June 1, 2017 Apollo Hospitals (APOHOS) | 1210content.icicidirect.com/mailimages/IDirect_Apollo...In...

June 1, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

One-offs, new hospitals impact margins…

Revenues grew 15% YoY to | 1662 crore (I-direct estimate: | 1672

crore) on the back of 10% growth in the healthcare business to | 918

crore (I-direct estimate: | 913 crore) and 22% increase in pharmacy

business to | 743 crore (I-direct estimate: | 759 crore)

EBITDA margins declined 235 bps YoY to 10.2% (I-direct estimate:

13.2%) mainly due to higher other expenditure. EBITDA declined 6%

YoY to | 170 crore (I-direct estimate: | 220 crore)

Adjusted net profit declined 41% to | 48 crore (I-direct estimate: | 89

crore) mainly due to lower EBITDA, higher interest cost and

depreciation

Sustained expansions to drive healthcare business growth

The healthcare services segment (57% of consolidated revenues) has

grown at a CAGR of 14% in FY12-17 on account of incremental hospital

addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid

expansion and maturity of older hospitals has kept the overall growth

tempo at 12-14% per annum. In the past three years, the company has

added 2,400 beds, of which 1,500 are operational at 13 locations. This

includes commissioning of the Navi Mumbai hospital in Q3FY17. 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 FY17-19E to

| 4602 crore as the company keeps on investing in new assets.

Pharmacy business EBITDA continues to improve

The pharmacy business (40% of consolidated revenues) has grown at

~30% 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 3.6%. We expect the

pharmacy business to grow at 13% CAGR in FY17-19E to | 3673 crore on

the back of higher sales from existing stores. The company added 230

stores in FY17 taking total stores to 2556.

New hospitals to hold key for improvement in margins and return ratios

Q4 margins were impacted by certain one-offs on account of

demonetisation, VIP admission and regulation on stent pricing besides

expenses at Navi Mumbai hospital, which was recently commissioned.

The new hospitals and AHLL contribute 14% of total revenues but are

fetching EBITDA loss. However, some of the newly commissioned

hospitals have achieved the BE level fairly ahead of our expectations. This

is likely to improve overall healthcare margins. We expect benefit of

operating leverage to surpass asset addition, going ahead, which can

eventually improve margins and RoCE. 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

~15%. We continue to value the stock on SOTP basis by valuing the

healthcare business (existing hospital) at 16x FY19E EV/EBITDA,

healthcare business (new hospital) at 1.0x FY19E EV/sales and pharmacy

business at 1.5x FY19E EV/sales. We have ascribed a target of | 1400.

Rating matrix

Rating : Buy

Target : | 1400

Target Period : 12-15 months

Potential Upside : 16%

What’s Changed?

Target Changed from | 1440 to | 1400

EPS FY18E Changed from | 20.5 to | 16.6

EPS FY19E Changed from | 26.9 to | 33.3

Rating Unchanged

Standalone Quarterly Performance

Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%)

Revenue 1,661.6 1,447.9 14.8 1,680.6 -1.1

EBITDA 170.1 182.2 -6.6 194.1 -12.4

EBITDA (%) 10.2 12.6 -235 bps 11.5 -131 bps

Adj. Net Profit 48.2 81.3 -40.8 72.8 -33.9

Key Financials

(| Crore) FY16 FY17E FY18E FY19E

Revenues 6214.7 7254.9 8235.2 9378.2

EBITDA 687.8 728.6 778.7 1064.0

Adjusted PAT 178.2 178.6 230.9 463.6

Adj. EPS (|) 13.2 12.8 16.6 33.3

Valuation summary

FY16 FY17E FY18E FY19E

PE (x) 86.7 94.3 72.9 36.3

EV to EBITDA (x) 27.7 26.4 24.5 17.4

Target EV/EBITDA (x) 28.2 26.6 24.9 18.2

Price to book (x) 4.9 4.6 4.3 3.9

RoNW (%) 5.3 4.9 6.0 10.9

RoCE (%) 6.6 6.0 6.7 10.8

Stock data

Particular

Market Capitalisation

Debt (FY16)

Cash (FY16)

EV

52 week H/L (|) 1443/1111

Equity capital

Face value | 5

| 69.6 crore

Amount

| 16834 crore

| 19369 crore

| 3152 crore

| 618 crore

Price performance (%)

1M 3M 6M 1Y

Apollo Hospitals -1.8 -7.0 1.3 -11.5

Fortis Healthcare -11.4 1.2 10.0 20.7

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

Harshal Mehta

[email protected]

Apollo Hospitals (APOHOS) | 1210


Variance analysis

Q4FY17 Q4FY17E Q4FY16 Q3FY17 YoY (%) QoQ (%) Comments

Revenue 1,661.6 1,671.7 1,447.9 1,680.6 14.8 -1.1 Growth mainly driven by 22% growth in the pharmacy segment and 10%

growth in the healthcare segment

Raw Material Expenses 866.4 884.5 730.4 889.2 18.6 -2.6

Employee Expenses 248.3 245.8 223.0 247.1 11.3 0.5

Marketing Expenses 0.0 61.0 0.0 0.0 0.0 0.0

Other expenditure 376.9 260.1 312.3 350.2 20.7 7.6

EBITDA 170.1 220.3 182.2 194.1 -6.6 -12.4

EBITDA (%) 10.2 13.2 12.6 11.5 -235 bps -131 bps YoY margins impacted due to one-offs – 1) ~| 10 crore towards VIP

admission and demonetisation 2) ~| 22 crore of startup cost at Navi

Mumbai hospital and 3) | 15-20 crore of impact due to government

regulation on stent pricing. Miss vis-à-vis I-direct estimates mainly due to

higher-than-expected one-offs impact

Interest 57.8 51.3 43.8 51.3 31.9 12.6 Increase in interest cost mainly due to new hospital capex

Depreciation 62.8 61.8 48.5 61.8 29.4 1.7 Higher depreciation due to new hospital capex

Other Income 9.1 5.0 9.5 3.1 -3.7 196.4

PBT before EO & Forex 58.6 112.2 99.3 84.1 -41.0 -30.3

EO 0.0 0.0 0.0 0.0 0.0 0.0

PBT after Exceptional Items 58.6 112.2 99.3 84.1 -41.0 -30.3

Tax 10.4 23.6 18.0 11.2 -41.9 -7.1

Tax rate (%) 21.0 21.0 18.1 13.4

Adj. Net Profit 48.2 88.6 81.3 72.8 -40.8 -33.9 YoY decline and miss- vis-à-vis I-direct estimates due to lower operational

performance, higher interest cost and depreciation

EPS (|) 3.5 6.4 5.8 5.2 -40.8 -33.9

Key Metrics

Healthcare Services 918.4 913.3 838.7 891.9 9.5 3.0 VIP admission, demonetisation and government regulation on stent pricing

impacted Q4FY17 sales. YoY growth was mainly driven by 74% YoY

growth in new hospitals to | 203 crore

Pharmacy 743.3 758.7 609.2 788.8 22.0 -5.8 Growth was driven by 50 stores (net) addition

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change

Revenue 8,129.5 8,235.2 1.3 9,133.0 9,378.2 2.7

EBITDA 900.1 778.7 -13.5 1,152.9 1,064.0 -7.7

EBITDA Margin (%) 11.1 9.5 -162 bps 12.6 11.3 -128 bps Reduced due to 1) changes in sync with Ind AS and 2) adverse product mix

PAT 284.5 230.9 -18.8 374.5 463.6 23.8

EPS (|) 20.5 16.6 -18.8 26.9 33.3 23.8 Changed mainly in sync with EBITDA and increase in financial expenses

FY18E FY19E


Assumptions

(% Growth) FY16 FY17E FY18E FY19E FY18E FY19E

Healthcare Services 3,085.8 3,567.7 4,044.0 4,602.1 4,038.2 4,595.5

Pharmacy 2,323.7 2,874.6 3,268.7 3,673.7 3,268.7 3,673.7

Current Earlier



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 70 hospitals with a total bed capacity of 10084 beds. Of

these 70 hospitals, 43 are owned by the company (including JVs,

subsidiaries and associates) while seven are managed by the company

with 1234 beds while 11 are day care/short surgical stay centres with 229

beds and nine cradles with 259 beds.

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, Nashik, 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 Ltd (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 2556 stores. In FY15, the company acquired Hyderabad-based


Hetero Med Solutions Ltd (HMSL). HMSL has ~320 stores across

Telangana, Andhra Pradesh and Tamil Nadu.

Overall, we expect revenues to grow at 14% CAGR in FY16-19E to | 9378

crore.

Exhibit 1: Revenues to grow at CAGR of 14% in FY17-19E

3147.5

3768.7

4384.2

5178.5

6214.7

7254.9

8235.2

9378.2

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

(|

crore)

Revenues


The healthcare services segment (57% of consolidated revenues) has

grown at a CAGR of 14.3% in FY12-17 on account of incremental hospital

addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid

expansion and maturity of older hospitals has kept the overall growth

tempo of ~14% per annum. In the past three years the company has

added 2,400 beds, of which 1,500 are operational at 13 locations. This

includes commissioning of Navi Mumbai hospital in Q3FY17. 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 | 4602 crore as

the company keeps on investing in new assets.

Exhibit 2: Healthcare services to grow at CAGR of 14% in FY17-19E

1940.2

2216.7

2497.1

2820.7

3085.8

3567.7

4044.0

4602.1

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000


(|

crore)

Healthcare Services


The pharmacy business (40% of consolidated revenues) has grown at

30% 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 13%

CAGR in FY17-19E to | 3674 crore on the back of higher sales from

20.2% CAGR

13.7% CAGR

14.3% CAGR

13.6% CAGR


existing stores. The company added 230 stores in FY17 taking total stores

to 2556. In the last five years, we have seen a strong improvement in

revenues per store from | 63 lakh in FY12 to | 1.1 crore in FY17. 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 13% in FY17-19E

860.6

1101.7

1364.8

1772.6

2323.7

2874.6

3268.7

3673.7

0

500

1000

1500

2000

2500

3000

3500

4000


(|

crore)

Pharmacy


Exhibit 4: EBITDA to grow at CAGR of 21% in FY17-19E

608.2

672.4

734.7687.8

728.6778.7

1064.0

16.115.3

14.2

11.1

10.09.5

11.3

0

200

400

600

800

1000

1200

FY13 FY14 FY15 FY16 FY17E FY18E FY19E

(|

crore)

0

4

8

12

16

20

(%

)

EBITDA EBITDA Margins (%)


Exhibit 5: Net profit to grow at CAGR of 61% in FY17-19E

275.5

316.8

339.9

194.1178.6

230.9

463.6

7.3 7.2

6.6

3.1

2.5

2.8

4.9

0

50

100

150

200

250

300

350

400

450

500


(|

crore)

0

4

8(%

)

Net Profit Net Profit Margins (%)


30.4% CAGR

13.0% CAGR


Exhibit 6: Trends in return ratios

9.9

6.6

10.8

11.811.3

6.0

6.7

9.9 10.6

10.4

5.3 4.9

6.0

10.9

0

2

4

6

8

10

12

14


(%

)RoCE (%) RoNW (%)


Exhibit 7: Trends in standalone quarterly financials

(| crore) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%)

Total Operating Income 777.4 1053.7 1152.9 1182.5 1203.7 1305.7 1409.7 1380.5 1447.9 1465.4 1634.1 1680.6 1661.6 14.8 -1.1

Raw Material Expenses 399.7 553.2 608.8 632.1 629.9 670.1 729.9 737.7 730.4 758.9 846.1 889.2 866.4 18.6 -2.6

as % revenues 51.4 52.5 52.8 53.4 52.3 51.3 51.8 53.4 50.4 51.8 51.8 52.9 52.1

Gross Profit 377.7 500.5 544.1 550.5 573.8 635.6 679.9 642.8 717.4 706.6 788.1 791.4 795.3 10.9 0.5

GPM (%) 48.6 47.5 47.2 46.6 47.7 48.7 48.2 46.6 49.6 48.2 48.2 47.1 47.9

Employee Expenses 125.7 170.7 179.5 179.7 191.1 190.7 202.3 222.2 223.0 215.5 230.9 247.1 248.3 11.3 0.5

as % revenues 16.2 16.2 15.6 15.2 15.9 14.6 14.4 16.1 15.4 14.7 14.1 14.7 14.9

Other expenditure 14.0 173.5 192.0 196.1 208.1 267.3 281.4 238.1 312.3 304.2 335.2 350.2 376.9 20.7 7.6

as % revenues 1.8 16.5 16.7 16.6 17.3 20.5 20.0 17.2 21.6 20.8 20.5 20.8 22.7

Total expenditure 647.0 897.4 980.3 1007.8 1029.2 1128.1 1213.5 1197.9 1265.7 1278.6 1412.2 1486.5 1491.6 17.8 0.3

EBITDA 130.4 156.3 172.6 174.7 174.5 177.7 196.2 182.6 182.2 186.9 221.9 194.1 170.1 -6.6 -12.4

EBITDA Margins (%) 16.8 14.83 14.97 14.77 14.50 13.61 13.92 13.23 12.58 12.75 13.58 11.55 10.23 -235 bps -131 bps

Depreciation 25.1 39.9 38.9 38.6 40.6 48.7 49.5 50.1 48.5 55.7 60.3 61.8 62.8 29.4 1.7

Interest 13.7 18.9 20.1 21.7 22.6 26.9 30.9 32.0 43.8 44.4 46.9 51.3 57.8 31.9 12.6

Other Income 4.1 6.5 8.2 25.8 4.8 5.3 0.9 55.0 9.5 5.3 9.4 3.1 9.1 -3.7 196.4

PBT 95.7 103.9 121.8 140.2 116.1 107.4 116.8 155.4 99.3 92.1 124.2 84.1 58.6 -41.0 -30.3

Less: Exceptional Items 0.0 0.0 0.0 -15.2 0.5 0.0 0.0 -25.7 0.0 0.0 0.0 0.0 0.0

Total Tax 25.9 21.2 30.3 30.0 39.3 19.9 27.2 20.5 18.0 19.9 32.2 11.2 10.4 -41.9 -7.1

Tax rate (%) 27.1 20.4 24.9 21.4 33.8 18.5 23.3 13.2 18.1 21.6 25.9 13.4 17.8

Net Profit 69.7 82.7 91.5 95.0 77.3 87.5 89.6 109.2 81.3 72.2 92.0 72.8 48.2 -40.8 -33.9

Net Profit Margin (%) 9.0 7.9 7.9 8.0 6.4 6.7 6.4 7.9 5.6 4.9 5.6 4.3 2.9

EPS (Adjusted) 5.1 5.9 6.6 6.8 5.6 6.3 6.4 7.9 5.8 5.2 6.6 5.2 3.5


Exhibit 8: Standalone healthcare service performance

(| Crore) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%)

Sales 590.9 636.5 636.3 633.4 667.6 715.8 711.5 725.8 745.0 784.4 769.1 838.7 918.4 23.3 9.5

EBITDA NA NA NA 168.3 157.9 162.0 171.9 158.2 187.0 165.0 188.2 157.9 187.0 0.0 18.4

EBITDA Margins (%) NA NA NA 26.6 23.7 22.6 24.2 21.8 25.1 21.0 24.5 18.8 20.4


Exhibit 9: Standalone pharmacy performance

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%)

Sales (| crore) 304.2 338.6 357.1 364.9 386.2 437.17 471.2 478.0 520.1 583.1 611.5 788.84 743.31 42.9 -5.8

EBITDA (| crore) NA NA NA NA NA NA 22.9 24.4 18.6 21.9 34.8 35.7 33.6 80.9 -5.8

EBITDA Margins (%) NA NA NA NA NA NA 4.9 5.1 3.6 3.8 5.7 4.5 4.5

No of Stores 1632 1664 1717 1784 1822 2171 2217 2263 2326 2383 2430 2506 2546

Rev per store (| lakh) 18.6 20.4 20.8 20.5 21.2 20.1 21.3 21.1 22.4 24.5 25.2 31.5 29.2



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

New hospitals revenues grew 51.1% to | 586.3 crore in FY17.

New hospitals EBITDA (excluding Navi Mumbai loss) of | 25.6

crore in FY17 compared to EBITDA loss of | 1 crore in FY16

AHLL – Cradle & Clinics reported an EBITDA loss of | 106.9 crore

compared to loss of | 116.2 crore in FY16

Pharmacy margins were at 4.3% in FY17. Excluding Hetero

network of stores, EBITDA margins were at 4.5%

Pharmacy RoCE in FY17 was at 14.9% vs. 9.3% in FY16

Net addition of 230 pharmacy stores in FY17, pan-India network is

now at 2556 stores

Total 2,430 beds in 13 locations commissioned in the last 36

months – Vanagaram 260, Jayanagar 140, Trichy 200, Nashik 120,

Women and Child - OMR 60, Indore 120, Nellore 190, Perungudi

150, Women & Child - SMR 50, Vizag new 250, Malleswaram 190,

Assam 220, Navi Mumbai 480. The company plans to 200 beds in

South Chennai in FY19, 500 beds in Byculla Mumbai, in FY21-22

Cardiac cases contribute ~20% of hospital revenues, and that

equally split between walk-ins and third party payers. The

company expects regulation on stent pricing impact being spread

over the next three quarters

The company expects to improve pharmacy margins in FY18

Total spend on proton project in south Chennai was ~| 400 crore,

which includes proton equipment of | 300 crore. RoI of this

project is expected to be in the range of 16-18%

The management expects to reach EBITDA breakeven in Spectra

and Cradle by end of FY18

The company expects ~12% growth in hospital segment in FY18,

which includes ~7% growth in occupancy rate and 4-5% in

realisation

Government regulation on stent pricing impacted to the tune of

| 15-20 crore on EBITDA. The company expects half of this impact

in Q1FY18

Navi Mumbai Hospital- start-up cost is expected to be ~| 15 crore

in Q1FY18 and | 35-40 crore in FY18. The management expects to

reach break even by end of FY18. In Q4, the occupancy was 50,

which it expects to increase to 75 in Q1FY18 and ~150 over the

next four or five quarters. Total 90% of doctors are guaranteed

doctors


Valuation

Q4 margins were impacted by certain one-offs on account of

demonetisation, VIP admission and regulation on stent pricing besides

expenses at Navi Mumbai hospital, which was recently commissioned.

The new hospitals and AHLL contribute 14% of total revenues but are

fetching an EBITDA loss. However, some of the newly commissioned

hospitals have achieved the BE level fairly ahead of our expectations. This

is likely to improve overall healthcare margins. We expect the benefit of

operating leverage to surpass asset addition, going ahead, which can

eventually improve margins and RoCE. 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

~15%. We continue to value the stock on an SOTP basis by valuing the

healthcare business (existing hospital) at 16x FY19E EV/EBITDA,

healthcare business (new hospital) at 1.0x FY19E EV/sales and pharmacy

business at 1.5x FY19E EV/sales. We have ascribed a target of | 1400.

Exhibit 10: One year forward EV/EBITDA

0

3000

6000

9000

12000

15000

18000

21000

24000

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

(| c

rore)

EV 19.3x 18.5x 17.0x 14.7x 13.2x

[


Exhibit 11: Valuation

Particulers Valuation Matrix Multiple (x) Enterprise value (| cr)

Healthcare (Existing Hospitals) EV/EBITDA 16.0 13,760

Healthcare (New Hospitals) EV/Sales 1.0 1,467

Pharmacy EV/Sales 1.5 5,664

Others EV/Sales 1.0 397

Net Debt FY19E (| cr) 1,815.1

EV (| cr) 19,472

No of shares (cr) 13.9

Per Share Value (|) 1,400


Exhibit 12: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)

FY16 6215 20.0 13.2 -45.4 27.7 3.1 6.6 7.4

FY17E 7255 16.7 12.8 0.2 26.4 2.7 6.0 6.7

FY18E 8235 13.5 16.6 29.3 24.5 2.3 6.7 7.1

FY19E 9378 13.9 33.3 100.8 17.4 2.0 10.8 11.6



Recommendation history vs. Consensus

0

200

400

600

800

1,000

1,200

1,400

1,600

Apr-17Feb-17Dec-16Sep-16Jul-16Apr-16Feb-16Nov-15Sep-15Jul-15Apr-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Reuters, Company, ICICIdirect.com Research

Key events

Date Event

Sep-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-16 Commisions 480 bed super speciality tertiary care hospital in Navi Mumbai

Dec-16 International Finance Corporation invests | 450 crore in AHLL for global expansion


Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position Position Change

1 PCR Investments, Ltd. 31-Mar-17 19.6 27.2m 0.0m

2 OppenheimerFunds, Inc. 31-Mar-17 9.5 13.2m -1.1m

3 Integrated Mauritius Healthcare Holdings, Ltd. 31-Mar-17 4.8 6.7m -8.4m

4 Reddy (Prathap C) 31-Mar-17 3.9 5.4m 0.0m

5 Schroder Investment Management Ltd. (SIM) 31-Mar-17 3.6 5.0m 4.0m

6 Schroder Investment Management (Hong Kong) Ltd. 31-Jan-17 3.6 4.9m 0.0m

7 Reddy (Suneeta) 31-Mar-17 2.4 3.4m 0.0m

8 Reddy (Sangita) 31-Mar-17 1.7 2.4m 0.0m

9 MEAG Munich ERGO Kapitalanlagegesellschaft mbH 31-Mar-17 1.7 2.4m 0.0m

10 Khamineni (Shobana) 31-Mar-17 1.6 2.2m 0.0m

(in %) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

Promoter 34.4 34.4 34.4 34.4 34.4

Others 65.7 65.7 65.7 65.7 65.7

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value ($) Shares Investor name Value ($) Shares

Schroder Investment Management Ltd. (SIM) 71.7m 4.0m Integrated Mauritius Healthcare Holdings, Ltd. -151.6m -8.4m

Deutsche Asset Management Americas 31.0m 1.7m OppenheimerFunds, Inc. -20.2m -1.1m

Birla Sun Life Asset Management Company Ltd. 11.9m 0.7m Allianz Global Investors Asia Pacific Limited -9.4m -0.5m

AllianceBernstein L.P. 8.8m 0.5m Lyxor Asset Management -5.2m -0.3m

Mirae Asset Global Investments (India) Pvt. Ltd. 5.0m 0.3m Wellington Management Company, LLP -3.1m -0.2m

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY16 FY17E FY18E FY19E

Revenues 6,214.7 7,254.9 8,235.2 9,378.2

Growth (%) 20.0 16.7 13.5 13.9

Raw Material Expenses 3,054.7 3,595.4 4,179.0 4,759.1

Employee Expenses 1,023.6 1,196.5 1,235.3 1,406.7

Other expenditure 1,448.6 1,734.4 2,042.2 2,148.4

Total Operating Expenditure 5,526.9 6,526.3 7,456.5 8,314.3

EBITDA 687.8 728.6 778.7 1,064.0

Growth (%) -6.4 5.9 6.9 36.6

Depreciation 263.8 314.0 335.5 348.9

Interest 180.0 257.4 209.0 168.2

Other Income 22.5 22.5 21.9 24.9

PBT 266.4 179.7 256.1 571.8

Total Tax 96.9 91.0 53.8 120.1

MI & Profit from Associates 8.7 89.8 28.6 11.9

Adjusted PAT 178.2 178.6 230.9 463.6

Growth (%) -45.4 0.2 29.3 100.8

EPS (Adjusted) 13.2 12.8 16.6 33.3


Cash flow statement | Crore


Profit/(Loss) after taxation 275.9 178.6 230.9 463.6

Add: Depreciation & Amortization 253.3 314.0 335.5 348.9

Working Capital Changes -231.7 255.9 -34.8 -116.6

CF from operating activities 297.5 748.5 531.6 696.0

Change in Capex -830.6 -891.6 -400.0 -250.0

(Inc)/dec in Investments 117.1 -165.9 0.0 0.0

Others 29.5 24.6 112.8 126.0

CF from investing activities -684.0 -1,033.0 -287.2 -124.0

Issue of Equity 20.6 0.0 0.0 0.0

Inc/(dec) in loan funds 582.0 465.5 -592.4 -500.0

Dividend paid & dividend tax -161.6 -32.1 -32.3 -64.8

Others -168.5 71.2 0.0 0.0

CF from financing activities 272.5 504.6 -624.7 -564.8

Net Cash flow -114.0 220.2 -380.4 7.2

Opening Cash 385.9 397.6 617.8 237.4

Closing Cash 271.9 617.8 237.4 244.6

Free Cash Flow -533.1 -143.1 131.6 446.0


Balance sheet | Crore


Equity Capital 69.6 69.6 69.6 69.6

Reserve and Surplus 3,384.1 3,601.8 3,800.4 4,199.3

Total Shareholders funds 3,453.7 3,671.3 3,870.0 4,268.8

Total Debt 2,686.7 3,152.2 2,559.8 2,059.8

Deferred Tax Liability 497.7 226.9 237.6 261.6

Minority Interest 130.3 216.4 216.4 216.4

Long term provisions 3.2 5.4 7.4 9.4

Other Non Current Liabilities 1.3 31.2 31.2 31.2

Total Liabilities 6,772.9 7,303.4 6,922.4 6,847.2

Gross Block - Fixed Assets 4,707.5 5,842.3 6,242.3 6,492.3

Accumulated Depreciation 1,263.2 1,566.6 1,891.3 2,229.5

Net Block 3,444.3 4,275.8 4,351.0 4,262.8

Capital WIP 595.6 346.7 346.7 346.7

Net Intangible assets 168.3 148.6 137.9 127.1

Goodwill on Consolidation 212.0 226.7 226.7 226.7

Total Fixed Assets 4,420.2 4,997.8 5,062.3 4,963.4

Investments 269.7 435.7 435.7 435.7

Inventory 443.3 466.9 530.0 603.5

Debtors 702.0 748.2 849.3 967.2

Loans & Advances, & other CA 456.4 645.6 332.1 283.1

Cash 397.6 617.8 237.4 244.6

Total Current Assets 2,188.4 2,165.0 1,899.8 2,118.4

Creditors 503.7 500.5 568.1 646.9

Provisions & Other CL 393.0 410.6 426.2 438.8

Total Current Liabilities 914.3 926.6 1,006.9 1,101.8

Net Current Assets 1,274.1 1,238.4 892.9 1,016.6

Long term loans & advances 795.3 631.5 531.5 431.5

Deferred Tax Assets 13.4 0.0 0.0 0.0

Application of Funds 6,772.8 7,303.4 6,922.3 6,847.2


Key ratios


Per share data (|)

Adjusted EPS 13.2 12.8 16.6 33.3

BV per share 248.2 263.9 278.2 306.8

Dividend per share 7.2 2.3 2.3 4.7

Cash Per Share 28.6 44.4 17.1 17.6

Operating Ratios (%)

Gross Profit Margins 50.8 50.4 49.3 49.3

EBITDA margins 11.1 10.0 9.5 11.3

Net Profit margins 3.0 2.5 2.8 4.9

Inventory days 26.0 23.5 23.5 23.5

Debtor days 41.2 37.6 37.6 37.6

Creditor days 29.6 25.2 25.2 25.2

Asset Turnover 0.9 1.0 1.2 1.4

EBITDA Conversion Rate 43.3 102.7 68.3 65.4

Return Ratios (%)

RoE 5.3 4.9 6.0 10.9

RoCE 6.6 6.0 6.7 10.8

RoIC 7.4 6.7 7.1 11.6

Valuation Ratios (x)

P/E 86.7 94.3 72.9 36.3

EV / EBITDA 27.7 26.4 24.5 17.4

EV / Net Sales 3.1 2.7 2.3 2.0

Market Cap / Sales 2.7 2.3 2.0 1.8

Price to Book Value 4.9 4.6 4.3 3.9

Solvency Ratios

Debt / EBITDA 3.9 4.3 3.3 1.9

Debt / Equity 0.8 0.9 0.7 0.5

Net Debt / Equity 0.8 0.8 0.6 0.5

Current Ratio 2.0 1.7 1.7 1.7



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 1536 1,880 Buy 13520.2 45.4 58.5 61.7 72.4 33.8 26.3 24.9 21.2 42.9 40.6 33.8 31.7 34.2 32.6 27.0 25.2

Alembic Pharma ALEMPHA 535 615 Hold 10083.7 38.2 21.4 23.4 30.2 14.0 25.0 22.9 17.7 51.5 26.1 22.3 24.7 44.9 21.4 20.0 21.8

Apollo Hospitals APOHOS 1213 1,400 Buy 16876.6 13.2 12.8 16.6 33.3 91.9 94.5 73.1 36.4 6.6 6.0 6.7 10.8 5.3 4.9 6.0 10.9

Aurobindo Pharma AURPHA 560 753 Buy 30020.6 33.9 38.3 37.0 41.8 16.5 14.6 15.1 13.4 23.3 24.8 19.6 20.0 28.1 23.9 19.0 17.9

Biocon BIOCON 946 1,020 Hold 18919.0 23.1 31.0 25.5 40.8 40.9 30.5 37.0 23.2 9.1 11.4 10.4 15.3 11.4 13.5 10.2 14.5

Cadila Healthcare CADHEA 456 420 Hold 46667.3 15.0 13.7 16.8 20.9 30.5 33.2 27.2 21.8 26.7 13.4 16.7 19.0 28.6 20.2 20.8 21.7

Cipla CIPLA 505 470 Hold 40657.9 18.5 12.9 19.3 26.1 27.3 39.3 26.2 19.3 12.0 8.0 11.7 14.9 12.5 8.1 11.1 13.4

Divi's Lab DIVLAB 570 625 Hold 15118.4 41.5 39.7 41.8 44.8 13.7 14.4 13.6 12.7 30.5 25.1 23.1 21.7 25.7 19.7 18.0 16.9

Dr Reddy's Labs DRREDD 2426 2,610 Hold 40190.4 141.4 68.6 106.1 137.3 17.2 35.3 22.9 17.7 17.3 6.3 10.8 13.7 20.6 9.4 13.0 14.7

Glenmark Pharma GLEPHA 611 910 Buy 17251.8 32.2 46.9 47.2 50.5 19.0 13.0 13.0 12.1 16.2 19.2 18.6 18.0 21.2 25.9 20.9 18.4

Indoco Remedies INDREM 190 180 Hold 1750.9 9.4 8.4 8.3 12.0 20.2 22.7 22.8 15.8 12.9 8.4 9.4 12.6 14.8 12.0 10.9 14.0

Ipca Laboratories IPCLAB 490 525 Hold 6186.2 7.4 15.4 18.8 29.2 66.4 31.8 26.1 16.8 4.5 8.7 9.8 13.7 4.1 7.9 9.0 12.5

Jubilant Life JUBLIF 686 810 Buy 10931.5 26.0 36.1 48.8 66.0 26.4 19.0 14.1 10.4 12.0 13.3 15.1 18.4 14.2 16.8 18.7 20.4

Lupin LUPIN 1110 1,335 Buy 50144.5 50.4 56.6 56.2 66.8 22.0 19.6 19.8 16.6 18.6 17.2 16.7 19.0 20.7 19.1 16.4 16.8

Natco Pharma NATPHA 942 1,055 Buy 15492.5 9.0 27.8 22.9 21.2 104.2 33.8 41.1 44.4 16.0 33.6 25.1 20.8 12.2 29.5 20.5 16.6

Sun Pharma SUNPHA 503 550 Buy 120645.4 23.4 29.0 20.9 25.7 21.4 17.3 24.1 19.6 18.6 19.8 14.0 15.2 18.0 19.0 12.3 13.4

Syngene Int. SYNINT 457 515 Hold 9131.0 11.1 14.3 14.4 18.4 40.5 31.2 31.0 24.3 13.2 16.8 16.0 18.1 21.0 21.9 18.4 19.1

Torrent Pharma TORPHA 1220 1,200 Hold 20641.9 107.9 57.4 49.2 63.1 11.3 21.2 24.8 19.3 46.8 20.3 17.7 20.5 53.9 22.5 16.8 18.6

Unichem Lab UNILAB 248 235 Hold 2198.9 12.3 12.0 14.3 19.5 20.1 20.7 17.4 12.7 13.8 12.0 13.1 15.8 11.7 10.5 11.3 13.6

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



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