
1.4
1.3
1.2
1.1
1.0
-10.0
|. mn
%
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ICICI Securities Limited
The financial performance of associate /JVs continued to
remain subdued in Q2FY11
ICICIdirect.com | Equity Research
Performance of associate/JVs continues to remain subdued
The performance of Apollo Health Street and Apollo Munich continued to
remain subdued at the operating level. Apollo Health Street reported a
42.2% YoY decline in net profits led by a subdued topline and higher
interest burden. On the other hand, though Apollo Munich reported a
strong growth in topline, its operating loss for the quarter continued to
remain negative although it was lower compared to last year.
Exhibit 5: Performance of JVs/associates
Apollo Health Street* Apollo Munich Health Insurance**
|. Crore FY10 FY11 Growth (%) FY10 FY11 Growth (%)
Total Revenue 460.9 447.6 (2.9)
70 164.7 135.3
EBITDA 35.2 52 47.7 -92.1 -70.5 NA
EBITDA Margins (%) 7.6 11.6 398bps NA NA NA
PAT 8.3 4.8 (42.2)
* Owns 39.38% of Apollo Healthstreet
** Owns 11.01% of Apollo DKV Insurance
Source: Company, ICICIdirect.com Research
Future expansion plans
-89.7 -79.4 NA
The company is adding over 2,400 beds over a period of three years. This
involves a total capex of | 1100 crore. Since Apollo Hospitals is adding
capacity mainly through the greenfield route, its return ratios are
expected to get impacted marginally over the next one and half years as
the full benefits of this capex would be available to the company only
after FY13. The detailed schedule of its planned capex is mentioned
herein.
Exhibit 6: Capex plans
Sr No Location Type* Beds
Project cost**
(| Crore)
Amt spent (|
Crore)
Exp.
Completion
Owned projects
1 Hyderabad - Internal Exp NA 100 122.5 122.5 May-11
2 Hyderguda SS 175 44.3 34.0 June-11
3 Nellore RH 200 66.7 9.4 Feb-13
4 Ayanambakkam RH 200 70.0 9.8 Feb-13
5 Nasik RH 125 52.0 6.9 Oct-12
6 Chennai -Expansion NA 30 10.0 0.0 Sep-12
7 Belapur SS 350 350.0 72.7 June-13
8 Byculla SS 300 140.0 0.0 June-13
9 Bilaspur - Expansion NA NA 8.0 0.0 Sep-12
10 Vizag SS 300 115.0 8.0 June-13
11 Trichy RH 200 65.5 14.0 Mar-13
Owned projects
12 MLCP - Car parking NA NA 8.3 1.2 Sep-12
13 Thane SS 250 50.0 0.0 Mar-13
14 Bangalore - Expansion NA 52 6.0 0.0 May-11
15 New Delhi - Expansion NA 136 0.0 0.0 Sep-11
Total 2418 1108.3 278.5
Note
* SS- Superspeciality, RH- Reach Hospital
** Total project cost for JVs/Associates represents AHEL's share only
Source: Company, ICICIdirect.com Research
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ICICI Securities Limited
ICICIdirect.com Coverage Universe (Hospitals)
Apollo Hospitals Sales (| crore) EPS (|) PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code APOHOS CMP 483 FY11 2605.4 14.7 32.8 16.2 7.9 9.4
ICICIdirect.com | Equity Research
Target 545 FY12E 3241.1 21.0 23.0 13.5 11.3 11.0
Mcap (| crore) 6,010.5 Upside (%) 12.8% FY13E 4077.2 22.2 21.7 11.0
Fortis Health Sales (| crore) EPS (|) PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code FORHEA CMP 161 FY10 937.9 2.2 67.1 38.8 3.3 1.4
Target 165 FY11E 1457.2 2.8 52.9 25.6 3.6 1.9
Mcap (| crore) 5,954.4 Upside (%) 2.5% FY12E 1843.9 4.7 31.6 20.0 6.0 3.8
Exhibit 7: Recommendation History
600
550
500
450
400
350
300
May-10
ADD, TP |.405
Jun-10
Jul-10
Aug-10
Sep-10
Source: Company, ICICIdirect.com Research
ADD, TP |.440
Oct-10
Nov-10
BUY, TP |.610
Dec-10
Apollo Hospitals (LHS)
Jan-11
Feb-11
BUY, TP |.545
Mar-11
Apr-11
May-11
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ICICI Securities Limited
RATING RATIONALE
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ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps / midcaps, respectively;
Buy: Between 10% and 15%/20% for large caps / midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
ANALYST CERTIFICATION
ICICIdirect.com | Equity Research
Pankaj Pandey Head – Research
ICICIdirect.com Research Desk,
ICICI Securities Limited,
7 th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
pankaj.pandey@icicisecurities.com
We /I, Rashesh Shah CA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about
any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
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