BUY CMP 1342.40 Target Price 1470.00 APOLLO HOSPITALS ENTERPRISE LTD Result Update (PARENT BASIS): Q3 FY15 MARCH 30 th 2015 ISIN: INE437A01024 Index Details Stock Data Sector Healthcare Facilities BSE Code 508869 Face Value 5.00 52wk. High / Low (Rs.) 1479.80/875.00 Volume (2wk. Avg.) 13000 Market Cap (Rs. in mn.) 186762.74 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 38616.30 45834.55 51793.04 EBITDA 6363.20 7317.02 8123.32 Net Profit 3307.20 3658.96 4141.61 EPS 23.77 26.30 29.77 P/E 56.47 51.04 45.09 Shareholding Pattern (%) 1 Year Comparative Graph APOLLO HOSPITALS ENTERPRISE LTD S&P BSE SENSEX SYNOPSIS During Q3 FY15, Apollo Hospitals Enterprise Ltd Standalone revenue were higher by 19% to Rs. 11,825.3 mn compared to Rs. 9,933.4 mn in Q3 FY14. During Q3 FY15, EBITDA was Rs. 1,746.9 mn as against Rs. 1,578 mn in Q3 FY14, growth of 11%. During the quarter, PAT grew by 14% to Rs. 950.1 mn compared to Rs. 834.4 mn in Q3 FY14. Diluted EPS of Rs. 6.83 per share in Q3 FY15. New project Capex FY15 set to operationalise 450 beds in 3 locations at Nellore (200 beds), Chennai, OMR (170 beds) and Chennai -Women & Child Hospital (60 beds) in Q4 FY15. During the quarter, AHLL Acquired 11 Day & Short stay surgery centers from Nova Specialty Hospitals with footprint in 8 cities across India. During 9M FY15, Revenues grew by 18% to Rs. 33,891 mn compared to Rs. 28,634 mn for 9M FY14. During nine months period of current fiscal 2014-15, PAT grew by 8% to Rs. 2,693 mn compared to Rs. 2,494 mn for 9M FY14. Revenues of the healthcare services division improved by 12% to Rs. 20,945 mn for 9M FY15 compared to Rs. 18,635 mn for 9M FY14. Apollo Pharmacies revenue improved by 29% from Rs. 10 bn for 9M FY14 to Rs. 12.9 bn for 9M FY15. In Q3 FY15, Apollo Pharmacies added 75 stores and closed 8 stores for a net addition of 67 stores. Apollo s core clusters in Chennai and Hyderabad displayed healthy growth in revenues increased by 11% and 8% respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 11% over 2013 to 2016E 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 1342.40 186762.74 23.77 56.47 6.30 115.00 Poly Medicure Ltd 505.00 22232.50 13.67 36.87 15.40 40.00 Indraprastha Medical Corporation Ltd 54.75 5019.10 3.50 15.64 2.68 18.00 Kovai Medical Center and Hospital Ltd 592.00 6477.80 33.27 17.79 6.34 15.00
Analysis & Recommendation - BUY Standalone Revenues for 9M FY15 were Rs. 33,891 mn compared to Rs. 28,634 mn for 9M FY14, growing by 18%. EBITDA grew by 8.6% at Rs. 5,036 mn for 9M FY15 from Rs. 4,638 mn for 9M FY14. Profit after Tax (PAT) improved by 8% from Rs. 2,494 mn for 9M FY14 to Rs. 2,693 mn for 9M FY15. Overall healthcare services grew 12% yoy, driven by growth of 9% in volumes and growth of 3% driven by changes in case-mix and price for 9M FY15. Standalone Revenues of the healthcare services division improved by 12% to Rs. 20,945 mn for 9M FY15 compared to Rs. 18,635 mn for 9M FY14. Healthcare services EBITDA (excluding the impact of new facilities) grew by 5% from Rs. 4,482 mn for 9M FY14 to Rs. 4,687 mn for 9M FY15. Apollo Pharmacies revenue improved by 29% from Rs. 10 bn for 9M FY14 to Rs. 12.9 bn for 9M FY15. EBITDA grew by 28% from Rs. 323 mn for 9M FY14 to Rs. 414 mn for 9M FY15. Over FY2013-16E, we expect the company to post a CAGR of 16% and 11% in its top-line and bottom-line respectively. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. Hence, we recommend BUY for Apollo Hospitals Enterprise Ltd with a target price of Rs. 1470.00 for medium to long term investment. QUARTERLY HIGHLIGHTS (PARENT BASIS) Results updates- Q3 FY15, Months Dec-14 Dec-13 % Change Net Sales 11825.30 9933.40 19.05 PAT 950.10 834.40 13.87 EPS 6.83 6.00 13.87 PBIDT 2004.90 1615.70 24.09 The company s net profit jumps to Rs. 950.10 million against Rs. 834.40 million in the corresponding quarter ending of previous year, an increase of 13.87%. Revenue for the quarter rose by 19.05% to Rs. 11825.30 million from Rs. 9933.40 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 6.83 a share during the quarter, registering 13.87% increased over previous year period. Profit before interest, depreciation and tax is Rs. 2004.90 million as against Rs. 1615.70 million in the corresponding period of the previous year.
Break up of Expenditure Break up of Expenditure Cost of Material Consumed Purchase of Stock in Trade Employee Benefit Expenses Depreciation & Amortization Expenses Value in Rs. Million Q3 FY15 Q3 FY14 % Change 2549.40 2463.80 3% 3744.30 2908.70 29% 1796.60 1571.90 14% 386.40 335.10 15% Other Expenditure 1571.50 1326.10 19% Selling & Distribution Expenses 389.80 265.90 47% Segment Revenue Segment wise Performance during 9M FY15 Hospitals Overall healthcare services grew 12% yoy, driven by growth of 9% in volumes and growth of 3% driven by changes in case mix and price for 9M FY15. Standalone Revenues of the healthcare services division improved by 12% to Rs. 20,945 mn for 9M FY15 compared to Rs. 18,635 mn for 9M FY14. The Chennai cluster reported an 11% increase in revenues from Rs. 8,325 mn in 9M FY14 to Rs. 9,209 mn for 9M FY15. Hyderabad Cluster revenues have increased by 8% from
Rs 3,427 mn for 9M FY14 to Rs 3,689 mn for 9MFY15. Joint venture & Subsidiary hospitals in Ahmedabad & Bangalore recorded a year on year revenue growth of 12%. Apollo Hospitals Kolkata reported a year on year growth of 13%. Pharmacies In Q3 FY15, Apollo Pharmacies added 75 stores and closed 8 stores for a net addition of 67 stores. Total store network as of December 31 stands at 1,784 operational stores. Added 189 stores and closed 37 for a net addition of 152 stores in 9M FY15. Revenues improved by 29% from Rs. 10 bn for 9M FY14 to Rs. 12.9 bn for 9M FY15. EBITDA grew by 28% from Rs. 323 mn for 9M FY14 to Rs. 414 mn for 9M FY15. Retail Health Total Income grew by 21% at Rs. 652 mn for 9M FY15 compared to Rs. 538 mn for 9M FY14. Latest Updates New project Capex FY15 set to operationalise 450 beds in 3 locations at Nellore (200 beds), Chennai, OMR (170 beds) and Chennai -Women& Child Hospital (60 beds) in Q4 FY15. During the quarter, AHLL Acquired 11 Day & Short stay surgery centers from Nova Specialty Hospitals with footprint in 8 cities across India. COMPANY PROFILE Apollo Hospitals Enterprise Limited (AHEL) was in 1983, that Dr. Prathap Reddy made a pioneering endeavour by launching India s first corporate hospital Apollo Hospital in Chennai. Now, as Asia largest and most trusted healthcare group, its presence includes over 9,091 beds across 54 Hospitals, 1,784 Pharmacies, 92 Primary Care and Diagnostic Clinics, 100 Telemedicine units across 10 countries. Health Insurance services, Global Projects Consultancy, 15 colleges of Nursing and Hospital Management, a Research Foundation with a focus on global Clinical Trials, epidemiological studies, stem cell & genetic research and the first Proton Therapy Center across Asia, Africa and Australia. In a rare honor, the Government of India issued a commemorative stamp in recognition of Apollo's contribution, the first for a healthcare organization. Apollo Hospitals Chairman, Dr. Prathap C Reddy, was conferred with the prestigious Padma Vibhushan in 2010. For more than 30 years, the Apollo Hospitals Group has continuously excelled and maintained leadership in medical innovation, world class clinical services and cutting edge technology. Company s hospitals are consistently ranked amongst the best hospitals globally for advanced medical services and research.
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
FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March 31 st, 2013-2016E AHEL. FY13A FY14A FY15E FY16E SOURCES OF FUNDS Shareholder's Funds Share Capital 695.63 695.63 695.63 695.63 Reserves and Surplus 26580.34 28951.62 32610.58 36752.18 1. Sub Total - Net worth 27275.97 29647.25 33306.21 37447.81 Non Current Liabilities Long term borrowings 8787.77 10052.40 12766.55 13787.87 Deferred Tax Liabilities 2394.11 3288.58 3781.87 4160.05 Other Long Term Liabilities 37.65 27.58 28.96 30.12 2. Sub Total - Non Current Liabilities 11219.53 13368.56 16577.37 17978.04 Current Liabilities Short Term Borrowings 189.28 159.30 594.25 653.68 Trade Payables 1763.42 2487.23 3109.04 3575.39 Other Current Liabilities 1941.34 1587.21 3242.14 3404.25 Short Term Provisions 1154.35 1316.35 263.27 294.86 3. Sub Total - Current Liabilities 5048.39 5550.09 7208.70 7928.18 Total Liabilities (1+2+3) 43543.89 48565.90 57092.28 63354.03 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible Assets 16774.72 19759.12 21932.62 23906.56 Intangible Assets 140.41 127.88 138.11 146.40 Capital Work-in-Progress 3579.23 4635.73 5238.37 5762.21 Intangible Assets under Development 148.07 173.85 189.50 200.87 a) Sub Total - Fixed Assets 20642.43 24696.58 27498.61 30016.03 b) Non-Current Investment 5254.50 5417.61 5742.67 6029.80 c) Long Term Loans and Advances 3227.58 4876.08 5509.97 6116.07 1. Sub Total - Non Current Assets 29124.51 34990.27 38751.24 42161.90 Current Assets Current Investment 3705.85 1482.67 2031.26 2356.26 Inventories 2053.88 2649.74 3365.17 4038.20 Trade receivables 4266.09 4684.51 5551.14 6328.30 Cash and Bank Balances 2554.66 2088.98 2632.11 3079.57 Short-terms loans & advances 1685.81 2489.34 4467.31 5060.47 Other current assets 153.09 180.39 294.04 329.32 2. Sub Total - Current Assets 14419.38 13575.63 18341.04 21192.13 Total Assets (1+2) 43543.89 48565.90 57092.28 63354.03
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 33177.90 38616.30 45834.55 51793.04 Other Income 310.30 224.60 507.70 406.16 Total Income 33488.20 38840.90 46342.25 52199.20 Expenditure -27642.30-32477.70-39025.24-44075.88 Operating Profit 5845.90 6363.20 7317.02 8123.32 Interest -726.30-870.70-841.34-925.47 Gross profit 5119.60 5492.50 6475.68 7197.85 Depreciation -1085.20-1290.80-1568.23-1819.14 Exceptional Items 0.00 0.00-152.00 0.00 Profit Before Tax 4034.40 4201.70 4755.45 5378.71 Tax -988.60-894.50-1096.50-1237.10 Profit After Tax 3045.80 3307.20 3658.96 4141.61 Extraordinary Items 45.40 0.00 0.00 0.00 Net Profit 3091.20 3307.20 3658.96 4141.61 Equity capital 695.63 695.63 695.63 695.63 Reserves 26580.34 28951.62 32610.58 36752.18 Face value 5.00 5.00 5.00 5.00 EPS 22.22 23.77 26.30 29.77 Quarterly Profit & Loss Statement for the period of 30 th June, 2014 to 31 st Mar, 2015E Value(Rs.in.mn) 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15E Description 3m 3m 3m 3m Net sales 10537.20 11528.50 11825.30 11943.55 Other income 64.50 82.00 258.00 103.20 Total Income 10601.70 11610.50 12083.30 12046.75 Expenditure -8974.30-9802.60-10078.40-10169.94 Operating profit 1627.40 1807.90 2004.90 1876.82 Interest -189.20-201.40-216.70-234.04 Gross profit 1438.20 1606.50 1788.20 1642.78 Depreciation -399.20-388.50-386.40-394.13 Exceptional Items 0.00 0.00-152.00 0.00 Profit Before Tax 1039.00 1218.00 1249.80 1248.65 Tax -211.60-303.00-299.70-282.20 Net Profit 827.40 915.00 950.10 966.46 Equity capital 695.63 695.63 695.63 695.63 Face value 5.00 5.00 5.00 5.00 EPS 5.95 6.58 6.83 6.95
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 22.22 23.77 26.30 29.77 EBITDA Margin (%) 17.62% 16.48% 15.96% 15.68% PBT Margin (%) 12.16% 10.88% 10.38% 10.39% PAT Margin (%) 9.18% 8.56% 7.98% 8.00% P/E Ratio (x) 60.42 56.47 51.04 45.09 ROE (%) 11.17% 11.16% 10.99% 11.06% ROCE (%) 19.12% 19.20% 19.04% 19.16% Debt Equity Ratio 0.33 0.34 0.40 0.39 EV/EBITDA (x) 32.41 30.39 26.71 24.10 Book Value (Rs.) 196.05 213.10 239.40 269.16 P/BV 6.85 6.30 5.61 4.99 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs.1342.40, the stock P/E ratio is at 51.04 x FY15E and 45.09 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.26.30 and Rs.29.77 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 11% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 26.71 x and 24.10 x for FY15E and FY16E respectively. Price to Book Value of the stock is expected to be at 5.61 x and 4.99 x for FY15E and FY16E respectively. We recommend BUY in this particular scrip with a target price of Rs.1470.00 for Medium to Long term investment. INDUSTRY OVERVIEW Healthcare has become one of India's largest sectors - both in terms of revenue and employment. The industry comprises hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance and medical equipment. The Indian healthcare delivery system is categorised into two major components - public and private. The Government, i.e. public healthcare system comprises limited secondary and tertiary care institutions in key cities and focuses on providing basic healthcare facilities in the form of primary healthcare centers (PHCs) in rural areas. The private sector provides majority of secondary, tertiary and quaternary care institutions with a major concentration in metros, tier I and tier II cities. Market Size According to estimates, the overall Indian health care market today is US$ 65 billion, of which the hospital supplies and health care equipment segment is believed to be only around US$ 4.5-5 million. Health care delivery, which includes hospitals, nursing homes and diagnostics centres, and pharmaceuticals, constitutes 65 per cent of the overall market. India requires 600,000 to 700,000 additional beds over the next five to six years, which potentially throws an opportunity of more than US$ 25-30 billion. While the existing hospitals would look at expanding their capabilities, a lot of new properties would also come up.
The Indian medical tourism industry is pegged at US$ 1 billion per annum, growing at around 18 per cent and is expected to touch US$ 2 billion by 2015. Investments The hospital and diagnostic centres attracted foreign direct investment (FDI) worth US$ 2,793.72 million between April 2000 and January 2015, according to the Department of Industrial Policy and Promotion (DIPP). Some of the major investments in the Indian healthcare industry are as follows: Mylan Inc has signed a deal to acquire the female health care businesses of Famy Care Ltd, a specialty women s health care company, for US$ 750 million in cash and additional contingent payments of up to US$ 50 million. Sanofi-Synthelabo (India) Ltd had invested Rs 90 crore (US$ 14.47 million) in Apollo Sugar Clinics Ltd (ASCL), a unit of its subsidiary Apollo Health and Lifestyle Ltd. Apollo Hospitals Enterprise (AHEL) plans to add another 2,000 beds over the next two financial years, at a cost of around Rs 1,500 crore (US$ 241.24 million). Temasek Holdings Pte Ltd has acquired the entire 17.74 per cent stake of Punj Lloyd Ltd in Global Health Pvt Ltd, which owns and operates the Medanta super specialty hospital in Gurgaon, Haryana. CDC, the UK s development finance institution, has invested US$ 48 million in Narayana Hrudayalaya hospitals, a multi-speciality healthcare provider. Apollo Health and Lifestyle Ltd (AHLL), a wholly-owned subsidiary of Apollo Hospitals Enterprise, has acquired Nova Specialty Hospitals. Government Initiatives India's universal health plan that aims to offer guaranteed benefits to a sixth of the world's population will cost an estimated Rs 1.6 trillion (US$ 25.73 billion) over the next four years. Some of the major initiatives taken by the Government of India to promote Indian healthcare industry are as follows: India and Sweden celebrated five years of memorandum of understanding (MoU). The cooperation in healthcare between India and Sweden will help in filling gaps in research and innovative technology to aid provisioning of quality healthcare. Under the National Health Assurance Mission, Prime Minister Mr Narendra Modi's government would provide all citizens with free drugs and diagnostic treatment, as well as insurance cover to treat serious ailments.
All the government hospitals in Andhra Pradesh would get a facelift with a cost of Rs 45 crore (US$ 7.23 million), besides the establishment of 1,000 generic medical shops across the State in the next few months. Road Ahead India is a land full of opportunities for players in the medical devices industry. The country has also become one of the leading destinations for high-end diagnostic services with tremendous capital investment for advanced diagnostic facilities, thus catering to a greater proportion of population. Besides, Indian medical service consumers have become more conscious towards their healthcare upkeep. Telemedicine is a fast emerging sector in India. In 2012, the telemedicine market in India was valued at US$ 7.5 million, and is expected to grow at a CAGR of 20 per cent to US$ 18.7 million by 2017. There are vast opportunities for investment in healthcare infrastructure in both urban and rural India. About 1.8 million beds are required by the end of 2025. Additionally, 1.54 million doctors and 2.4 million nurses are required to meet the growing demand. Disclaimer: This document is prepared by our research analysts and it 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 we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document.
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