APOLLO HOSPITALS ENTERPRISE LTD

Result Update: Q2 FY13

BUY
Stock Data

CMP Target Price

844.00 945.00 Nov 19th, 2012

ISIN: INE437A01024

SYNOPSIS
Apollo Hospitals Enterprise Ltd. is the leading private sector healthcare provider which owns & manages specialty hospitals, clinics, pharmacy retail outlets During the Second quarter ended the robust growth in the Net Profit of the company and it is rose by 49.28% to Rs. 832.40 million. Apollo has introduced Indias first 320-slice CT scanner. The company is planning to add 15 new hospitals and 3,140 owned beds by the end of the financial year 2015. Apollo has entered into partnership with healthcare division of Philips offer MRI guided high intensity focused ultrasound solution. Apollo entered into agreement with Cytori Therapeutics to offer Celution R system in India, to provide the best-in class regenerative medicine technology. The company signed an agreement with Govt of Tanzania to start 250-bed super-specialty hospital offers world class healthcare services. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 24% over 2011 to 2014E respectively.

Sector Healthcare BSE Code 508869 Face Value 5.00 52wk. High / Low (Rs.) 899.40/452.20 Volume (2wk. Avg ) 68000.00 Market Cap ( Rs in mn ) 113484.24 Annual Estimated Results (A*: Actual / E*: Estimated)

Years
Net Sales EBITDA Net Profit EPS

FY12A

FY13E

FY14E

P/E Shareholding Pattern (%)

28000.70 4922.50 2309.90 17.18 49.13

32760.82 5881.26 2921.26 21.73 38.85

37674.94 6744.73 3491.73 25.97 32.50

1 Year Comparative Graph

BSE SENSEX

APOLLO HOSPITALS ENTERPRISE LTD

Source: Company Data, Firstcall Research

Peer Groups Company Name Apollo Hospital Enterprise Ltd Fortis Healthcare Indraprastha Medical Corporation Lotus Eye Care Hospital

CMP (Rs.) 844.00 101.00 39.75 8.15

Market Cap Rs. in mn. 113484.24 40885.00 3685.30 169.50

EPS (Rs.) 17.18 5.77 3.14 0.00

P/E (x) Ratio 49.13 17.49 12.80 0.00

P/BV(x) Ratio 4.91 1.28 2.31 0.33

Dividend (%) 80.00 0.00 16.00 0.00

Investment Highlights Results updates- Q2 FY13, Apollo Hospitals Enterprise Ltd is Indias first and largest branded pharmacy network, with over 1,350 outlets in key locations, reported its financial results for the quarter ended 30th Sep, 2012. The Second quarter witnesses a healthy increase in overall sales as well as profitability of the company.
Months
Net Sales PAT EPS EBITDA

Sep-12

Sep-11

% Change

8363.20 832.40 5.98 1583.60

6997.50 557.60 4.24 1267.00

19.52% 49.28% 40.98% 24.99%

The companys net profit jumps to Rs.832.40 million against Rs.557.60 million in the corresponding quarter ending of previous year, an increase of 49.28%. Revenue for the quarter increase 19.52% to Rs.8363.20 million from Rs.6997.50 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.5.98 a share during the quarter, registering 40.98% increase over previous year period. Profit before interest, depreciation and tax is Rs.1583.60 millions as against Rs.1267.00 millions in the corresponding period of the previous year.

Expenditure :

During the quarter Total Expenditure rose by 19 per cent mainly on account of Increase in Selling & Distribution Expenses along with consideration of Employee Benefit Expenses in the rupee impact. Total expenditure in Q2 FY13 was at 7193.20 million as against Rs.6054.70 million in Q2FY12.Cost of Material Consumed Rs.2133.80 against

Rs.1977.10 millions in the corresponding period of the previous year. Other Expenditure at Rs. 1035.40 million and Depreciation is Rs. 269.90 million in Q2FY13 are the primarily attributable to growth of expenditure.

Segment Revenue

Latest Updates

Launches Novalis TX The company has first to launch novalis TX and G4 Cyber knife Robotic Radio surgery system for Cancer Treatment in India.

Installation of PET-CT The company is the first to install 64 slice Positron Emission Tomography-Computed Tomography (PET-CT) scan system in India.

Partnership with Philips Healthcare Apollo has entered into a partnership with the healthcare division of Philips to offer MRI guided high intensity focused ultrasound (HIfu) solution.

International Bariatric Institution The company signed a mou with International Bariatric Institution to promote methods of performing bariatric surgery through endoscopy without incision.

Agreement with Cytori Apollo entered into an agreement with Cytori Therapeutics to offer the Celution R system in India, to provide the best-in class regenerative medicine technology.

Agreement with Tanzania The company signed an agreement with the Government of Tanzania to start a 250-bed super-specialty hospital, offering world class healthcare services.

Enter into UCL The company has entered into an mou with the University College London (uCL) for collaboration in training and clinical research

Credit Rating CRISIL has rated the debt instruments as AA indicating high degree of safety. CRISIL Equities has upgraded Company CRISIL IER fundamental grade to 5/5 from 4/5. The grade indicates the fundamentals are excellent relative to other listed equity securities in India.

Allotment of Equity Shares The company allotted 3276922 equity shares of the face value of Rs.5/- each at a price of Rs.472.46 per share (including a premium of Rs467.46 per share).

Subsidiary The company has transferred seven of the clinics through a slump sale arrangement to 100% subsidiary Apollo Health & Lifestyle Ltd.

Bagged Asian Hospital Management Awards 2012 Indraprastha Apollo Hospitals, Delhi has been awarded for Apollo Community Outreach Programme and Improving Patient Satisfaction Levels. Apollo Gleneagles Hospital, Kolkata has received awards for efforts in ensuring Increased Productivity through reduction of length of stay and Project ESCALATE (Eleven Strategies to Combat Antimicrobial Resistance Rate).

Robotic Surgery at Apollo The latest state-of the-art da Vinci si Robotic system installed at Apollo Chennai, Kolkata and the Hyderabad hospitals.

Plans for FY 2015 The company is planning to the add 15 new hospitals and 3,140 owned beds by the end of the financial year 2015.

Company Profile
Apollo Hospitals Enterprise Limited (AHEL) was incorporated as a Public Limited Company in the year 1979. Promoted by Dr. Prathap C Reddy, it is the first group of hospitals that pioneered the concept of corporate healthcare delivery in India. AHEL today, is the leading private sector healthcare provider in Asia and owns and manages a network of specialty hospitals and clinics, a chain of Pharmacy retail outlets across the country, and provides Consultancy Services for commissioning and managing the Specialty Hospitals. Apollo Hospitals has also played a pioneering role in helping India become a center-of-excellence in global healthcare. The Apollo Hospitals group today includes over 8,500 beds across 54 hospitals in India and overseas, neighborhood diagnostic clinics, an extensive chain of Apollo Pharmacies, medical BPO and health insurance services and clinical research divisions that are working on the cutting edge of medical science. Apollo Hospitals Group had become an integrated healthcare organization with owned and managed hospitals, diagnostic clinics, dispensing pharmacies and consultancy services. In addition, the group's service offerings include healthcare at the patient's doorstep, clinical & diagnostic services, medical business process outsourcing, third party administration services and health insurance. To enhance performance and service to customers, the company also makes available the services to support the business of healthcare; telemedicine services, education and training programmes & research services and a host of not- for- profit projects.

Services offered

Cardiology & Cardiothoracic Surgery Orthopedics & Joint Replacement Surgery Spine Surgery Oncology Medical & Surgical Gastroenterology Neurology & Neurosurgery Nephrology & Urology Cancer Care Primary Care Clinics Clinical Research & Site Management Owned & Managed Hospitals.

Group Brands

Apollo Clinics Apollo Telemedicine Networking Foundation & Apollo Tele Health Services

E Wellness Rx Health net Global Apollo Munich Health Insurance Apollo Health street Med Varsity Apollo Hospitals Education & Research Foundation Apollo Pharmacy Health Hiway Apollo Health Knowledge City The Cradle Apollo Life Apollo Global Projects Consultancy

Alliances

AIG International Group American Life Insurance Company Vanbreda International SOS Seven Corners

Companion Global Health Care Emergency Assistance Japan GMC Services International Claims Service Prestige International

Subsidiaries
Unique Home Health Care Ltd AB Medical Centres Ltd Samudra Healthcare Enterprises Ltd Apollo Hospital (UK) Ltd Apollo Health and Lifestyle Ltd Western Hospitals Corporation Pvt Ltd Apollo Cosmetic Surgical Centre Pvt Ltd Pinakini Hospitals Ltd Imperial Hospital and Research Centre Ltd Alliance Medicorp (India) Ltd Healthcare India Private Ltd Mera Healthcare India Private Ltd Apollo Koramangala Cradle Ltd Alliance Dental Care Private Ltd

Financial Highlight
Balance sheet as at March 31st, 2012 (A*- Actual, E* -Estimations & Rs. In Millions) Particulars March (Rs.in.mn) 1.Shareholders Funds a) Capital
b) Money received against share warrants

FY12A

FY13E

FY14E

672.30 387.05 22463.28 23522.63

672.30 290.29 25384.56 26347.15

672.30 243.84 28430.71 29346.85

c) Reserves & Surplus Total Net worth 2.Loan Fund a) Secured loans b) Unsecured loans c) Differed Tax liability Total Liabilities (1+2)
1.Fixed Assets a) Gross block b) Depreciation c) Net Block d) Capital Work in Progress Total Fixed Assets 2. Investments 3.Current Assets, Loans & Advances a) Inventories b) Sundry Debtor c) Cash & Bank Balance d) Other Current Assets e) Loans & Advances Total Current Assets Less: Current Liabilities & Provisions a) Liabilities b) Provisions Net Current Assets

3742.20 1857.50 1700.85 30823.18

4116.42 1746.05 1955.98 34165.60

4322.24 1623.83 2092.90 37385.81

19241.52 4827.50 14414.02 2213.70 16627.72 7641.18 1827.10 3537.70 1869.55 0.00 6079.98 13314.33 3329.81 3430.24 6554.28 30823.18

21646.71 5503.35 16143.36 2435.07 18578.43 8710.95 2082.89 4032.98 2093.90 0.00 6262.38 14472.15 3754.06 3841.87 6876.22 34165.60

23623.79 5778.52 17845.27 2556.82 20402.10 9582.04 2270.35 4315.29 2240.47 0.00 6512.87 15338.98 3941.76 3995.54 7401.68 37385.81

Total Assets( 1+2+3+4)

Annual Profit & Loss Statement for the period of 2011 to 2014E Value(Rs.in.mn)
Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS

FY11 12m 23319.60 213.70 23533.30 -19550.10 3983.20 -587.30 3395.90 -702.60 2693.30 -876.10 1817.20 623.60 16413.03 10.00 29.14

FY12 12m 28000.70 278.50 28279.20 -23356.70 4922.50 -636.00 4286.50 -911.30 3375.20 -1065.30 2309.90 672.30 22463.30 5.00 17.18

FY13E 12m 32760.82 311.92 33072.74 -27191.48 5881.26 -680.52 5200.74 -1057.11 4143.63 -1222.37 2921.26 672.30 25384.56 5.00 21.73

FY14E 12m 37674.94 339.99 38014.93 -31270.20 6744.73 -711.14 6033.59 -1183.96 4849.63 -1357.90 3491.73 672.30 28430.71 5.00 25.97

Quarterly Profit & Loss Statement for the period of 31st Mar, 2012 to 31st Dec, 12E Value(Rs.in.mn)
Description Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

31-Mar-12 3m 7445.60 64.60 7510.20 -6245.30 1264.90 -154.90 1110.00 -240.80 869.20 -276.00 593.20 672.30 5.00 4.41

30-Jun-12 3m 7773.90 40.70 7814.60 -6470.00 1344.60 -136.70 1207.90 -251.10 956.80 -259.40 697.40 679.20 5.00 5.13

30-Sep-12 3m 8363.20 143.70 8506.90 -6923.30 1583.60 -188.40 1395.20 -269.90 1125.30 -292.90 832.40 695.60 5.00 5.98

31-Dec-12E 3m 8530.46 186.81 8717.27 -7080.29 1636.99 -194.05 1442.94 -283.40 1159.54 -322.35 837.19 695.60 5.00 6.02

Ratio Analysis Particulars

EPS (Rs.) EBITDA Margin (%) PBT Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV

FY11 29.14 17.08% 11.55% 7.79% 28.96 10.67% 19.17% 0.43 14.72 273.20 3.09

FY12 17.18 17.58% 12.05% 8.25% 49.13 9.98% 20.30% 0.24 23.81 172.06 4.91

FY13E 21.73 17.95% 12.65% 8.92% 38.85 11.21% 21.73% 0.23 19.94 193.79 4.36

FY14E 25.97 17.90% 12.87% 9.27% 32.50 12.00% 22.48% 0.21 17.41 216.44 3.90

Charts

Outlook and Conclusion At the current market price of Rs.844.00, the stock P/E ratio is at 38.85 x FY13E and 32.50 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.21.73 and Rs.25.97 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 24% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 19.94 x for 17.41 x respectively for FY13E and FY14E. Price to Book Value of the stock is expected to be at 4.36 x and 3.90 x respectively for FY13E and FY14E. We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.945.00 for Medium to Long term investment.

Industry Overview

The Indian healthcare industry is expected to reach US$ 79 billion in 2012 and US$ 280 billion by 2020, on the back of increasing demand for specialized and quality healthcare facilities. Further, the hospital services market, which represents one of the most important segment of the Indian healthcare industry, is expected to be worth US$ 81.2 billion by 2015. Meanwhile, the Indian pharmaceutical market is expected to grow at a compound annual growth rate (CAGR) of 15.3 per cent during 2011-12 to 2013-14, as per Barclays Capital Equity Research report on India Healthcare & Pharmaceuticals. Market Size As per the estimations by RNCOSs research report titled, The Indian diagnostic services market, the sector will grow at the compound annual rate of around 26 per cent during 2012-2015, on back of huge investments, fast expansion into tier II and tier III cities, and strong Government support strengthening the healthcare infrastructure in India.

Trends and Investments The hospital and diagnostic centre in India has attracted foreign direct investment (FDI) worth US$ 1.40 billion, while drugs & pharmaceutical and medical & surgical appliances industry registered FDI worth US$ 9.66 billion and US$ 523.54 million, respectively during April 2000 to June 2012, according to data provided by Department of Industrial Policy and Promotion (DIPP).

German manufacturing company Carl Zeiss has established a research and development (R&D) unit and two manufacturing facilities in Electronics City in Bengaluru

The Kerala Institute of Medical Sciences (KIMS) Group has expanded its overseas operations, with the Royal Bahrain Hospital (RBH). KIMS-RBH is Bahrain's first custom-built hospital in the private sector, and it had Bahrain's first operational sleep lab, advanced laser technology for cosmetic surgery, and foetal medicine treatment facilities, among others

American Oncology Institute (AOI, US) and Cyberabad Citizens Health Services, have invested Rs 220 crore (US$ 40.37 million) to set up a cancer institute in Hyderabad. The market is projected to grow to Rs 5,000 crore (US$ 917.43 million) by 2016, as per the Clearstate data

Piramal Enterprises has been investing in German molecular imaging technology. Piramal sees revenue potential of US$ 1.5 billion from its florbetaben molecule technology

Japan's diversified trading company Mitsui & Co is buying an additional 25 per cent stake in active pharmaceutical ingredient (API) maker Arch Pharmalabs for Rs 372 crore (US$ 68.25 million), a move that will raise its shareholding in the Mumbai-based privately-held company to 30 per cent

DM Healthcare, a leading healthcare conglomerate in India and West Asia, has announced an investment of over Rs 2,150 crore (US$ 394.50 million) in Kerala. The company is in the process of developing an array of healthcare facilities in various locations in the State and most of these projects are expected to operational in the next five years

Vaccine producer Panacea Biotec has partnered with US-based Osmotica Pharmaceutical to sell 18 products including liposomes, modified release oral dosage forms and depot injections in the US over next 10 years

Mumbai-based Piramal Healthcare is in talks with the Chandigarh-headquartered Ind-Swift Laboratories to acquire its contract research and manufacturing business and many of its facilities approved by the US Food and Drugs Administration (USFDA)

KEF Company plans to invest Rs 1,600 crore (US$ 293.57 million) in Kerala. The project includes a luxury hotel, integrated manufacturing facilities and a super specialty hospital in Kozhikode

Strides Arcolab's wholly owned subsidiary Onco Therapies has received final ANDA approval for Vinorelbine injection. The drug is used to treat different types of cancer as it is a chemotherapy drug that slows cancer cell growth

Medical Tourism India is the most competitive destination with advantages of lower cost and sophisticated treatments, highlighted the RNCOS report titled Indian Healthcare - New Avenues for Growth. The report further elaborates that several key trends are backing the growth of Indias healthcare sector. Of these, medical city is relatively a new concept that offers immense growth opportunities. The upsurge in medical tourism is encouraging hospitals and hoteliers to strike alliances with each other. The market size of medical tourism in India is growing at over 25 per cent annually at over US$ 2.5 billion, as per industry estimates. Furthermore, this segment's growing business potential has prompted ITC Group to set up Fortune Park Lake City business hotel at the Jupiter Life Line Hospitals complex in Thane, near Mumbai, to serve medical tourists. Government Initiatives The Government has decided to increase health expenditure to 2.5 per cent of the gross domestic product (GDP) by the end of the Twelfth Five Year Plan (2012-17) from the current 1.4 per cent. Furthermore, a number of initiatives that have been proposed and taken up by the Government of India (GoI) for enhancement of the healthcare sector are:

100 per cent FDI is permitted for health and medical services under the automatic route Allocation for National Rural Health Mission (NRHM) has proposed to be increased from Rs 18,115 crore (US$ 3.32 billion) in 2011-12 to Rs 20,822 crore (US$ 3.82 billion) in 2012-13

National Urban Health Mission is being launched Pradhan Mantri Swasthya Suraksha Yojana being expanded to cover upgradation of seven more Government medical colleges

Health and Nutrition

Proposal to extend concessional basic customs duty of 5 per cent with full exemption from excise duty/ CVD to six specified life saving drugs/ vaccines

Basic customs duty and excise duty reduced on Soya products to address protein deficiency among women and children

Basic customs duty and excise duty reduced on Iodine Basic customs duty reduced on Probiotics.

The state governments are also undertaking various initiatives in this sector:

The Government of Assam has signed a memorandum of understanding (MoU) with Narayana Hrudayalaya Pvt Ltd for setting up a super specialty hospital. The hospital besides catering to patients from Northeast India will also look after the patients from Bangladesh and Bhutan.

The Government of Gujarat is eager to develop specialized pharma machinery cluster in the State. Gujarat's pharma industry contributes 40 per cent to national pharma turnover and has a 22 per cent share in Rs 42,263 crore (US $ 7.75 billion) pharmaceutical exports.

Road Ahead With growing urbanization and the problems associated with modern-day living in urban settings, disease profiles are shifting from infectious to lifestyle-related ones. In addition, there is substantial demand for highquality and specialty healthcare services in tier II and tier III cities. All these factors are creating huge demand for healthcare services in the country. There is a huge opportunity here for any country, including India, to maximise the use of diagnostics within the healthcare environment. We have got very good high-end labs, which are equivalent to any country around the world, as per Lance Little, Chairman and Managing Director, Roche Diagnostics India and South Asia.

Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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