Apollo Hospitals (APOHOS) - ICICI Directcontent.icicidirect.com/...ApolloHospitals_Q3FY17.pdf · 2)...

February 16, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Numbers impacted by one-offs… • Revenues grew ~22% YoY to | 1681 crore (I-direct estimate: | 1623

crore) on the back of 16% growth in the healthcare business to | 892 crore (I-direct estimate: | 885 crore) and 29% growth in the pharmacy business to | 789 crore (I-direct estimate: | 739 crore)

• EBITDA margins declined 119 bps YoY to 11.5% against I-direct estimates of 12.7% mainly due to higher contribution from low margin new hospitals as well as one-offs – 1) cost related to VIP admission and 2) cyclone Vardah impact at the Chennai cluster

• Net profit declined 44% YoY to | 73 crore (I-direct estimate: | 84 crore). However, adjusting one-off other income in Q3FY16, net profit declined 3.6% mainly due to higher depreciation and interest cost

Healthcare business growth to piggyback on sustained expansions The healthcare services segment (51% of consolidated revenues) has grown at 12% CAGR in FY12-16 on account of incremental hospital addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid expansion and maturity of older hospitals have kept the overall growth tempo at 12-14% per annum. The next phase of expansion includes addition of 565 beds to the existing network of 71 hospitals and 10143 beds (own hospitals) by FY19 at an additional capex of | 918 crore. This is likely to put some pressure on EBITDA margins and return ratios in the short to medium term. However, in the past, the company has demonstrated its ability to balance between expansion and margins. We expect more focus on improvement of important parameters like average length of stay (ALOS) and average revenue per operating bed (AROPB), which were flat in the last few quarters due to incremental bed additions. We expect healthcare sales to grow at a CAGR of 14% in FY16-19E to | 4555 crore as the company keeps on investing in new assets. Pharmacy business EBITDA continues to improve The pharmacy business (39% of consolidated revenues) has grown at ~29% CAGR in the last five years on the back of consistent addition of new pharmacies and timely closure of non-performing pharmacies. This business has become EBITDA positive as old stores are maturing and making a contribution. Current margins are at 4.5%. We expect the pharmacy business to grow at 17% CAGR in FY16-19E to | 3689 crore on the back of higher sales from existing stores. The company added 76 stores in Q3FY17 taking total stores to 2506. New hospitals to hold key for improvement in return ratios If not for one-offs on account of demonetisation, VIP admission and Cyclone Vardah, Q3 EBITDA margins were largely in line. The new hospitals now contribute 16% of healthcare revenues but are fetching just ~4% EBITDA margins. This is why the overall healthcare margins have come down to ~19% from 22% two years ago. However, some newly commissioned hospitals have achieved the breakeven level fairly ahead of our expectations. This is likely to improve the overall healthcare margins. This is likely to improve return ratios, which are currently at ~8% for the healthcare business due to rapid expansion in the last few years. We expect benefit of operating leverage to surpass asset addition, going ahead. On the pharmacy front, margins have showed a substantial improvement in the last few quarters. The trend is likely to continue. The RoCE for pharmacy has also improved to ~13%. We continue to value the stock on SOTP basis by valuing the healthcare business at 15x FY19E EV/EBITDA and pharmacy business at 1.5x FY19E EV/sales. We have ascribed a target price of | 1440.

Rating matrix Rating : BuyTarget : | 1440Target Period : 12-15 monthsPotential Upside : 17%

What’s Changed? Target UnchangedEPS FY17E Changed from | 23.1 to | 19.9EPS FY18E Changed from | 33 to | 32.6EPS FY19E Changed from | 47.1 to | 49.1Rating Unchanged

Standalone Quarterly Performance

Q3FY17 Q3FY16 YoY (%) Q2FY17 QoQ (%)Revenue 1,680.6 1,380.5 21.7 1,634.1 2.8EBITDA 194.1 182.6 6.3 221.9 -12.5EBITDA (%) 11.5 13.2 -168 bps 13.6 -203 bpsAdj. Net Profit 72.8 130.9 -44.3 92.0 -20.8

Key Financials (| Crore) FY16 FY17E FY18E FY19ERevenues 6085.6 6867.0 7587.6 8583.5EBITDA 782.3 836.0 1016.0 1228.1Adjusted PAT 301.9 277.2 453.2 682.7Adj. EPS (|) 22.2 19.9 32.6 49.1

Valuation summary

FY16 FY17E FY18E FY19EPE (x) 51.8 61.8 37.8 25.1EV to EBITDA (x) 24.7 23.2 18.8 15.0Target EV/EBITDA (x) 24.9 23.3 19.2 15.9Price to book (x) 5.0 4.7 4.2 3.7RoNW (%) 8.9 7.5 11.1 14.7RoCE (%) 8.2 7.5 10.5 14.6

Stock data ParticularMarket CapitalisationDebt (FY16)Cash (FY16)EV 52 week H/L (|) 1545/1111

Equity capitalFace value | 5

| 69.6 crore

Amount| 17140 crore

| 19482 crore

| 3152 crore| 810 crore

Price performance (%)

1M 3M 6M 1YApollo Hospitals 5.0 -1.5 -11.9 -11.2Fortis Healthcare 3.1 20.0 1.3 29.4

Research Analyst

Siddhant Khandekar [email protected] Mitesh Shah [email protected]

Apollo Hospitals (APOHOS) | 1232


Variance analysis Q3FY17 Q3FY17E Q3FY16 Q2FY17 YoY (%) QoQ (%) Comments

Revenue 1,680.6 1,622.9 1,380.5 1,634.1 21.7 2.8 Growth mainly driven by 29% growth in the pharmacy segment and 16% growth in the healthcare segment

Raw Material Expenses 889.2 840.3 737.7 846.1 20.5 5.1Employee Expenses 247.1 229.3 222.2 230.9 11.2 7.0Marketing Expenses 61.3 57.7 44.9 58.1 36.8 5.6Other expenditure 288.9 288.9 193.2 277.1 49.5 4.2EBITDA 194.1 206.7 182.6 221.9 6.3 -12.5EBITDA (%) 11.5 12.7 13.2 13.6 -168 bps -203 bps YoY margins impacted due to one-offs – 1) ~| 15 crore towards VIP

admission and 2) ~| 8 crore of startup cost at Navi Mumbai hospital. Miss vis-à-vis I-direct estimates mainly due to higher-than-expected one-offs impact

Interest 51.3 46.9 32.0 46.9 60.2 9.5 Increase in interest cost mainly due to new hospital capex

Depreciation 61.8 60.3 50.1 60.3 23.2 2.4 Higher depreciation due to new hospital capexOther Income 3.1 6.5 55.0 9.4 -94.4 -67.4 Q3FY16 included one-off profit of | 47 crore towards sale of Investment

PBT before EO & Forex 84.1 106.0 155.4 124.2 -45.9 -32.3EO 0.0 0.0 25.7 0.0 0.0 0.0PBT after Exceptional Items 84.1 106.0 129.7 124.2 -35.2 -32.3Tax 11.2 22.3 20.5 32.2 -45.1 -65.1Tax rate (%) 13.4 21.0 15.8 25.9Adj. Net Profit 72.8 83.8 130.9 92.0 -44.3 -20.8 Ex one-off other income in Q3FY16, net profit decline 3.6% YoY and miss

vis-a-vis I-direct estimates mainly due to lower-than-expected EBITDA as well as higher depreciation and interest expenses

EPS (|) 5.2 6.0 7.9 6.6 -33.3 -20.8Key MetricsHealthcare Services 891.9 884.5 769.1 924.3 16.0 -3.5 VIP admission, demonetisation and Cyclon Vardah impacted Q3FY17 sales

to the tune of | 25-30 crore. Ex-oneoff, YoY growth was mainly driven by 45% YoY growth in new hospitals to | 150 crore

Pharmacy 788.8 738.8 611.5 709.9 29.0 11.1 Growth was driven by 76 stores (net) addition and positive demonetisation impact on realisation

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Old New % ChangeRevenue 6,801.5 6,867.0 1.0 7,667.9 7,587.6 -1.0EBITDA 864.8 836.0 -3.3 1,011.7 1,016.0 0.4EBITDA Margin (%) 12.7 12.2 -53 bps 13.2 13.4 19 bps One-offs in Q3FY17 impacted overall FY17 marginsPAT 321.8 277.2 -13.9 458.7 453.2 -1.2EPS (|) 23.1 19.9 -13.8 33.0 32.6 -1.3 Changed mainly in sync with EBITDA and increase in financial expenses

FY17E FY18E

Source: Company, ICICIdirect.com Research Assumptions

(% Growth) FY15 FY16 FY17E FY18E FY17E FY18EHealthcare Services 2,820.7 3,085.8 3,531.2 4,002.4 3,500.6 3,990.7Pharmacy 1,772.6 2,323.7 2,892.9 3,281.7 2,870.7 3,373.7

Current Earlier

Source: Company, ICICIdirect.com Research


Company Analysis Established in 1983, the company is one of the few listed players in the healthcare space. It derives revenues from two broader segments in the standalone accounts - 1) healthcare services i.e. hospitals and 2) standalone pharmacies. In the consolidated accounts, other reporting segments are – 1) hospital revenues from JVs/subsidiaries and associates, 2) Apollo-Munich Health insurance JV, 3) Apollo Health & Lifestyle Ltd, which is the retail healthcare business of Apollo Hospitals. Apollo owns 71 hospitals with a total bed capacity of 10143 beds. Of these 71 hospitals, 43 are owned by the company (including JVs, subsidiaries and associates) while eight are managed by the company with 1359 beds while 11 are day care/short surgical stay centres with 238 beds and nine cradles with 184 beds. This business has been categorised as the healthcare business and comprises ~57% of standalone revenues. In case of managed hospitals, the company charges 5-6% management fees for third party hospitals for project management and consultancy covering all facets of development and operation of a hospital, including market research, technical design, arranging finance, hiring manpower and running the facility. The healthcare segment has been divided into three clusters- 1) Chennai, 2) Hyderabad and 3) others that include hospitals in Madurai, Karur, Karaikudi, Trichy, Mysore, Vizag, Pune, Karimnagar, Bilaspur, Bhubaneswar, Vanagaram, Nasik, Nellore, Jayanagar, etc. In June 2015, the company acquired a 51% stake in Assam Hospitals Ltd, which runs a 220 bed hospital in Guwahati. Apollo Healthcare and Lifestyle (AHLL) subsidiary covers the retail healthcare business of the Apollo group, comprising Apollo Clinics, Apollo Sugar, White Dental, Apollo Day Surgery centres and Apollo Cradle. AHLL reported | 124.2 crore of sales in FY16. Apollo Sugar Clinics is a one stop shop for diabetics and offer packages to better manage diabetes through a combination of prescriptions, dietary, exercise regimens and other lifestyle changes apart from management of diabetes related complications. Sanofi has 20% stake in Apollo Sugar Clinics business. The company has 26 Apollo Sugar Clinics. Apollo Day Surgery centres focus on planned surgeries done in a day/short stay basis. The company has 12 centres as of FY16. Apollo Cradle denotes lifestyle birthing centres. It launched the first Apollo Cradle in Delhi a decade ago and currently has three centres in the network, and plans to add five more centres - two in Hyderabad, two in Delhi and one in Bengaluru. In FY15, AHLL acquired 11 day and short stay surgery centres (over 350 beds) from Nova Specialty Hospitals with a presence in eight cities across India. This acquisition provides APL an opportunity to provide quality healthcare delivery closer to home and also entry in new markets such as Mumbai, Jaipur and Kanpur. In case of standalone pharmacies, which are basically drug stores chain selling prescription, OTC and private label FMCG products, the company owns 2326 stores. In FY15, the company acquired Hyderabad-based


Hetero Med Solutions (HMSL). HMSL has ~320 stores across Telangana, Andhra Pradesh and Tamil Nadu. Overall, we expect revenues to grow at 12% CAGR in FY16-19E to | 8584 crore. Exhibit 1: Revenues to grow at CAGR of 12% in FY16-19E

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The healthcare services segment (51% of consolidated revenues) has grown at a CAGR of 12.3% in FY12-16 on account of incremental hospital addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid expansion and maturity of older hospitals have kept the overall growth tempo of ~14% per annum. The next phase of expansion includes addition of 565 beds to the existing network of 71 hospitals and 10143 beds (own hospitals) by FY19 with an additional capex of | 918 crore. This is likely to put some pressure on EBITDA margins and return ratios in the short to medium term. However, in the past, the company has demonstrated its ability to balance between expansion and margins. We expect more focus on improvement of important parameters like average length of stay (ALOS) and average revenue per operating bed (AROPB), which were flat in the last few quarters due to incremental bed additions. We expect healthcare sales to grow at a CAGR of 14% in FY16-19E to | 4555 crore as the company keeps on investing in new assets. Exhibit 2: Healthcare services to grow at CAGR of 14% in FY16-19E

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The pharmacy business (39% of consolidated revenues) has grown at ~29% CAGR in the last five years on the back of consistent addition of new pharmacies and timely closure of non-performing pharmacies. This business has become EBITDA positive as old stores are maturing and making contribution. We expect the pharmacy business to grow at 17% CAGR in FY16-19E to | 3689 crore on the back of higher sales from

17.9% CAGR

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existing stores. The company added 76 stores in Q3FY17 taking total stores to 2506. In the last three years, we have seen a strong improvement in revenues per store from | 63 lakh in FY12 to | 1 crore in FY16. The Hetero acquisition may put some pressure on margins initially but augurs well in the long run. The pharmacy business is also a candidate for possible value unlocking. Exhibit 3: Pharmacy business to grow at CAGR of 17% in FY16-19E

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Exhibit 4: EBITDA to grow at CAGR of 16% in FY16-19E

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Exhibit 5: Net profit to grow at CAGR of 27% in FY16-19E

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Exhibit 6: Trends in return ratios

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Exhibit 7: Trends in standalone quarterly financials (| crore) Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 YoY (%) QoQ (%)Total Operating Income 777.4 998.2 1053.7 1152.9 1182.5 1203.7 1305.7 1409.7 1380.5 1396.3 1465.4 1634.1 1680.6 21.7 2.8Raw Material Expenses 399.7 513.3 553.2 608.8 632.1 629.9 670.1 729.9 737.7 734.9 758.9 846.1 889.2 20.5 5.1as % revenues 51.4 51.4 52.5 52.8 53.4 52.3 51.3 51.8 53.4 52.6 51.8 51.8 52.9Gross Profit 377.7 484.9 500.5 544.1 550.5 573.8 635.6 679.9 642.8 661.4 706.6 788.1 791.4 23.1 0.4GPM (%) 48.6 48.6 47.5 47.2 46.6 47.7 48.7 48.2 46.6 47.4 48.2 48.2 47.1Employee Expenses 125.7 162.7 170.7 179.5 179.7 191.1 190.7 202.3 222.2 225.5 215.5 230.9 247.1 11.2 7.0as % revenues 16.2 16.3 16.2 15.6 15.2 15.9 14.6 14.4 16.1 16.1 14.7 14.1 14.7Marketing Expenses 107.5 30.8 29.8 35.9 39.0 34.0 43.6 44.9 44.9 48.3 49.4 58.1 61.3 36.8 5.6as % revenues 13.8 3.1 2.8 3.1 3.3 2.8 3.3 3.2 3.2 3.5 3.4 3.6 3.6Other expenditure 14.0 141.4 143.7 156.1 157.2 174.1 223.6 236.5 193.2 203.8 254.8 277.1 288.9 49.5 4.2as % revenues 1.8 14.2 13.6 13.5 13.3 14.5 17.1 16.8 14.0 14.6 17.4 17.0 17.2Total expenditure 647.0 848.1 897.4 980.3 1007.8 1029.2 1128.1 1213.5 1197.9 1212.4 1278.6 1412.2 1486.5 24.1 5.3EBITDA 130.4 150.1 156.3 172.6 174.7 174.5 177.7 196.2 182.6 183.8 186.9 221.9 194.1 6.3 -12.5EBITDA Margins (%) 16.8 15.03 14.83 14.97 14.77 14.50 13.61 13.92 13.23 13.17 12.75 13.58 11.55 -168 bps -203 bpsDepreciation 25.1 33.1 39.9 38.9 38.6 40.6 48.7 49.5 50.1 56.8 55.7 60.3 61.8 23.2 2.4Interest 13.7 20.9 18.9 20.1 21.7 22.6 26.9 30.9 32.0 43.8 44.4 46.9 51.3 60.2 9.5Other Income 4.1 7.0 6.5 8.2 25.8 4.8 5.3 0.9 55.0 5.3 5.3 9.4 3.1 -94.4 -67.4PBT 95.7 103.0 103.9 121.8 140.2 116.1 107.4 116.8 155.4 88.5 92.1 124.2 84.1 -45.9 -32.3Less: Exceptional Items 0.0 0.0 0.0 0.0 -15.2 0.5 0.0 0.0 -25.7 0.0 0.0 0.0 0.0Total Tax 25.9 21.7 21.2 30.3 30.0 39.3 19.9 27.2 20.5 12.8 19.9 32.2 11.2 -45.1 -65.1Tax rate (%) 27.1 21.0 20.4 24.9 21.4 33.8 18.5 23.3 13.2 14.4 21.6 25.9 13.4Net Profit 69.7 81.3 82.7 91.5 95.0 77.3 87.5 89.6 109.2 75.7 72.2 92.0 72.8 -33.3 -20.8Net Profit Margin (%) 9.0 8.1 7.9 7.9 8.0 6.4 6.7 6.4 7.9 5.4 4.9 5.6 4.3EPS (Adjusted) 5.1 5.8 5.9 6.6 6.8 5.6 6.3 6.4 7.9 5.4 5.2 6.6 5.2


Exhibit 8: Standalone healthcare service performance (| Crore) Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 YoY (%) QoQ (%)

Sales 590.9 636.5 636.3 633.4 667.6 715.8 711.5 725.8 745.0 784.4 769.1 787.4 891.9 19.7 13.3

EBITDA NA NA NA 167.1 168.3 157.9 162.0 171.9 158.2 157.9 165.0 188.2 157.9 -0.2 -16.1EBITDA Margins (%) NA NA NA 26.4 25.2 22.1 22.8 23.7 21.2 20.1 21.5 23.9 17.7


Exhibit 9: Standalone pharmacy performance Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 YoY (%) QoQ (%)

Sales (| crore) 304.2 338.6 357.1 364.9 386.2 437.17 471.2 478.0 520.1 583.1 611.5 709.93 788.84 51.7 11.1

EBITDA (| crore) NA NA NA NA NA NA 17.4 22.9 24.4 18.6 21.9 34.8 35.7 46.3 2.6EBITDA Margins (%) NA NA NA NA NA NA 3.7 4.8 4.7 3.2 3.6 4.9 4.5

No of Stores 1586 1632 1664 1717 1784 1822 2171 2217 2263 2326 2383 2430 2506Rev per store (| lakh) 19.2 20.8 21.5 21.2 21.6 24.0 21.7 21.6 23.0 25.1 25.7 29.2 31.5



SWOT Analysis Strengths - Early mover in the healthcare space. Strong balance sheet despite being in a business with higher gestation period. Strong brand value - a significant aspect in this business Weakness - Presence in the low margin pharmacy space Opportunities - Under-penetrated Indian healthcare space with favourable demographics and disease pattern Threats - Too much capacity build-up may lead to lower capacity utilisation and the cost associated with it


Conference call Highlights

• In Q3FY17, Apollo Hospitals commissioned a 480 bed super speciality tertiary care hospital in Navi Mumbai. It is the 71st facility in the network of hospitals with the total bed count now at 10143. Navi Mumbai has started off well as it reported an occupancy rate of 64% utilisation

• The Chennai cluster was impacted by three one-off events in Q3FY17 - demonetisation, VIP admission and the cyclone Vardah. Occupancy was at 906 beds (59% utilisation on capacity of 1,531 beds) in 9MFY17 compared to 969 beds (64% utilisation on 1,521 beds) in 9MFY16

• The Hyderabad cluster continued to benefit from the momentum in operations as revenues grew 12%. The occupancy was at 538 beds (64% utilisation on capacity of 839 beds) in 9MFY17 compared to 562 beds (60% utilisation on capacity of 930 beds) in 9MFY16

• Bangalore region, including Mysore has seen good growth this year in the local client base. Overall occupancy in the cluster was 479 beds (68% occupancy) compared to occupancy of 428 beds in the same period in the previous year

• Net addition of 76 pharmacy stores in Q3FY17, pan-India network is now at 2506 stores

• Apollo Hospitals has entered into a public private partnership (PPP) with the Government of Andhra Pradesh (AP) to launch 164 electronic primary urban health centres to provide quality healthcare to the poor population of AP and set up its first centre in November, 2016

• Except for Navi Mumbai, Nellore and Malleswaram (Bangalore), all other new Apollo hospitals have achieved break-even level

• International Finance Corporation (IFC) has invested | 450 crore as equity in AHLL for global expansion. Part of the payment has been used to pay AHLL’s debt. The focus is now on generating profitability from the business. AHLL’s Q3FY17 loss was at | 33.6 crore

• The management expects the capex for FY17 to be ~ | 350 crore and also expects the net debt to rise further in Q4FY17

• The strategic focus for the Apollo Hospital management is on 1) increasing hospital occupancy 2) increasing ARPOB 3) increasing ROI to 18-20% in the next five years


Valuation If not for one-offs on account of demonetisation, VIP admission and Cyclone Vardah, Q3 EBITDA margins were largely in line. The new hospitals now contribute 16% to healthcare revenues but are fetching just ~4% EBITDA margins. This is why the overall healthcare margins have come down to ~19% from 22% two years ago. However, some of the newly commissioned hospitals have achieved the breakeven level fairly ahead of our expectations. This is likely to improve the overall healthcare margins. This is likely to improve return ratios, which are currently at ~8% for the healthcare business due to rapid expansion in the last few years. We expect the benefit of operating leverage to surpass asset addition, going ahead. On the pharmacy front, margins have showed a substantial improvement in the last few quarters. The trend is likely to continue. The RoCE for pharmacy has also improved to ~13%. We continue to value the stock on an SOTP basis by valuing the healthcare business at 15x FY19E EV/EBITDA and pharmacy business at 1.5x FY19E EV/sales. We have ascribed a target price of | 1440. Exhibit 10: One year forward EV/EBITDA

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Exhibit 11: Valuation Particulers Valuation Matrix Multiple (x) Enterprise value (| cr)Healthcare EV/EBITDA 15.0 15,603Pharmacy EV/Sales 1.5 5,534Others EV/Sales 1.0 340Net Debt FY19E (| cr) 1,384.5EV (| cr) 20,092No of shares (cr) 13.9Per Share Value (|) 1,440


Exhibit 12: Valuation Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)FY16 6086 17.5 22.2 -7.5 24.7 3.2 8.2 9.3FY17E 6867 12.8 19.9 -8.2 23.2 2.8 7.5 9.1FY18E 7588 10.5 32.6 63.5 18.8 2.5 10.5 11.9FY19E 8583 13.1 49.1 50.6 15.0 2.1 14.6 15.7



Recommendation history vs. Consensus

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Source: Reuters, Company, ICICIdirect.com Research Key events Date EventSep-08 Opens first reach hospital at Karimnagar, Andhra Pradesh

Jun-09 Issues 1500 unsecured foreign currency convertible bonds of US$10000 each to International Finance Corporation aggregating to US$15 million. IFC also granted a loan

May-11 Pharmacy business of company turns profitable for first time

Sep-12 Government allows foreign direct investment in multi brand retail. Pharmacy business of Apollo Hospitals falls into this category

Dec-12 Sells stake in its BPO company Apollo Health Street to US based company Sutherland Global Services. It holds 39.4% in Apollo Health Street

Jan-13 Plans to establish a proton therapy centre in India. It will be first of its kind across South East Asia, Africa and Australia.

May-13 Apollo Hospitals and Yash Birla Group call off their JV & shut down their plans to set up super specialty hospitals in Thane, Mumbai

Sep-14 Enters into agreement to acquire 320 pharmacy stores from Hetero for | 146 crore

Jan-15 Acquires Bengaluru-based Nova Specialty Hospitals at an estimated cost of | 135-145 crore

Jun-15 Acquires 51% stake in Assam Hospitals

Nov-17 Commisioned 480 bed super speciality tertiary care hospital in Navi Mumbai

Dec-17 International Finance Corporation has invested | 450 crore in AHLL for global expansion

Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Investor Name Latest Filing Date % O/S Position Position Chan1 PCR Investments, Ltd. 31-Dec-16 19.6 27.2m 0.0m2 Integrated Mauritius Healthcare Holdings, Ltd. 31-Dec-16 10.8 15.1m 0.0m3 OppenheimerFunds, Inc. 20-Nov-15 10.3 14.3m 2.3m4 Reddy (Prathap C) 31-Dec-16 3.9 5.4m 0.0m5 Schroder Investment Management (Hong Kong) Ltd. 31-Aug-16 3.3 4.6m 0.2m6 Reddy (Suneeta) 31-Dec-16 2.4 3.4m 0.0m7 Reddy (Sangita) 31-Dec-16 1.7 2.4m 0.0m8 MEAG Munich ERGO Kapitalanlagegesellschaft mbH 31-Dec-16 1.7 2.4m 0.0m9 Khamineni (Shobana) 31-Dec-16 1.6 2.2m 0.0m10 Reddy (Preetha) 31-Dec-16 1.6 2.2m 0.0m

(in %) Dec-15 Mar-16 Jun-16 Sep-16 Dec-16Promoter 34.4 34.4 34.4 34.4 34.4Others 65.7 65.7 65.7 65.7 65.7

Source: Reuters, ICICIdirect.com Research Recent Activity

Investor name Value ($) Shares Investor name Value ($) SharesSundaram Asset Management Company Limited 5.1m 0.3m Carnegie Fonder AB -4.7m -0.3mSchroder Investment Management (Singapore) Ltd. 4.1m 0.2m China International Fund Management Co., Ltd. -2.5m -0.1mMirae Asset Global Investments (India) Pvt. Ltd. 3.0m 0.2m Capital Investment Trust Corporation -2.0m -0.1mSchroder Investment Management (Hong Kong) Ltd. 3.1m 0.2m Mirae Asset Global Investments Co., Ltd. -1.5m -0.1mKotak Mahindra Asset Management Company Ltd. 1.8m 0.1m Mackenzie Financial Corporation -1.2m -0.1m

Buys Sells

Source: Reuters, ICICIdirect.com Research


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Financial summary

Profit and loss statement | Crore (Year-end March) FY16 FY17E FY18E FY19ERevenues 6,085.6 6,867.0 7,587.6 8,583.5Growth (%) 17.5 12.8 10.5 13.1Raw Material Expenses 3,055.8 3,604.8 3,850.2 4,355.6Employee Expenses 1,024.2 1,000.0 1,138.1 1,287.5Marketing Expenses 131.2 241.3 276.9 313.3Other expenditure 1,092.1 1,185.0 1,306.3 1,398.9Total Operating Expenditure 5,303.3 6,031.0 6,571.6 7,355.3EBITDA 782.3 836.0 1,016.0 1,228.1Growth (%) 6.5 6.9 21.5 20.9Depreciation 253.3 289.9 289.9 263.6Interest 168.5 197.7 146.2 83.4Other Income 26.7 18.3 20.2 22.8PBT 387.2 366.7 600.2 904.0Total Tax 100.2 76.8 126.0 189.8MI & Profit from Associates 14.9 -12.8 -20.9 -31.5Adjusted PAT 301.9 277.2 453.2 682.7Growth (%) -7.5 -8.2 63.5 50.6EPS (Adjusted) 22.2 19.9 32.6 49.1


Cash flow statement | Crore (Year-end March) FY16 FY17E FY18E FY19EProfit/(Loss) after taxation 275.9 277.2 453.2 682.7Add: Depreciation & Amortization 253.3 289.9 289.9 263.6Working Capital Changes -231.7 -45.0 -27.7 -105.1CF from operating activities 297.5 522.0 715.5 841.1Change in Capex -830.6 -600.0 -400.0 -250.0(Inc)/dec in Investments 117.1 0.0 0.0 0.0Others 29.5 75.1 93.1 116.4CF from investing activities -684.0 -524.9 -306.9 -133.6Issue of Equity 20.6 0.0 0.0 0.0Inc/(dec) in loan funds 582.0 465.5 -821.5 -1,000.0Dividend paid & dividend tax -161.6 -49.8 -63.3 -95.4Others -168.5 0.0 0.0 0.0CF from financing activities 272.5 415.7 -884.9 -1,095.4Net Cash flow -114.0 412.9 -476.3 -387.9Opening Cash 385.9 397.6 810.4 334.1

Closing Cash 271.9 810.4 334.1 -53.8Free Cash Flow -533.1 -78.0 315.5 591.1


Balance sheet | Crore (Year-end March) FY16 FY17E FY18E FY19EEquity Capital 69.6 69.6 69.6 69.6Reserve and Surplus 3,384.1 3,611.5 4,001.4 4,588.6Total Shareholders funds 3,453.7 3,681.0 4,070.9 4,658.2Total Debt 2,686.7 3,152.2 2,330.7 1,330.7Deferred Tax Liability 497.7 513.1 538.3 576.2Minority Interest 130.3 143.1 164.0 195.4Long term provisions 3.2 5.2 7.2 9.2Other Non Current Liabilities 1.3 1.3 1.3 1.3Total Liabilities 6,772.9 7,495.9 7,112.3 6,771.0Gross Block - Fixed Assets 4,707.5 5,307.5 5,707.5 5,957.5Accumulated Depreciation 1,263.2 1,541.8 1,821.1 2,075.5Net Block 3,444.3 3,765.7 3,886.4 3,882.0Capital WIP 595.6 595.6 595.6 595.6Net Intangible assets 168.3 157.0 146.5 137.3Goodwill on Consolidation 212.0 212.0 212.0 212.0Total Fixed Assets 4,420.2 4,730.4 4,840.5 4,826.9Investments 269.7 269.7 269.7 269.7Inventory 443.3 498.6 550.9 623.2Debtors 702.0 789.5 872.4 986.9Loans & Advances, & other CA 456.4 645.6 625.8 594.0Cash 397.6 810.4 334.1 -53.8Total Current Assets 2,188.4 2,724.3 2,351.4 2,170.3Creditors 503.7 566.5 626.0 708.1Provisions & Other CL 393.0 410.6 425.8 442.1Total Current Liabilities 914.3 992.4 1,068.1 1,169.8Net Current Assets 1,274.1 1,732.0 1,283.3 1,000.5Long term loans & advances 795.3 745.3 695.3 645.3Deferred Tax Assets 13.4 18.4 23.4 28.4Application of Funds 6,772.8 7,495.8 7,112.3 6,771.0


Key ratios (Year-end March) FY16 FY17E FY18E FY19EPer share data (|)Adjusted EPS 22.2 19.9 32.6 49.1BV per share 248.2 264.6 292.6 334.8Dividend per share 7.2 3.6 4.6 6.9Cash Per Share 28.6 58.3 24.0 -3.9Operating Ratios (%)Gross Profit Margins 49.8 47.5 49.3 49.3EBITDA margins 12.9 12.2 13.4 14.3Net Profit margins 5.1 4.0 6.0 8.0Inventory days 26.6 26.5 26.5 26.5Debtor days 42.1 42.0 42.0 42.0Creditor days 30.2 30.1 30.1 30.1Asset Turnover 0.9 0.9 1.1 1.3EBITDA Conversion Rate 38.0 62.4 70.4 68.5Return Ratios (%)RoE 8.9 7.5 11.1 14.7RoCE 8.2 7.5 10.5 14.6RoIC 9.3 9.1 11.9 15.7Valuation Ratios (x)P/E 51.8 61.8 37.8 25.1EV / EBITDA 24.7 23.2 18.8 15.0EV / Net Sales 3.2 2.8 2.5 2.1Market Cap / Sales 2.8 2.5 2.3 2.0Price to Book Value 5.0 4.7 4.2 3.7Solvency RatiosDebt / EBITDA 3.4 3.8 2.3 1.1Debt / Equity 0.8 0.9 0.6 0.3Net Debt / Equity 0.8 0.8 0.6 0.3Current Ratio 2.0 1.9 1.9 1.9



ICICIdirect.com coverage universe (Healthcare) Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E

Ajanta Pharma AJAPHA 1755 1,960 Buy 15440.5 45.4 59.7 66.3 75.3 38.6 29.4 26.5 23.3 42.9 39.2 34.9 31.7 34.2 33.1 28.4 25.6

Alembic Pharma ALEMPHA 545 615 Hold 10281.7 38.2 22.0 24.5 30.6 14.3 24.8 22.3 17.8 51.5 26.0 23.1 24.8 44.9 21.9 20.8 21.9

Apollo Hospitals APOHOS 1232 1,440 Buy 17134.7 22.2 19.9 32.6 49.1 55.5 61.8 37.8 25.1 8.2 7.5 10.5 14.6 8.9 7.5 11.1 14.7

Aurobindo Pharma AURPHA 636 965 Buy 37216.8 33.9 40.1 40.7 50.7 18.7 15.8 15.6 12.5 23.3 24.3 21.3 23.0 28.1 25.3 20.7 20.8

Biocon BIOCON 1059 1,120 Buy 21174.0 23.1 32.6 34.4 44.2 45.7 32.4 30.8 23.9 9.1 13.0 13.7 16.5 11.4 14.4 13.7 15.4

Cadila Healthcare CADHEA 358 380 Hold 36690.9 15.0 11.2 15.1 18.9 24.0 31.9 23.7 19.0 26.7 14.4 18.3 20.9 28.6 18.5 21.1 22.0Cipla CIPLA 574.3 575 Hold 46193.4 18.5 17.8 24.7 31.9 31.0 32.2 23.2 18.0 12.0 10.9 14.0 16.6 12.5 10.9 13.4 15.0

Divi's Lab DIVLAB 710 925 Buy 18835.0 41.8 44.6 51.8 57.9 17.0 15.9 13.7 12.3 30.7 28.5 28.0 26.5 25.9 23.0 22.2 20.7

Dr Reddy's Labs DRREDD 2911 2,930 Hold 48229.2 141.4 74.5 114.5 154.3 20.6 39.1 25.4 18.9 17.3 7.0 11.5 15.1 20.6 10.0 13.6 15.8

Glenmark Pharma GLEPHA 928 1,155 Buy 26171.1 32.2 63.0 54.4 60.8 28.8 14.7 17.1 15.3 16.2 26.8 20.8 21.9 21.2 29.7 20.6 18.8

Indoco Remedies INDREM 262.4 315 Buy 2417.6 9.4 8.9 14.2 18.5 28.0 29.6 18.4 14.2 12.9 9.7 14.9 18.1 14.8 12.6 17.4 19.2

Ipca Laboratories IPCLAB 520 560 Hold 6565.9 10.0 15.1 24.1 31.2 51.9 34.5 21.6 16.7 5.7 9.9 12.8 14.8 5.5 7.8 11.3 13.0

Jubilant Life JUBLIF 660.2 810 Buy 10515.7 26.0 37.4 53.9 67.5 25.4 17.6 12.2 9.8 12.0 14.2 16.2 18.3 14.2 17.3 20.2 20.4

Lupin LUPIN 1433 1,890 Buy 64682.4 50.4 62.2 67.5 83.8 28.4 23.0 21.2 17.1 18.6 20.3 20.8 23.9 20.7 21.1 19.2 19.9

Natco Pharma NATPHA 758.2 870 Buy 13216.0 8.5 23.8 14.8 18.2 89.4 31.8 51.4 41.7 16.0 31.5 17.8 19.4 11.9 26.0 14.1 15.2

Sun Pharma SUNPHA 623 765 Buy 149482.8 23.4 29.9 29.9 35.3 26.6 20.8 20.8 17.6 18.6 19.1 17.3 18.0 18.0 19.2 16.6 16.8

Syngene Int. SYNINT 476 570 Hold 9512.0 11.1 15.5 16.9 20.5 51.3 36.7 33.7 27.7 13.2 17.8 18.1 20.7 21.0 23.2 20.6 20.4

Torrent Pharma TORPHA 1231 1,475 Buy 20837.3 107.8 55.7 62.2 77.6 11.4 22.1 19.8 15.9 46.7 21.0 23.8 26.5 53.8 23.0 21.5 22.3

Unichem Lab UNILAB 270.4 285 Hold 2456.8 12.3 13.2 17.5 23.7 22.0 20.5 15.4 11.4 13.8 14.5 16.2 18.9 11.7 11.3 13.3 15.6

RoE (%)EPS (|) PE(x) RoCE (%)



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ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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