PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

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1 BUY CMP Target Price APOLLO HOSPITALS ENTERPRISE LTD Result Update: Q2 FY14 NOVEMBER 25 th 2013 ISIN: INE437A01024 Index Details Stock Data Sector Healthcare BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg.) Market Cap (Rs. in mn.) Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph APOLLO HOSPITALS ENTERPRISE LTD S&P BSE SENSEX SYNOPSIS Apollo Hospitals Enterprise Ltd (AHEL) provides healthcare services primarily in India, Mauritius, and Bangladesh. The company s net profit jumps to Rs million against Rs million in Q2 FY13, an increase of 4.52%. Revenue for the quarter rose by 16.59% to Rs million from Rs million, when compared with the prior year period. EBITDA (excluding other income) was higher by 11% from Rs million in Q2 FY13 to Rs million in Q2 FY14. Revenues of the hospital division increased by 14% to Rs. 6,365 million in Q2 FY14 compared to Rs. 5,589 million in Q2 FY13. Apollo Pharmacies revenues expanded by 22% from Rs. 2,776.3 million in Q2 FY13 to Rs. 3,386.4 million in Q2 FY14. During the quarter, Apollo Pharmacies added 51 stores and closed 17 stores for a net addition of 34 stores. Apollo Hospitals has entered collaboration with Medtronic, Inc. to bring to market an innovative, affordable and portable hemodialysis system in India. AHEL plans to increase the pace of expansion of the pharmacy network to between 200 and 250 stores a year and plans to add 13 new hospitals in India. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 17% over 2012 to 2015E 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 Fortis Healthcare Ltd Indraprastha Medical Corporation Ltd Opto Circuits India Ltd

2 Recommendation & Analysis - BUY Apollo Hospitals Enterprise Ltd (AHEL), the Healthcare Pioneer and leading provider of quality clinical care has reported its revenue for the quarter grew by 17% at Rs million in Q2 FY14 compared to Rs million in Q2 FY13. EBITDA (excluding other income) was higher by 11% from Rs million in Q2 FY13 to Rs million in Q2 FY14. Profit after Tax increased from Rs million in Q2 FY13 to Rs. 870 million in Q2 FY14, growing by 5%. AHEL launched two new hospitals in the fourth quarter of fiscal 2013 a 200 bed Multi specialty hospital at Vanagaram Ayanambakkam, Chennai and a 140 bed Ortho and Spine Specialty Hospital at Jayanagar, Bangalore. Excluding the impact of the initial operating losses of these new facilities, AHEL reported a 15% (y on y) rise in EBITDA to Rs million in Q2 FY14 with an improvement in EBITDA margins in both healthcare services and standalone pharmacy businesses. Healthcare services (existing hospitals) reported an EBITDA of 24.6% in Q2 FY14 from 24.3% in Q2 FY13 and Standalone pharmacies 3.3% from 2.9% in Q2 FY13. Revenues of the hospital division of AHEL (Standalone) increased by 14% to Rs. 6,365.2 million in Q2 FY14 compared to Rs. 5,588.6 million in Q2 FY13. During the quarter, Apollo Pharmacies added 51 stores and closed 17 stores for a net addition of 34 stores total store network as of September 30 stands at 1,560 operational stores. Revenues expanded by 22% from Rs. 2,776.3 million in Q2 FY13 to Rs. 3,386.4 million in Q2 FY14. The company is readying itself to launch the next version of its telemedicine platform which will enable users to consult with the hospital's panel of doctors anytime and anywhere in the world over video conferencing. AHEL is focusing on enriching the case mix within the network and leveraging cutting edge technology such as Robotics, Proton Therapy & Cyber Knife has helped to enhance the depth of its offerings. Apollo Hospitals plans to add 13 new hospitals in India. In addition to an enhanced focus on Retail Healthcare Centres, AHEL plans to increase the pace of expansion of the pharmacy network to between 200 and 250 stores a year to drive the next stage of growth for this segment. Over FY E, we expect the company to post a CAGR of 14% and 17% in its topline and bottom line respectively. Hence, we recommend BUY for Apollo Hospitals Enterprise Ltd with a target price of Rs on the stock.

3 QUARTERLY HIGHLIGHTS (STANDALONE) Results updates- Q2 FY14, 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 30 th Sep, Months Sep-13 Sep-12 % Change Net Sales PAT EPS PBIDT The company s net profit jumps to Rs million against Rs million in the corresponding quarter ending of previous year, an increase of 4.52%. Revenue for the quarter rose by 16.59% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs a share during the quarter, registering 4.52% increase over previous year period. Profit before interest, depreciation and tax is Rs millions as against Rs millions in the corresponding period of the previous year. Break up of Expenditure Break up of Expenditure Value in Rs. Million Q2 FY14 Q2 FY13 Cost of Material Consumed Purchase of Stock in Trade Employee Benefit Expenses Depreciation & Amortization Expenses Other Expenditure Selling & Distribution Expenses

4 Segment wise Performance Hospitals Revenues of the hospital division of Apollo Hospitals Enterprise Limited (consisting of hospital services, hospital based pharmacies and consulting) increased by 14% to Rs. 6,365.2 million in Q2 FY14 compared to Rs. 5,588.6 million in Q2 FY13. AHEL has witnessed good QoQ traction in most of their large hospitals like Ahmedabad, Hyderabad, Bangalore and Kolkatta. Existing hospitals have demonstrated sustained improvements in operational performance through strategies to enrich the case mix at major clusters in Chennai & Hyderabad. This has been supported by robust volume growth at hospitals in Bangalore, Bhubaneswar and Mysore. Newer hospitals continued to display steady progress and improvement in operating parameters: Bhubaneswar occupancy at 213 beds (85% utilization on an increased capacity of 250 beds) as compared to 189 beds in Q2 FY13. Hospitals in tier II cities in Mysore and Madurai demonstrated improvements in EBITDA margins. Hospitals at Karur and Karaikudi have reported positive EBITDA in H1 FY14 compared with a negative EBITDA in the same period last year. Pharmacies During the quarter, Apollo Pharmacies added 51 stores and closed 17 stores for a net addition of 34 stores total store network as of September 30 stands at 1,560 operational stores. Revenues expanded by 22% from Rs. 2,776.3 million in Q2 FY13 to Rs. 3,386.4 million in Q2 FY14. Operational progress remained healthy with EBITDA expanding by 36% from Rs. 81 million in Q2 FY13 to Rs. 111 million in Q2 FY14. Same store sales were healthy with like for like growth in revenue per store for the batch of stores opened prior to March 2008 at 11% for Q2 FY14. The EBITDA margin for mature stores (pre March 2008) expanded 13 basis points from 5.3% in Q2 FY13 to 5.4% in Q2 FY14. Apollo Munich Health Insurance Company Limited Total Income increased by 27% from Rs. 2,251 million in H1 FY13 to Rs. 2,864 million in H1 FY14. The Company disbursed Rs. 1,927 million towards claims & commissions during H1 FY14 compared to Rs. 1,387 million during H1 FY13.

5 Segment Revenue Latest Updates Apollo Hospitals has entered collaboration with Medtronic, Inc. to bring to market an innovative, affordable and portable hemodialysis system in India to help improve access to care for patients suffering from End Stage Renal Disease. During the quarter, Apollo Pharmacies added 51 stores and closed 17 stores for a net addition of 34 stores total store network as of September 30 stands at 1,560 operational stores. Apollo Hospitals & Saarum Innovations launch Sapien Biosciences, as a joint venture to create a world class human bio bank and personalized Medicine Company, which is first of its kind in India and will enable innovative research & clinical applications. HIMSS Analytics Asia Pacific has recognized three hospitals within Apollo Group for achieving Stage 6 on the Electronic Medical Record Adoption Model (EMRAM) SM. Apollo Hospitals in collaboration with HealthHiway, a cloud based Health Information Network launched its highly secure, web based Personal Health Record (PHR) Apollo Prism. Apollo Hospitals, Bilaspur received NABH accreditation on July 31, The Apollo Hospitals Network now includes 12 NABH Accredited facilities in addition to 8 JCI Accredited Hospitals.

6 COMPANY PROFILE Apollo Hospitals Enterprise Limited (AHEL) was incorporated as a Public Limited Company in the year 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 8438 beds across 51 hospitals in India and overseas, 92 primary care and diagnostic Clinics, 100 Telemedicine units across 10 countries, an extensive chain of 1560 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. 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. Robotic surgery

7 FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31st, E AHEL. FY12A FY13A FY14E FY15E SOURCES OF FUNDS (Rs.in.mn) Shareholder's Funds Share Capital Reserves and Surplus Money received against share warrants Sub Total - Net worth Non Current Liabilities Long term borrowings Deferred Tax Liabilities Other Long Term Liabilities Sub Total - Non Current Liabilities Current Liabilities Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions Sub Total - Current Liabilities Total Liabilities (1+2+3) APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets Intangible assets Capital Work in Progress Intangible Assets under Development a) Sub Total - Fixed Assets b) Non-Current Investment c) Long Term loans and advances Sub Total - Non Current Assets Current Assets Current Investment Inventories Trade receivables Cash and Bank Balances Short-terms loans & advances Other current assets Sub Total - Current Assets Total Assets (1+2)

8 Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Extraordinary Items Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 st Mar, 2013 to 31 st Dec, 2013E Value(Rs.in.mn) 31-Mar Jun Sep Dec-13E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Extraordinary Items Net Profit Equity capital Face value EPS

9 Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) EBITDA Margin (%) 17.58% 17.62% 17.10% 17.12% PBT Margin (%) 12.05% 12.16% 11.52% 11.32% PAT Margin (%) 8.25% 9.18% 9.01% 8.89% P/E Ratio (x) ROE (%) 9.98% 11.17% 11.10% 10.78% ROCE (%) 20.30% 19.12% 18.71% 18.62% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

10 OUTLOOK AND CONCLUSION At the current market price of Rs , the stock P/E ratio is at x FY14E and x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 17% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at x for x respectively for FY14E and FY15E. Price to Book Value of the stock is expected to be at 3.87 x and 3.47 x respectively for FY14E and FY15E. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. INDUSTRY OVERVIEW The Indian healthcare industry, which comprises hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, health insurance and medical equipment, is expected to reach US$ 160 billion by On the back of continuously rising demand, the hospital services industry is expected to be worth US$ 81.2 billion by The Indian hospital services sector generated revenue of over US$ 45 billion in This revenue is expected to increase at a compound annual growth rate (CAGR) of 20 per cent during , according to a RNCOS report titled, Indian Medical Device Market Outlook to 2017.

11 Market Size The healthcare industry in India is experiencing gradual transition from paper files to electronic mediums. The Indian healthcare assisted by IT market has been growing tremendously over the past few years. It is expected to grow at a CAGR of around 22.7 per cent during the period The hospital and diagnostics centre in India received foreign direct investment (FDI) worth US$ 1, million, while drugs & pharmaceutical and medical & surgical appliances industry registered FDI worth US$ 11, million and US$ million, respectively during April 2000 to June 2013, according to Department of Industrial Policy and Promotion (DIPP). Moreso, the other related segments like genetic testing market is expected to grow at a CAGR of around 9 per cent during and that of the diagnostic services market in India at a CAGR of around 26 per cent during All the growth is based on the foundation on huge investments, fast expansion into tier II & III cities, and strong government support to strengthen the healthcare infrastructure in the country. Trends and Investments The Indian healthcare providers plan to spend Rs 5,700 crore (US$ million) on IT products and services in 2013, a seven per cent rise over 2012 revenues of Rs 5,300 crore (US$ million), as per a report by Gartner. The Indian American doctors community plans to organise the "Global Healthcare Summit" in Ahmedabad, Gujarat, from January 3 5, 2014, to bring affordable world class healthcare for Indians. Global Healthcare Summit 2014 aims at advancing the accessibility, affordability and quality of world class healthcare to the Indian people. The Summit will also focus on prevention, diagnosis, treatment options and share ways to truly improve healthcare transcending global boundaries, as per Dr Jayesh Shah, President, Association of American Physicians of Indian Origin (AAPI). Some of the major investments in the sector include: VLCC has bought controlling stake in Singapore based Global Vantage Innovative Group (GVig)."We have acquired 80 per cent stake in GVig. The acquisition will give us a foothold in dermatological solutions," said Mr Mukesh Luthra, Chairman, VLCC Group Apollo Hospitals has 1,500 bed capacity in the East and North East region and plans to add another 1,500 beds. The firm plans to open four new hospitals one each in Kolkata, Patna, Raipur and Guwahati. The hospital also achieved a milestone by implanting 700 cochlear devices. A cochlear implant is a small,

12 complex electronic device that can help to give a sense of sound to a person who is severely hard ofhearing Piramal s healthcare vertical plans to invest US$ 2.5 million at its FDA approved Grangemouth (UK) site to upgrade their antibody drug conjugate (ADC) manufacturing suites Corona Remedies Pvt Ltd has announced a tie up with Spain's Medical Diagnostics Aragon (MDA) for the pan India launch of 'Rehidrata T,' an oral rehydration salt (ORS) formulation in form of a gel. The ORS market size in India is about Rs 2,000 crore (US$ million) per annum with a CAGR of 10 per cent ASK Pravi, a joint venture (JV) between ASK Group and Pravi Capital, has acquired a minority stake in Hyderabad based OMNI Hospitals for Rs 60 crore (US$ 9.45 million) Zydus Cadila plans to set up an injectible facility at Vadodara, Gujarat, at an investment of Rs 100 crore (US$ million) by The company also plans to expand its hospital business across Gujarat in the next three years Dr Devi Shetty and Rudrabhishek Infrastructure Trust have entered into a JV to set up a 300 bed multi speciality hospital worth Rs 100 crore (US$ million) in Lucknow, Uttar Pradesh (UP) CDC Group and Abraaj Group have jointly invested Rs crore (US$ million) in Hyderabadbased Rainbow Hospitals Medical Tourism Several key trends are giving impetus to the growth of India s healthcare sector. Of these, medical city is relatively a new concept that offers immense growth opportunities, in addition to the medical tourism. India is also regarded as the most competitive destination with advantages of lower cost and sophisticated treatments. Due to such promising factors, the medical tourism has great potential in the country. The industry in India is pegged at US$ 1 billion per annum, growing at around 18 per cent and is expected to touch US$ 2 billion by India has witnessed an influx of patients from Africa, CIS countries, Gulf and SAARC nations, Pakistan, Bangladesh and Myanmar, who mainly come for organ transplant, orthopedic, cardiac and oncology problems. Apollo Hospitals has six tele medicine (through video conferencing system) centres in the East and North East India. Plans are afoot to add another 24 over the next couple of years. Government Initiatives The Government of India has decided to increase health expenditure to 2.5 per cent of gross domestic product (GDP) by the end of the Twelfth Five Year Plan ( ). Dr Manmohan Singh, the Prime Minister of India, also emphasised the need for increased outlay to health sector during the Twelfth Five Year Plan. Moreover, 100 per cent FDI is permitted for health and medical services under the automatic route.

13 In a recent initiative, 348 essential medicines will now come under price control in India. These currently contribute Rs 13,033 crore (US$ 2.05 billion) to the total annual sales of Rs 72,762 crore (US$ billion), according to market research firm IMS Health s analysis. Some highlights of the Union Budget presented by Mr P Chidambaram, Minister of Finance, Government of India, for the healthcare are as follows: Health for all remains one of the priority sectors for the Government The Ministry of Health & Family Welfare has been allocated Rs 37,330 crore (US$ 5.87 billion). Of this, the new National Health Mission that combines the rural mission and the proposed urban mission will get Rs 21,239 crore (US$ 3.35 billion), an increase of 24.3 per cent over the Revised Estimates (RE) Rs 4,727 crore (US$ million) for medical education, training and research In addition, contributions made to schemes of Central and State Governments similar to Central Government Health Scheme, eligible for section 80D of the Income Tax Act. Road Ahead The country's healthcare system is developing rapidly and it continues to expand its coverage, services and spending in both the public as well as private sectors. This is creating a large market for hospital information systems and other healthcare related IT solutions. The favourable demographic virtues offer an attractive market for healthcare providers and investors in India. An increase in foreign investment inflows and private equity (PE) deals in the industry s various segments have also been noted, in addition to the increased focus received from the Government. 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.

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