CMP 843.00

Target Price 945.00

ISIN: INE437A01024

FEB 7th

, 2013

APOLLO HOSPITALS ENTERPRISE LTD

Result Update: Q3 FY13

BUYBUYBUYBUY

Stock Data

Sector Healthcare

BSE Code 508869

Face Value 5.00

52wk. High / Low (Rs.) 902.85/553.00

Volume (2wk. Avg ) 13000

Market Cap ( Rs in mn ) 117278.16

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY12A FY13E FY14E

Net Sales 28000.70 33424.06 38671.64

EBITDA 4922.50 6031.44 7083.81

Net Profit 2309.90 3099.07 3709.55

EPS 17.18 22.28 26.66

P/E 49.07 37.84 31.62

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX APOLLO HOSPITALS ENTERPRISE LTD

SYNOPSIS

Apollo Hospitals Enterprise Ltd. is the leading

private sector healthcare provider which

owns and 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 24.72% to Rs. 806.30 million.

Apollo Hospitals announced its plans to

establish a Proton Therapy Center in India,

the first of its kind across South East Asia,

Africa and Australia.

Apollo Hospitals Group added another

feather in their hat of excellence, with the

launch of the first Apollo Cosmetic Clinic in

North India.

Apollo Hospitals has been conferred with the

tribute of a “Superbrand” in India for the 4th

consecutive year.

Apollo Gleneagles Cancer Hospital, Kolkata

partnered with 'Youwecan' Cancer Screening

Initiative and launched its first Mobile Cancer

Screening Unit in West Bengal.

Net Sales and PAT of the company are

expected to grow at a CAGR of 18% and 27%

over 2011 to 2014E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Apollo Hospital Enterprise Ltd 843.00 117278.16 17.18 49.07 4.90 80.00

Fortis Healthcare 104.50 42734.50 5.70 18.31 1.33 0.00

Indraprastha Medical Corporation 36.80 3373.60 3.14 11.723 2.12 16.00

Opto Circuits India 68.90 16720.00 10.23 6.74 1.38 30.00

Investment Highlights

Results updates- Q3 FY13,

Apollo Hospitals Enterprise Ltd is India’s first and

largest branded pharmacy network, with over 1,350

outlets in key locations, reported its financial results

for the quarter ended 31st DEC, 2012. The third

quarter witnesses a healthy increase in overall sales

as well as profitability of the company.

Months DEC-12 DEC-11 % Change

Net Sales 8557.90 7147.50 19.73%

PAT 806.30 646.50 24.72%

EPS 5.80 4.81 20.54%

EBITDA 1544.30 1287.50 19.95%

The company’s net profit jumps to Rs.806.30 million against Rs.646.50 million in the corresponding quarter

ending of previous year, an increase of 24.72%. Revenue for the quarter increase 19.73% to Rs.8557.90 million

from Rs.7147.50 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.5.80 a share during the quarter, registering 20.54% increase over previous year period.

Profit before interest, depreciation and tax is Rs.1544.30 millions as against Rs.1287.50 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 Q3FY13 was at Rs. 7369.50

million as against Rs.6176.00 million in Q3FY12.

Cost of Material Consumed stood to Rs.2606.20

against Rs.1869.40 millions in the corresponding

period of the previous year. Other Expenditure at Rs.

1089.20 million and Depreciation is Rs. 275.50

million in Q3FY13 is the primarily attributable to

growth of expenditure.

Segment Revenue

Latest Updates

• Apollo Health City announced the performing of a revolutionary Minimally Invasive Knee Replacement

(Resurface) Surgery (MIKRS) using OrthoGlide Medial Knee system.

• Apollo Hospitals Group added another feather in their hat of excellence, with the launch of the first Apollo

Cosmetic Clinic in North India. Equipped with the best specialists in the country, state-of-the-art

infrastructure, cutting-edge technology and techniques, zero-infection zones, stringent quality control and

international-standard protocols, abundant precautions have been taken to ensure patient safety & complete

confidentiality.

• Apollo Hospitals announced its plans to establish a Proton Therapy Center in India, the first of its kind across

South East Asia, Africa and Australia. This launch that marks the beginning of the next wave of advancement

in radiation therapy in India is worth approximately Rs. 400 crores, which covers the equipment and services

supplied by IBA (Ion Beam Applications S.A.) to help establish the Apollo Proton Therapy Center including

the long-term operation and maintenance contract.

• Apollo Gleneagles Cancer Hospital, Kolkata partnered with Yuvraj Singh's 'Youwecan' Cancer Screening

Initiative and launched its first Mobile Cancer Screening Unit which will undertake cancer screening

programs at various locations in West Bengal. The specialized Mobile Unit is equipped with state-of-the art

Auto Analyzers and Enzyme Analyzers for blood tests and a X-Ray machine to carry out on-the-spot chest X-

rays.

• Apollo Hospitals has been conferred with the tribute of a Superbrand in India for the 4th consecutive year.

• Apollo Hospitals launches the Bariatric Institutes. Bariatric Surgery has been launched at Apollo Hospitals

Chennai, aimed at holistic healthcare for patients dealing with obesity & metabolic syndromes.

• Apollo Hospitals has launched a unique Oncological Robotic Surgery initiative, to mark World Cancer Day. It

aims at creating awareness about the advantages of Robotic Surgery as a better treatment for various cancers

as it is more precise, minimally invasive, heals faster and has the best clinical outcomes.

• Plans for FY 2015

The company is planning to 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)

FY12 FY13E FY14E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 672.33 695.60 695.60

Money received against share warrants 387.05 406.40 426.72

Reserves and Surplus 22463.28 25562.37 28629.86

Net worth (a) 23522.66 26664.37 29752.18

Non-Current Liabilities:

long-term borrowings 4216.69 3584.19 4014.29

Deferred Tax Liabilities [Net] 1700.85 2381.19 2881.24

Other Long Term Liabilities 47.77 45.86 44.02

Long Term Provisions 2657.01 3347.83 3850.01

Long term liabilities (b) 8622.32 9359.07 10789.56

Current Liabilities:

Short-term borrowings 1382.97 1618.07 1828.42

Trade Payables 1709.36 1623.89 1542.70

Other Current Liabilities 1572.68 1761.40 1919.93

Short Term Provisions 773.23 866.02 952.62

Current Liabilities © 5438.24 5869.39 6243.67

Total (a+b+c) 37583.22 41892.83 46785.41

ASSETS:

Non-Current Assets:

Fixed Assets:

Tangible Assets 14238.84 16529.14 18677.93

Intangible Assets 121.21 150.30 181.86

Capital work-in-progress 1893.15 1135.89 827.15

Intangible Asset under Development 116.23 119.72 190.35

(d) 16369.43 17935.05 19877.29

Non Current Investments 6470.10 7505.32 8405.95

Long Term Loans and Advances 5103.33 5588.15 6146.96

(e) 11573.43 13093.46 14552.91

Current Assets:

Current Investments 1171.08 1253.06 1353.30

Inventories 1827.09 2064.61 2271.07

Trade Receivables 3537.70 4032.98 4678.25

Cash and Bank Balances 1869.55 2243.46 2804.33

Short Term Loans and Advances 976.65 947.35 918.93

Other Current Assets 258.29 322.86 329.32

(f) 9640.36 10864.32 12355.20

Total (d+e+f) 37583.22 41892.83 46785.41

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 23319.60 28000.70 33424.06 38671.64

Other Income 213.70 278.50 357.26 432.28

Total Income 23533.30 28279.20 33781.32 39103.92

Expenditure -19550.10 -23356.70 -27749.88 -32020.11

Operating Profit 3983.20 4922.50 6031.44 7083.81

Interest -587.30 -636.00 -736.83 -832.62

Gross profit 3395.90 4286.50 5294.61 6251.19

Depreciation -702.60 -911.30 -1080.27 -1231.50

Profit Before Tax 2693.30 3375.20 4214.35 5019.69

Tax -876.10 -1065.30 -1115.28 -1310.14

Net Profit 1817.20 2309.90 3099.07 3709.55

Equity capital 623.60 672.30 695.60 695.60

Reserves 16413.03 22463.30 25562.37 28629.86

Face value 10.00 5.00 5.00 5.00

EPS 29.14 17.18 22.28 26.66

Quarterly Profit & Loss Statement for the period of 30th June, 2012 to 31st Mar, 2013E

Value(Rs.in.mn) 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13E

Description 3m 3m 3m 3m

Net sales 7773.90 8363.20 8557.90 8729.06

Other income 40.70 143.70 80.40 92.46

Total Income 7814.60 8506.90 8638.30 8821.52

Expenditure -6470.00 -6923.30 -7094.00 -7262.58

Operating profit 1344.60 1583.60 1544.30 1558.94

Interest -136.70 -188.40 -193.30 -218.43

Gross profit 1207.90 1395.20 1351.00 1340.51

Depreciation -251.10 -269.90 -275.50 -283.77

Profit Before Tax 956.80 1125.30 1075.50 1056.75

Tax -259.40 -292.90 -269.20 -293.78

Net Profit 697.40 832.40 806.30 762.97

Equity capital 679.20 695.60 695.60 695.60

Face value 5.00 5.00 5.00 5.00

EPS 5.13 5.98 5.80 5.48

Ratio Analysis

Particulars FY11 FY12 FY13E FY14E

EPS (Rs.) 29.14 17.18 22.28 26.66

EBITDA Margin (%) 17.08% 17.58% 18.05% 18.32%

PBT Margin (%) 11.55% 12.05% 12.61% 12.98%

PAT Margin (%) 7.79% 8.25% 9.27% 9.59%

P/E Ratio (x) 28.93 49.07 37.84 31.62

ROE (%) 10.67% 9.98% 11.80% 12.65%

ROCE (%) 19.17% 20.30% 22.13% 23.42%

Debt Equity Ratio 0.43 0.24 0.22 0.21

EV/EBITDA (x) 14.70 23.78 20.05 17.03

Book Value (Rs.) 273.20 172.06 188.74 210.79

P/BV 3.09 4.90 4.47 4.00

Charts

Outlook and Conclusion

� At the current market price of Rs.843.00, the stock P/E ratio is at 37.84 x FY13E and 31.62 x FY14E

respectively.

� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.22.28 and

Rs.26.66 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 27% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 20.05 x for 17.03 x respectively for FY13E and FY14E.

� Price to Book Value of the stock is expected to be at 4.47 x and 4.00 x respectively for FY13E and FY14E.

� 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 segments 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 RNCOS’s 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 India’s 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 high-

quality 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 it’s 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.

Firstcall India Equity Research: Email – info@firstcallindia.com

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