14925051 Apollo Hospitals Sep09 Results

8/3/2019 14925051 Apollo Hospitals Sep09 Results

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Firstcall India Equity Advisors Pvt Ltd 1

Apollo Hospitals Enterprise Limited (AHEL)

BUY Target Price: Rs.659.00CMP: Rs.573.00 Market Cap.:Rs. 35399.94mn.Date: December 23, 2009

Key Ratios:

Particulars FY09 FY10E FY11EOPM (%) 16.63 17.34 17.28

NPM (%) 8.10 8.68 8.73

ROE (%) 8.61 10.41 10.75

ROCE (%) 10.91 12.97 13.44

P/BV(x) 2.52 2.31 2.06

P/E(x) 29.23 22.19 19.19

EV/EBDITA(x) 14.23 11.11 9.70

Debt-EquityRatio

0.33 0.34 0.33

Key Data:

Sector Pharma Sector

Face Value Rs.10.00

52 wk. High/Low

(Rs.)

625.00/350.00

SYNOPSIS We initiated the coverage of AHEL and set

a target price of Rs.659.00 for Medium toLong term gains.

Apollo Hospitals has expanded its globalreach with the opening of Apollo Bramwell

Hospital in Mauritius.

Apollo Hospitals secured $50 million worth ofloan from International Finance Corporation

(IFC), a member of the World Bank Group,to set-up high quality hospitals in remoteareas of India.

Apollo Hospitals has decided to makeinvestments to the tune of Rs 1,800 crore

over the next two years for building newhospitals across the country.

Apollo Hospitals is planning to add 2,000beds within the next two years for aninvestment of Rs 1,500 crore to Rs 1,600

crore.

The top line and Bottom line of thecompany are expected to grow at a CAGR

of 23% & 22% over 2008 to 2011E.

Share Holding Pattern:

V.S.R. SastryVice President

Equity Research Desk

91-22-25276077

[email protected]

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

[email protected]


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Table of Content

Investment Highlights......................................................................................... .03

Company

Profile

..06

Peer Group

comparison

...09

Keyconcern

.09

Financials

.10

Charts

....12

Outlook and

conclusions

.....13

Industry

Overview...

... 14


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Investment Highlights

Q2 FY10 Results Update

During the quarter ended September 2009, company has witnessed an

increase in the total revenue. During the quarter, Net sales rose by 25.01% toRs.4560.60 million from Rs.3648.30 million in the same quarter last year. The

Total Profit for the quarter ended September 2009 was Rs.340.60 million grew

by 13.04% from Rs.301.30 million compared to same quarter last year. Total

income of the company for the quarter stood at Rs 4581.50 million against

Rs 3703.10 million in the year-ago period, a growth of 23.72% on a YoY basis.

The basic EPS of the company stood at Rs.5.51 for the quarter ended Sep

2009.

Quarterly Results - Consolidated (Rs in

mn)


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As At Sep-09 Sep-08 %change

Net sales 4560.60 3648.30 25.01

Net profit 340.60 301.30 13.04

Basic EPS 5.51 5.00 10.21

Net Sales & PAT Growth

During the quarter, Net sales rose by 25.01% to Rs.4560.60 million from

Rs.3648.30 million in the same quarter last year and the Total Profit for the

quarter ended September 2009 was Rs.340.60 million grew by 13.04% from

Rs.301.30 million compared to same quarter last year.

EPS Growth

The basic EPS of the company stood at Rs.5.51 for the quarter ended Sep

2009 from Rs.5.00 for the quarter ended Sep 2008.


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Expands Global reach

Chennai-based Apollo Hospitals has expanded its global reach with the

opening of Apollo Bramwell Hospital in Mauritius. The 220-bed facility, a joint

venture between British American Investment and the company, has been

built with an investment of $70 million. It will be a multi-specialty care center

with the offerings in cardiology, cosmetic surgery, nephrology and

neurology, and will also provide ayurveda, acupuncture, aromatherapy

and music therapy, among others.

Recently, Apollo Hospitals secured $50 million worth of loan from

International Finance Corporation (IFC), a member of the World Bank

Group, to set-up high quality hospitals in remote areas of India.

Apollo walks out of Wockhardt Hospitals acquisition race

Chennai-based healthcare giant Apollo Hospitals is no more in the race for

acquiring Wockhardt Group offered hospitals in Bangalore, Mumbai and

Kolkata.


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The declaration comes after close assessment of the offer, which

concluded that the acquisition will not result in any great value unlocking

as Apollo Hospitals has very strong presence in all the three cities where

Wockhardt Hospitals are put on the block. Apart from this, the valuation did

not looked attractive due to higher premium asked by the Mumbai-based

pharma group. Wockhardt group is looking to sell its hospital chain arm

Wockhardt Hospitals to trim down its outstanding debt position which is

around Rs 3,700 crore.

Apollo Hospitals to invest Rs 1,800 Cr in two years

Apollo Hospitals Enterprise has decided to make investments to the tune of

Rs 1,800 crore over the next two years for building new hospitals across the

country. The Chennai based hospital is planning to add 2,000 beds within

the next two years for an investment of Rs 1,500 crore to Rs 1,600 crore. The

fund for the proposed investment is to be raised through a combination ofdebt and equity. The group is also planning to invest around Rs 200 crore

within next two years through its joint venture with One Equity Partners --

Western Hospital Corporation to set up a 600 bed hospital in Navi Mumbai

and Thane.

It proposes to set up a 200-bed hospital in Shanghai at an investment of

USD 120 million, 150-bed hospital in Vienna for USD 95 million and a hospital

in Nigeria. After hospitals, Apollo would also look at opening pharmacies in

these countries, as it tries to maximise its revenues abroad.

Company Profile

Apollo Hospitals Enterprise Limited (AHEL) was incorporated as a Public Limited

Company in the year 1979. Promoted by Dr. Prathap C Reddy, it is the first group

of hospitals that pioneered the concept of corporate healthcare delivery in

India. AHEL is a listed Company on the Bombay Stock Exchange.

AHEL today, is the leading private sector healthcare provider in Asia and owns

and manages a network of speciality hospitals and clinics, a chain of Pharmacy

retail outlets across the country, and provides Consultancy Services for

commissioning and managing the Speciality Hospitals. Today Apollo Hospitals is


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not just one of the country's premier healthcare providers but has also played a

pioneering role in helping India become a center-of-excellence in global

healthcare.

The Apollo Hospitals group today includes over 7500 beds across 43 hospitals in

India and overseas, neighbourhood diagnostic clinics, an extensive chain of

Apollo Pharmacies, medical BPO and health insurance services and clinical

research divisions that are working on the cutting edge of medical science.

However the largest achievement of the Apollo Group has been to take quality

healthcare to across the length and breadth of India.

By the start of the new millennium, 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 partyadministration services and heath insurance. To enhance performance and

service to customers, the company also makes available the services to support

the business of healthcare; telemedicine services, education and training

programmes & research services and a host of not- for- profit projects.

Medical Milestones:

Employs over 4000 specialists and super-specialists and 3000 medical

officers spanning over55 clinical departments in patient care.

Achieved a 99.6% success rate in cardiac bypass surgeries, over 91% of

these were beating heart surgeries.

Conducted over 100,000 cardiac surgeries - one of only 10 hospitals in the

world to achieve these volumes.

First Indian hospital group to introduce new techniques in Coronary

Angioplasty, Stereotactic Radiotherapy and Radiosurgery.

Performed over 7,50,000 major surgeries and over 10,00,000 minor surgical

procedures with exceptional clinical outcomes.

Pioneered orthopaedic procedures like hip and knee replacements, the

Illizarov procedure and the Birmingham hip re-surfacing technique.


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First hospital group to bring the 320 Slice CT- Angio scan system and the 64

Slice CT-Angio scan system to India.

First hospital group in South-East Asia to introduce the 16 Slice PET-CT Scan.

First to perform liver, multi-organ and cord blood transplants in India.

Equipped with the largest and most sophisticated sleep laboratory in the

world.

Introduced the most advanced CyberKnife Robotic Radio Surgery System

in Asia Pacific, the worlds first and only robotic radiosurgery system

designed to treat tumors anywhere in the body with sub-millimeter

accuracy.

Achievements/ recognition:

Over the years, Apollo has received many awards and accolades in recognition

of its pioneering achievements in Indian healthcare.

Apollo Hospitals, Chennai & Hyderabad won the healthcare awards 2008,

instituted by the Express Healthcare Publications (The Indian Express

Group). The awards received include:- Apollo Hospitals Chennai- Overall

Best Hospital of the year - Apollo Hospital Chennai- Operational

Excellence- Apollo Speciality Hospital, Chennai- Leveraging Global

Opportunity- Apollo Health City Hyderabad- Sustained Growth- ApolloHealth City Hyderabad- Patient Care.

Apollo Hospitals, Chennai has been rated 'Best Private Sector Hospital' in

India by The Week magazine for 2003, 2004, 2007 and 2008.

Apollo Hospitals was recognized as a 'Superbrand of India' in the

healthcare sector for 2003 and 2004.

Apollo Clinics were awarded Franchisor of the Year for 2003 and 2004.

The Asia-Pacific BioBusiness Leadership Award 2005 was awarded to Dr.

Prathap C. Reddy, Founder Chairman Apollo hospitals group.


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Modern Medicare Excellence Award 2006-07 award to Dr. Prathap C

Reddy, Founder Chairman, Apollo Hospitals Group, by ICICI Group, to

honour outstanding achievements in the healthcare industry.

Save a Child's Heart (SACH) - was a runner-up in the 'Corporate

Governance' category at Hospital Management Asia 2004, a major

hospital expo in Bangkok, Thailand.

Avaya Global Connect award went for the second successive year, in

2006, to Apollo Hospitals, Hyderabad for customer responsiveness in the

healthcare sector based on a nation wide polling exercise.

Company Services

Services offered by the company:

Cardiology & Cardiothoracic Surgery

Orthopedics & Joint Replacement Surgery

Spine Surgery

Oncology

Medical & Surgical Gastroenterology

Neurology & Neurosurgery

Nephrology & Urology

Critical Care Medicine.

Peer Group Comparison

Name of the

company

CMP (Rs.)

(As on

Dec. 23,

2009)

Market

Cap. (Rs.

mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)


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Apollo Hospitals 573.00 35,399.94 22.26 25.74 2.52 65.00

Opto Circuits 225.50 41,243.80 7.59 29.71 9.74 40.00

Siemens Healthcare 1067.05 1,672.10 33.87 31.50 3.30 10.00

Indraprastha 40.25 3,689.80 3.23 12.46 3.03 15.00

Key Concerns

Global economic slowdown

Frequent change of exchange rates

Competition from domestic as well as international players of the sector is

a major concern for the company. If the company is not able to compete

effectively, it will effect the companys operations as well as financial

conditions.

Financials Results

12 Months Ended Profit & Loss Account (Standalone)


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Value(Rs.in.mn) FY08 FY09 FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 11238.00 14579.80 18370.55 21126.13

Other Income 262.00 223.70 246.07 270.68

Total Income 11500.00 14803.50 18616.62 21396.81

Expenditure -9483.00 -12378.60 -15431.26 -17745.95

Operating Profit 2017.00 2424.90 3185.36 3650.86

Interest -199.00 -223.10 -379.27 -436.16

Gross profit 1818.00 2201.80 2806.09 3214.70

Deprecation -367.00 -439.20 -527.04 -579.74

Profit Before Tax 1451.00 1762.60 2279.05 2634.95

Tax -433.00 -541.70 -683.71 -790.49

Profit After Tax 1018.00 1180.70 1595.33 1844.47

Equity capital 586.00 602.40 617.80 617.80

Reserves 11793.00 13106.20 14701.53 16546.00

Face value 10.00 10.00 10.00 10.00

Total No. of Shares 58.60 60.24 61.78 61.78

EPS 17.37 19.60 25.82 29.86

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Mar-09 30-Jun-0930-Sep- 31-Dec-


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09 09(E)

Description 3m 3m 3m 3m

Net sales 3910.80 4059.50 4560.60 4788.63

Other income 55.20 146.80 20.90 24.04

Total Income 3966.00 4206.30 4581.50 4812.67

Expenditure -3375.50 -3383.20 -3830.10 -4022.45

Operating profit 590.50 823.10 751.40 790.22

Interest -49.60 -83.30 -102.50 -106.60

Gross profit 540.90 739.80 648.90 683.62

Deprecation -124.70 -130.60 -127.40 -133.77

Profit Before Tax 416.20 609.20 521.50 549.85

Tax -124.80 -161.20 -180.90 -164.95

Profit After Tax 291.40 448.00 340.60 384.89

Equity capital 602.40 617.80 617.80 617.80

Face value 10.00 10.00 10.00 10.00

Total No. of Shares 60.24 61.78 61.78 61.78

EPS 4.84 7.25 5.51 6.23


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Charts


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1 Year Comparative Graph

Outlook and Conclusion

At the current market price of Rs.573.00, the stock is trading at 22.19 x

FY10E and 19.19 x FY11E respectively.

Price to Book Value of the stock is expected to be at 2.31 x and 2.06 x

respectively for FY10E and FY11E.

Earning per share (EPS) of the company for the earnings for FY10E and

FY11E is seen at Rs.25.82 and Rs.29.86 respectively.

Net sales & Operating Profit of the company are expected to grow at a

CAGR of 23% and 22% over 2008 to 2011E.

On the basis of EV/EBITDA, the stock trades at 11.11 x for FY10E and 9.70 x

for FY11E.

Apollo Hospitals has expanded its global reach with the opening of Apollo

Bramwell Hospital in Mauritius.

Apollo Hospitals proposes to set up a 200-bed hospital in Shanghai at an

investment of USD 120 million, 150-bed hospital in Vienna for USD 95 million

and a hospital in Nigeria.

Apollo Hospitals is planning to add 2,000 beds within the next two years for

an investment of Rs 1,500 crore to Rs 1,600 crore.

Apollo Hospitals has decided to make investments to the tune of Rs 1,800

crore over the next two years for building new hospitals across the

country.

APOLLO HOSPITALS BSE SENSEX


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We recommend BUY in this particular scrip with a target price of

Rs.659.00 for Medium to Long term investment.

Industry Overview

Sector structure/Market size

Healthcare, which is a US$ 35 billion industry in India, is expected to reach over

US$ 75 billion by 2012 and US$ 150 billion by 2017, according to Technopak

Advisors in their report India Healthcare Trends 2008. The sector offers

immense potential to healthcare players as the country witnesses a rise in the

incidence of lifestyle-related and other diseases. A growing elderly population

and rise in income levels are also pushing for better facilities in the country.

To meet this growing demand, the country needs US$ 50 billion annually for thenext 20 years, says a Confederation of Indian Industry (CII) study. India needs to

add 3.1 million beds by 2018 to the existing 1.1 million, and requires immediate

investments of US$ 82 billion, as per the Technopak Advisors report.

India needs an investment of US$ 14.4 billion in the healthcare sector by 2025, to

increase its bed density to at least two per thousand population.

According to a latest report by McKinsey, driven by strong local demand, Indian

healthcare market is expected to continue growing close to previouslyprojected rates of 10 to 12 per cent. With average household consumption

expected to increase by more than seven per cent per annum, the annual

healthcare expenditure is projected to grow at 10 per cent and also the number

of insured is likely to jump from 100 million to 220 million.

India's healthcare industry registered 42.44 per cent growth in net profit during

April-June 2009, according to the Associated Chambers of Commerce and

Industry (ASSOCHAM). In the healthcare sector, the leading 10 companies

posted a growth of 23.94 per cent in total income and 21.37 per cent in total

expenditure during the quarter, the study said.

Health Insurance


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Currently only 10 per cent of the Indian population has health insurance, which

means that there is tremendous scope for growth in this area. The Indian health

insurance business is growing at 50 per cent. The sector is projected to grow to

US$ 5.75 billion by 2010, according to a study by the PHD Chamber of

Commerce and Industry.

Investments in Healthcare

The sector has been attracting huge investments from domestic players as well

as financial investors and private equity (PE) firms. Funds such as ICICI Ventures,

IFC, Ashmore and Apax Partners invested about US$ 450 million in the first six

months of 2008-09 compared with US$ 125 million in the same period a year

ago, according to an analysis carried out by Feedback Ventures. Feedback

Ventures expects PE funds to invest at least US$ 1 billion in the healthcare sectorin the next five years.

In February 2009, India Venture invested almost US$ 18 million in Tamil Nadu-

based Kavery Medical while in June IFC invested US$ 30 million in Max India.

Piramal Life Sciences, the research and development (R&D) arm of Piramal

Group is investing US$ 41.17 million in the next two years period to discover and

develop new chemical entities and novel drug delivery systems.

The Hinduja Group will invest up to US$ 72 million in increasing capacity of its

hospital in Mumbai by 350 beds in the next four years through expansion of

existing facility and setting up of a new unit.

As part of its Healthymagination initiative, GE will spend US$ 3 billion over the

next six years on research and development, provide US$ 2 billion of financing

over the next six years to drive healthcare information technology and health in

rural and underserved areas, and invest US$ 1 billion in partnerships, content and

services.

The government, along with participation from the private sector, is planning toinvest US$ 1 billion to US$ 2 billion in an effort to make India one of the top five

global pharmaceutical innovation hubs by 2020. The Ajay Piramal Group-owned

private equity (PE) firm, India Venture Advisors, will launch its second US$ 150

million healthcare fund next year.


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Medical Tourism

In 2007, India treated 450,000 foreign patients ranking it second in medical

tourism. According to a study by McKinsey and the CII, medical tourism in India

could become a US$ 2 billion industry by 2012 (from US$ 350 million in 2006).

Credit Suisse estimates medical tourism to be growing at between 25-30 per

cent annually.

The key selling points of the medical tourism industry are its cost effectiveness

and its combination with the attractions of tourism. Treatment cost is lowest in

India 20 per cent of the average cost incurred in the US, Singapore, Thailand

and South Africa. Besides world class medical facilities, India is also trying to

promote its traditional medicine such as ayurveda.

Areas of Opportunity

The fast growth in the Indian healthcare sector has created various pockets of

opportunities for investors. A recent FICCI-Ernst and Young report highlights

several such areas within the healthcare sector.

Medical infrastructure forms the largest portion of the healthcare pie. Beds

in excess of one million need to be added to reach a ratio of 1.85 per

thousand at an investment of US$ 77.9 billion.

The medical equipment industry is around US$ 2.17 billion and is growing

at 15 per cent per year. It is estimated to reach US$ 4.97 billion by 2012.

The medical textiles industry is projected to double to reach US$ 753

million by 2012.

Clinical trials have the potential to become a US$ 1 billion industry by 2010

and the health services outsourcing sector has the potential to grow to

US$ 7.4 billion by 2012, from US$ 3.7 billion in 2006.

Notwithstanding the current economic slowdown, the US$ 2.26 billion Indian

wellness services market is expected to grow at about 30-35 per cent for the

next five years on the back of rising consumerism, globalisation and changing

lifestyles, according to a FICCI-Ernst and Young study.


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The report classified wellness industry into seven core segments of allopathy,

alternative therapies, beauty, counselling, fitness/slimming, nutrition and

rejuvenation. While rejuvenation services such as spas, alternative therapies,

ayurveda treatments and beauty services are expected to grow by as much as

30 per cent, fitness comprising gyms and slimming centres are expected to grow

by more than 25 per cent.

Government Initiative

The Government launched the National Rural Health Mission (NRHM) in 2005. It

aims to provide quality healthcare for all and increase the expenditure on

healthcare from 0.9 per cent of GDP to 2-3 per cent of GDP by 2012.

During the 2009 interim budget, the government allocated US$ 2.42 billion for

NRHM. The Tamil Nadu government has allocated US$ 698.16 million for health

and family care for the year 2009-10, up from US$ 564.34 million a year ago. Theincreased budget includes creating a mega blood bankAsias largestin

Chennai and upgrading several hospitals, besides launching a new insurance

scheme.

The government has announced a US$ 63.2 million initiative to promote

domestic manufacture of medical devices such as stents, catheters, heart

valves and orthopaedic implants that will lead to lower prices of these critical

equipment.

________________ ____ ________________________

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


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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 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. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

Firstcall India Equity Research: Email [email protected]

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14925051 Apollo Hospitals Sep09 Results

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