Result Update

August 14, 2015

Apollo Hospitals (APOHOS)

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Hold
| 1400
12 months
4%

Margin improvement; work in progress

Whats Changed?
Target
EPS FY16E
EPS FY17E
Rating

Unchanged
Changed from | 35.3 to | 30.9
Changed from | 43.4 to | 41.0
Changed from Buy to Hold

Standalone Quarterly Performance

Revenue
EBITDA
EBITDA (%)
Net Profit

Q1FY16
1,265.0
181.1
14.3
90.8

Q1FY15
1,053.7
156.3
14.8
82.7

YoY (%)
20.0
15.8
-52 bps
9.8

Q4FY15
1,203.7
174.5
14.5
77.3

QoQ (%)
5.1
3.8
-18 bps
17.5

FY14
4384.2
672.4
316.8
22.8

FY15
5178.5
734.7
326.5
23.7

FY16E
6261.0
926.5
429.7
30.9

FY17E
7346.3
1176.7
570.4
41.0

FY14
59.1
29.2
31.4
6.3
10.6
11.2

FY15
55.0
27.5
29.5
5.9
10.4
9.9

FY16E
43.5
21.8
23.4
5.4
12.4
12.4

FY17E
32.8
17.0
18.3
4.8
14.7
15.2

Key Financials
(| Crore)
Revenues
EBITDA
Net Profit
EPS (|)

Valuation summary
PE (x)
EV to EBITDA (x)
Target EV/EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)

Stock data
Amount
| 18711 crore
| 422 crore
| 377 crore
| 18756 crore
1480/1022
| 69.6 crore
|5

Particular
Market Capitalisation
Debt (FY15)
Cash (FY15)
EV
52 week H/L
Equity capital
Face value

Price performance (%)

Apollo Hospitals
Fortis Healthcare

1M
-0.1
-1.0

3M
8.2
11.7

| 1337

6M
3.0
29.0

1Y
18.1
55.8

Research Analyst
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Mitesh Shah
mitesh.sha@icicisecurities.com
Nandan Kamat
nandan.kamat@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Revenues increased 20% YoY to | 1265 crore (I-direct estimate of

| 1316 crore) on the back of 34.7% YoY increase in pharmacy
business to | 520.1 crore (I-direct estimate: | 550.7 crore). The
healthcare business grew 11.6% to | 745 crore (I-direct estimate:
| 765.6 crore) to | 745 crore
EBITDA margins declined only 52 bps to 14.3% (I-direct estimate:
14.2%) on account of lower-than-expected other expenditure.
EBITDA increased 15.8% YoY to | 181.1 crore
Net profit rose 9.8% to | 90.8 crore (I-direct estimates: | 98.6 crore)
Healthcare business growth to piggyback on sustained expansion
The healthcare services segment (54% of consolidated revenues) has
grown at a CAGR of ~16% in FY10-15 on account of incremental hospital
addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid
expansion and maturity of older hospitals have kept the overall growth
tempo over and above 15% per annum. The next phase of expansion
includes addition of 1350 beds to the existing network of 40 hospitals and
7123 beds (own hospitals) by FY19 with an additional capex of | 1477
crore. This is likely to put some pressure on EBITDA margins in the short
to medium term. However, in the past, the company has demonstrated its
ability to balance between expansion and margins. By acquiring Nova
speciality and Assam Hospitals, the company has also opted for the
inorganic route for expansion. We expect more focus in improvement of
important parameters such as average length of stay (ALOS) and average
revenue per operating bed (AROPB) that have been flat in the last few
quarters on account of incremental bed additions. We expect healthcare
sales to grow at a CAGR of 12.4% in FY15-17E to | 4007.7 crore as the
company keeps on investing in new assets.
Pharmacy business EBITDA positive; candidate for value unlocking
The pharmacy business (34% of consolidated revenues) has grown at a
CAGR of ~30% over 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. We expect the pharmacy business to grow at
a CAGR of 13.7% in FY15-17E to | 2605 crore on the back of higher sales
from existing stores. The company has added 45 stores in Q1FY16 along
with consolidation of 304 Hetero stores taking total stores to 2171. In the
last three years, we have seen a strong improvement in revenues per
store from | 15 lakh in FY11 to | 27 lakh in FY15. The Hetero acquisition
may put some pressure on margins initially but augurs well in the long
run for scalability.
Profitability of new hospitals key for overall margin improvement
We expect consolidated sales, EBITDA and PAT to grow at a CAGR of
12.4%, 17% and 20%, respectively, in FY15-17E. The newly
commissioned hospitals have achieved the break even (BE) level fairly
ahead of our expectations. The focus will now shift to operational gauges
for different cluster hospitals as the current phase of capex cycle nears
the end. The Nova and Assam acquisition have demonstrated Apollos
willingness to opt for the inorganic route for expansion through localised
targets with good capability. On the other hand, pharmacy margins that
showed an improvement recently may take a hit in the medium term on
the back of the Hetero stores acquisition. Our revised target price is |
1400 as per SOTP valuation.

Variance analysis
Q1FY16 Q1FY16E
1,265.0 1,316.0
672.5
684.3
193.1
197.4
178.1
207.4
181.1
187.4
14.3
14.2

Revenue
Raw Material Expenses
Employee Expenses
Other expenditure
EBITDA
EBITDA (%)

Interest
Depreciation
Other Income
PBT before EO & Forex
EO
PBT after Exceptional Items
Tax
Tax rate (%)
Net Profit
EPS (|)
Key Metrics
Healthcare Services
Pharmacy

Q1FY15
1,053.7
553.2
170.7
143.7
156.3
14.8

Q4FY15
1,203.7
629.9
191.1
174.1
174.5
14.5

YoY (%) QoQ (%)

20.0
5.1
21.6
6.8
13.1
1.0
23.9
2.3
15.8
3.8
-52 bps -18 bps

26.9

18.9

18.9

22.6

42.0

19.1

45.0
4.2
113.4
0.0
113.4
22.5
24.0
90.8
6.5

44.0
5.3
129.7
0.0
129.7
31.1
24.0
98.6
7.1

39.9
6.5
103.9
0.0
103.9
21.2
20.4
82.7
5.9

40.6
4.8
116.1
-0.5
116.6
39.3
33.7
77.3
5.6

12.8
-34.9
9.1
0.0
9.1
6.4
17.8
9.8
9.8

10.8
-12.9
-2.4
0.0
-2.8
-42.7
-28.8
17.5
17.4

745.0
520.1

765.6
550.7

667.6
386.2

725.8
478.0

11.6
34.7

2.6
8.8

Comments
Growth driven by ~34.7% growth in pharmacy segment

The decline in margins was mainly due to higher growth in the low margin
pharmacy business and lower margins fetched by newly commissioned hospitals.
The pharmacy business margins were 3.6% while healthcare services margins
were 24%
Higher financial cost was mainly due to higher leverage for new facilities
commissioned in Q4FY15

YoY growth was lower vis--vis EBITDA due to higher financial cost

Growth mainly driven by new hospital additions

Growth driven by integration of Hetero pharmacy, 45 net stores addition and
traction from mature stores. Excluding Hetero, revenue growth was 31%

Source: Company, ICICIdirect.com Research

Change in estimates
(| Crore)
Revenue
EBITDA
EBITDA Margin (%)

Old
6,403.1
1,013.9
15.8

FY16E
New % Change
6,261.0
-2.2
926.5
-8.6
14.8 -100 bps

PAT
491.5
429.7
EPS (|)
35.3
30.9
Source: Company, ICICIdirect.com Research

-12.6
-12.5

Old
7,519.5
1,225.3
16.3
604.3
43.4

FY17E
New % Change
7,346.3
-2.3
1,176.7
-4.0
16.0
-28 bps
570.4
41.0

Comments

Reduced margin expectation due to slower-than-expected margin improvement at new

facilities

-5.6
-5.5

Assumptions
(% Growth)
Healthcare Services
Pharmacy
Subsidiaries & consulting fees
JVs

FY14
2,497.1
1,364.8
249.7
272.9

FY15
2,820.7
1,772.6
285.6
294.1

Current
FY16E
FY17E
3,396.3 4,007.7
2,214.2 2,604.9
313.3
350.9
334.0
384.1

Earlier
FY16E
FY17E
3,475.9 4,101.6
2,263.1 2,663.8
327.1
366.3
338.2
388.9

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

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
standalone accounts - 1) Healthcare services i.e. hospitals & 2) standalone
pharmacies. In consolidated accounts, other reporting segments are 1)
hospital revenues from JVs/subsidiaries & associates, 2) Apollo-Munich
Health insurance JV, 3) ApolloHealth & Lifestyle Ltd, which is the retail
healthcare business of Apollo Hospitals.
Apollo owns 64 hospitals with a total bed capacity of 8985 beds. Of these
64 hospitals, 40 are owned by the company (including JVs, subsidiaries
and associates) while eight are managed by the company with 1434 beds
and 16 are day care/short surgical stay centres and cradles with 428 beds.
This business has been categorised as the healthcare business and
comprises ~61% of standalone revenues.
In case of managed hospitals, the company charges 5-6% management
fees to 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, which includes hospitals in Madurai, Karur,
Karaikudi, Trichy, Mysore, Vizag, Pune, Karimnagar, Bilaspur,
Bhubaneswar and Jayanagar.
In case of standalone pharmacies, that are basically drug stores chain
selling prescription, OTC and private label FMCG products, the company
owns 2171 stores.
Overall, we expect revenues to grow at a CAGR of 12.4% in FY15-17E to
| 7346.3 crore.
Exhibit 1: Revenues to grow at CAGR of 12.4% in FY15-17E
8000

7346.3

7000

6261.0

(| crore)

6000

5178.5

5000
4000
3000
2000

1614.2

2026.5

2605.4

3147.5

3768.7

4384.2

1000
0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Revenues

Source: Company, ICICIdirect.com Research

The healthcare services segment (54% of consolidated revenues) has

grown at ~16% CAGR in FY10-15 on account of incremental hospital
addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid
expansion and maturity of older hospitals have kept overall growth tempo
over and above 15% per annum. The next phase of expansion includes
addition of 1350 beds to the existing network of 40 hospitals and 7123
beds (own hospitals) by FY19 with an additional capex of | 1477 crore.

ICICI Securities Ltd | Retail Equity Research

Page 3

This is likely to put some pressure on EBITDA margins in the short to

medium term. However, in the past, the company has demonstrated its
ability to balance between expansion and margins. By acquiring Nova
Speciality and Assam Hospitals, the company has also opted for the
inorganic route for expansion. We expect more focus in improvement of
important parameters such as average length of stay (ALOS) and average
revenue per operating bed (AROPB), which were flat in the last few
quarters on account of incremental bed additions. We expect healthcare
sales to grow at 12.4% CAGR in FY15-17E to | 4007.7 crore as the
company keeps on investing in new assets.
Exhibit 2: Healthcare services to grow at CAGR of 12.4% in FY15-17E
4500

4007.7

4000

3396.3

3500
(| crore)

3000
2500
2000
1500

1123.8

1341.5

1671.2

1940.2

2216.7

2497.1

2820.7

1000
500
0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Healthcare Services

Source: Company, ICICIdirect.com Research

The pharmacy business (34% of consolidated revenues) has grown at a

CAGR of ~30% 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 more and more old stores are
maturing and making contribution. We expect the pharmacy business to
grow at a CAGR of 13.7% in FY15-17E to | 2604.9 crore on the back of
higher sales from existing stores. The company has added 45 stores
along with consolidation of 304 Hetero stores in Q1FY16 taking total
stores to 2171. In the last three years, we have seen a strong
improvement in revenue per store from | 15 lakh in FY11 to | 27 lakh in
FY15. The pharmacy business is also a candidate for possible value
unlocking.
Exhibit 3: Pharmacy business to grow at CAGR of 13.7% in FY15-17E
3000

2604.9

2500

2214.2

(| crore)

2000

1772.6
1364.8

1500

1101.7

1000
500

334.3

484.6

661.4

860.6

0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

Pharmacy

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 4

FY17E

Exhibit 4: Subsidiaries & others to grow at CAGR of 7.1% in FY15-17E

400
350
215.0

250
200

285.6

72.9

384.1

400

153.7 153.0

150
100

249.7

500

350.9

(| crore)

94.5

300
157.1

200
83.1

100

50
0

194.5

272.9

235.8

294.1

334.0

105.8

0
FY09

FY10

FY11

FY12

FY13

FY14

FY15 FY16E FY17E

FY09

FY10

FY11

FY12

Subsidiaries & consulting fees

FY13

FY14

FY15 FY16E FY17E

Add JV

Source: Company, ICICIdirect.com, Research

Source: Company, ICICIdirect.com, Research

Exhibit 6: EBITDA to grow at CAGR of 17% in FY15-17E

20

1400
1176.7

1200
926.5

800

16.1

600
400

226.714.0

14.8 418.3
300.6

16.3 608.216.1 672.4

513.1
15.3

734.7
16.0 16
14.2

(%)

(| crore)

1000

14.8

200
12

0
FY09

FY10

FY11

FY12

FY13

FY14

EBITDA

FY15

FY16E

FY17E

EBITDA Margins (%)

Source: Company, ICICIdirect.com Research

Exhibit 7: Net profit to grow at CAGR of 20% in FY15-17E

600

570.4

500

429.7

(| crore)

400
300

12

6.5

200
105.0

6.8

137.6

7.1
183.9

6.9

7.2 316.87.2 330.3

6.4
271.4

6.9

7.8 8
(%)

(| crore)

300

313.3

Exhibit 5: JVs sales to grow at CAGR of 9.3% in FY15-17E

218.6
4

100
0

0
FY09

FY10

FY11

FY12
Net Profit

FY13

FY14

FY15

FY16E

FY17E

Net Profit Margins (%)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

Exhibit 8: Trends in return ratios

16

15.2

14
12

(%)

10
8
6

11.4

9.7

9.8

8.3
7.2

8.4

11.8
8.7

11.7

11.2
10.6

9.9

10.4

12.4
12.4

14.7

9.9

4
2
0
FY09

FY10

FY11

FY12
RoCE (%)

FY13

FY14

FY15

FY16E

RoNW (%)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 6

FY17E

Exhibit 9: Trends in Standalone quarterly financials

(| crore)
Total Operating Income
Raw Material Expenses
as % revenues
Gross Profit
GPM (%)
Employee Expenses
as % revenues
Marketing Expenses
as % revenues
Other expenditure
as % revenues
Total expenditure
EBITDA
EBITDA Margins (%)
Depreciation
Interest
Other Income
PBT
Less: Exceptional Items
Total Tax
Tax rate (%)
Net Profit
Net Profit Margin (%)
EPS (Adjusted)

Q2FY13
836.3
435.2
52.0
401.1
48.0
130.5
15.6
103.5
12.4
23.1
2.8
692.3
144.0
17.2
27.0
18.8
14.4
112.5
0.0
29.3
26.0
83.2
10.0
6.0

Q3FY13
855.8
442.6
51.7
413.2
48.3
135.8
15.9
108.9
12.7
22.1
2.6
709.4
146.4
17.1
27.6
19.3
8.0
107.6
0.0
26.9
25.0
80.6
9.4
5.8

Q4FY13
848.3
442.2
52.1
406.1
47.9
132.4
15.6
118.9
14.0
22.0
2.6
715.5
132.8
15.7
28.9
20.8
4.6
87.7
4.5
16.7
19.1
75.5
8.9
5.4

Q1FY14
895.0
463.7
51.8
431.3
48.2
139.1
15.5
125.0
14.0
21.3
2.4
749.1
145.9
16.3
30.7
20.5
6.2
100.9
0.0
22.0
21.8
78.9
8.8
5.7

Q2FY14
975.1
505.7
51.9
469.3
48.1
151.3
15.5
133.7
13.7
24.2
2.5
815.0
160.1
16.4
31.7
22.6
5.5
111.3
0.0
24.3
21.8
87.0
8.9
6.3

Q3FY14
993.3
519.2
52.3
474.2
47.7
157.2
15.8
132.6
13.3
26.6
2.7
835.6
157.8
15.9
33.5
23.1
3.8
105.0
0.0
21.5
20.5
83.4
8.4
6.0

Q4FY14
998.2
513.3
51.4
484.9
48.6
162.7
16.3
141.4
14.2
30.8
3.1
848.1
150.1
15.0
33.1
20.9
7.0
103.0
0.0
21.7
21.0
81.3
8.1
5.8

Q1FY15
1053.7
553.2
52.5
500.5
47.5
170.7
16.2
143.7
13.6
29.8
2.8
897.4
156.3
14.83
39.9
18.9
6.5
103.9
0.0
21.2
20.4
82.7
7.9
5.9

Q2FY15
1152.9
608.7
52.8
544.1
47.2
179.5
15.6
156.1
13.5
35.9
3.1
980.2
172.6
14.97
38.9
20.1
8.2
121.8
0.0
30.3
24.9
91.5
7.9
6.6

Q3FY15
1182.5
632.1
53.4
550.5
46.6
179.7
15.2
157.2
13.3
39.0
3.3
1007.8
174.7
14.77
38.6
21.7
25.8
140.2
-15.2
30.0
21.4
95.0
8.0
6.8

Q4FY15
1203.7
629.9
52.3
573.8
47.7
191.1
15.9
34.0
2.8
174.1
14.5
1029.2
174.5
14.50
40.6
22.6
4.8
116.1
0.5
39.3
33.8
77.3
6.4
5.6

Q1FY16
1265.0
672.5
53.2
592.5
46.8
193.1
15.3
40.2
3.2
178.1
14.1
1083.9
181.1
14.31
45.0
26.9
4.2
113.4
0.0
22.5
19.9
90.8
7.2
6.5

YoY (%)
20.0
21.6

QoQ (%)
5.1
6.8

18.4

3.3

13.1

1.0

-72.0

18.2

498.3

2.3

20.8
15.8
-52 bps
12.8
42.0
-34.9
9.1

5.3
3.8
-18 bps
10.8
19.1
-12.9
-2.4

6.4

-42.7

9.8

17.5

Q4FY13
562.7
125.6
22.3

Q1FY14
590.9
136.9
23.2

Q2FY14
636.5
149.0
23.4

Q3FY14
636.3
145.5
22.9

Q4FY14
633.4
137.5
21.7

Q1FY15
667.6
144.3
21.6

Q2FY15
715.8
158.2
22.1

Q3FY15
711.5
173.2
24.3

Q4FY15
725.8
158.2
21.8

Q1FY16
745.0
162.2
21.8

YoY (%)
11.6
12.4

QoQ (%)
2.6
2.5

Q4FY13
290.5
7.8
2.7
1445
20.1

Q1FY14
285.9
7.2
2.5
1503
19.0

Q2FY14
304.2
9.0
3.0
1526
19.9

Q3FY14
338.6
11.1
3.3
1560
21.7

Q4FY14
357.1
12.2
3.4
1586
22.5

Q1FY15
364.9
12.5
3.4
1632
22.4

Q2FY15
386.22
12.01
3.1
1664
23.2

Q2FY15
437.17
14.4
3.3
1717
25.5

Q3FY15
471.2
15.1
3.2
1784
26.4

Q4FY15
520.1
18.9
3.6
2171
24.0

YoY (%) QoQ (%)

42.6
10.4
50.8
25.2

Source: Company, ICICIdirect.com Research

Exhibit 10: Standalone healthcare service performance

(| Crore)
Sales
EBITDA
EBITDA Margins (%)

Q2FY13
558.9
135.9
24.3

Q3FY13
565.3
138.6
24.5

Source: Company, ICICIdirect.com Research

Exhibit 11: Standalone pharmacy performance

Sales (| crore)
EBITDA (| crore)
EBITDA Margins (%)
No of Stores
Rev per store (| lakh)

Q2FY13
247.7
6.1
2.5
1357
18.3

Q3FY13
277.6
8.1
2.9
1399
19.8

Source: Company, ICICIdirect.com Research

SWOT Analysis
Strengths - Early mover in healthcare space. Strong balance sheet despite
being in a business of higher gestation period. Strong brand value, a
significant aspect in this business
Weakness- Presence in 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 cost associated with it

ICICI Securities Ltd | Retail Equity Research

Page 7

Conference call highlights

ICICI Securities Ltd | Retail Equity Research

The company plans to add 800 new beds in Navi Mumbai,

Malleshwaram and Vizag by the end of FY16
Net pharmacy store addition in Q1FY16 was 45 stores with
integration of 304 Hetero stores taking total stores to 2171
Apollo expects Hetero stores to be profitable by end of FY16
It plans to add 875 beds by FY16 North Bangalore 180, Chennai
Main 30, Navi Mumbai 350, Indore 65 and Vizag 250. Out of total
bed addition in FY16, ~780 are expected to be added from its
three new hospitals in Navi Mumbai, Malleshwaram and Vizag
In FY17, facilities in Navi Mumbai and Bangalore are expected to
get commissioned with 885 beds
It plans to add another 475 beds in FY19 - South Chennai 175,
South Mumbai 300
Estimated capex for this expansion is ~| 1,477 crore, of which it
has already spent | 640 crore. The remaining balance amount
may be funded through a mix of internal accruals and proposed
rights Issue. Majority of the capex would be done in FY16
Two hospitals at Vanagaram and Jayanagar (added in the last 24
months) have more than 50% occupancies. Hospitals at Trichi,
Nashik and Nellore are expected to reach 40-50% occupancy by
end of FY16
The acquired hospital in Guwahati is generating revenues of | 80100 crore and is profitable. The company plans to increase the
capacity from 200 beds to 300 beds in the next three to four years
The company expects 25% EBITDA margins from the healthcare
segment while pharmacy margins are expected to improve to 6%
in the next two to three years
The company expects a spike in expenditure on account of higher
advertising and marketing costs from Q2FY16
Apollo plans to enhance Hyderabad occupancy levels to 65-70%
from 60% over the next few quarters

Page 8

Valuation
We expect consolidated sales, EBITDA and PAT to grow at a CAGR of
12.4%, 17% and 20%, respectively, in FY15-17E. The newly
commissioned hospitals have achieved the break even (BE) level fairly
ahead of our expectations. The focus will now shift to operational gauges
for different cluster hospitals as the current phase of capex cycle nears its
end. The Nova and Assam acquisition have demonstrated Apollos
willingness to opt for the inorganic route for expansion through localised
targets with good capability. On the other hand, pharmacy margins that
showed an improvement recently may take some hit in the medium-term
on the back of Hetero stores acquisition. Our revised target price stands
at | 1400 as per SOTP valuation.

EV

18.9x

18.1x

16.5x

14.1x

Mar-15

Sep-14

Mar-14

Sep-13

Mar-13

Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

(| crore)

Exhibit 12: One year forward EV/EBITDA

12.5x

Source: Company, ICICIdirect.com Research

Exhibit 13: Valuation

Valuation Matrix
EV/EBITDA

Particulers
Healthcare

Multiple (x)
16.0

Enterprise value (| cr)

16,351

Pharmacy

EV/Sales

1.5

3,907

Others
Cash

EV/Sales

1.0

734
197

Expected Net Debt (| cr)

EV

1,692
19,497

No of shares (cr)
Per Share Value

13.9
1,401

Source: Company, ICICIdirect.com Research

Exhibit 14: Valuation

FY14
FY15
FY16E
FY17E

Revenues
(| crore)
4384
5178
6261
7346

Growth
(%)
16
18
21
17

EPS
(|)
22.8
23.7
30.9
41.0

Growth
(%)
17
3
32
33

P/E EV/EBITDA
(x)
(X)
29.2
4.5
27.5
3.9
21.8
3.2
17.0
2.7

RoNW
(%)
11.2
9.9
12.4
15.2

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 9

RoCE
(%)
13.3
11.4
13.2
16.2

Company snapshot
1,600

Target Price:| 1400

1,400
1,200
1,000
800
600
400
200
Jul-16

Apr-16

Jan-16

Oct-15

Jul-15

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date
Sep-08

Event
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-basedNova Specialty Hospitalsat an estimated cost of | 135-145 crore

Source: Company, ICICIdirect.com Research

Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10

Name
PCR Investments, Ltd.
Integrated Mauritius Healthcare Holdings, Ltd.
OppenheimerFunds, Inc.
Reddy (Prathap C)
Fidelity Management & Research Company
Newton Investment Management Ltd.
Reddy (Suneeta)
Schroder Investment Management Ltd. (SIM)
Reddy (Sangita)
MEAG Munich ERGO Kapitalanlagegesellschaft mbH

Shareholding Pattern
Latest Filing Date % O/S Position (m) Position Chan
30-Jun-15 19.57
27.2
0.0
30-Jun-15 10.85
15.1
0.0
30-Jun-15 8.69
12.1
0.4
30-Jun-15 3.91
5.5
0.0
30-Jun-15 2.92
4.1
-1.0
30-Jun-15 2.58
3.6
3.6
30-Jun-15 2.43
3.4
0.0
30-Jun-15 1.99
2.8
0.0
30-Jun-15 1.75
2.4
0.0
30-Jun-15 1.72
2.4
0.0

(in %)
Promoter
FII
DII
Others

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

34.4
34.4
34.4
34.4
34.4
41.6
42.6
43.0
43.8
43.8
4.0
3.2
2.9
2.2
2.3
20.1
19.9
19.8
19.6
19.6

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
Newton Investment Management Ltd.
Mirae Asset Global Investments (Hong Kong) Limited
OppenheimerFunds, Inc.
Reddy (Karthik Anand)
Reddy (Harshad)

Value
74.24m
14.51m
8.43m
6.39m
6.19m

Shares
3.59m
0.70m
0.41m
0.33m
0.32m

Sells
Investor name
Fidelity Management & Research Company
Life Insurance Corporation of India
Schroder Investment Management (Singapore) Ltd.
Capital Investment Trust Corporation
Sydinvest

Value
-20.17m
-13.69m
-4.03m
-3.59m
-3.11m

Shares
-0.97m
-0.66m
-0.23m
-0.20m
-0.20m

Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 10

Financial summary
Profit and loss statement
(Year-end March)
Revenues
Growth (%)
Raw Material Expenses
Employee Expenses
Marketing Expenses
Other expenditure
Total Operating Expenditure
EBITDA
Growth (%)
Depreciation
Interest
Other Income
PBT
Total Tax
MI & Profit from Associates
Adjusted PAT
Growth (%)
EPS (Adjusted)

| Crore
FY14
4,384.2
16.3
2,150.1
727.5
115.2
719.1
3,711.8
672.4
167.8
119.3
21.5
406.8
101.9
11.8
316.8
16.7
22.8

FY15
5,178.5
18.1
2,581.2
860.0
155.5
847.0
4,443.7
734.7
9.3
211.7
117.9
36.8
442.0
130.0
14.5
326.5
3.1
23.7

FY16E
6,261.0
20.9
3,268.4
957.5
214.6
894.0
5,334.5
926.5
26.1
232.4
157.5
19.5
556.2
133.5
7.0
429.7
31.6
30.9

FY17E
7,346.3
17.3
3,820.1
1,124.0
235.1
990.5
6,169.7
1,176.7
27.0
268.2
149.4
19.5
778.6
202.4
-5.8
570.4
32.7
41.0

Source: Company, ICICIdirect.com Research

| Crore
FY14
69.6
2,907.1
2,976.7
1,344.3
351.9
18.8
2.3
3.8
4,697.7
3,379.5
866.0
2,513.6
473.9
35.2
149.9
3,172.6
321.6
278.6
519.8
272.9
274.2
1,345.4
325.0
349.8
674.8
670.6
510.1
22.8
4,697.7

| Crore

(Year-end March)
Profit/(Loss) after taxation
Add: Depreciation & Amortization
Working Capital Changes
CF from operating activities
Change in Capex
(Inc)/dec in Investments
(Increase)/Decrease in Long term
Other investing activities
CF from investing activities
Issue of Equity
Inc/(dec) in loan funds
Dividend paid & dividend tax
Other financing activities
CF from financing activities

FY14
316.7
167.8
-120.2
364.3
-591.8
205.1
-162.9
95.0
-454.5
1.1
132.1
-93.6
5.6
45.3

FY15
339.9
211.7
-207.4
344.1
-722.7
10.9
-68.3
115.4
-664.8
0.0
648.0
-96.4
-127.8
423.8

FY16E
429.7
232.4
-411.6
250.5
-427.3
0.0
259.4
19.2
-148.8
0.0
-200.0
-121.6
0.0
-321.6

FY17E
570.4
268.2
-80.6
758.0
-600.0
0.0
111.8
30.8
-457.5
0.0
-100.0
-161.4
0.0
-261.4

Net Cash flow

Opening Cash
Closing Cash

-44.9
319.1
274.2

103.2
274.2
377.3

-219.9
377.3
157.4

39.1
157.4
196.5

FY14

FY15

FY16E

FY17E

22.8
16.0
214.0
6.7
62.2
315.1

23.7
16.8
227.9
6.9
72.6
372.2

30.9
22.1
250.0
8.7
89.3
450.0

41.0
29.4
279.4
11.6
108.6
528.0

15.3
7.2
23.2
43.3
27.1

14.2
6.4
24.7
42.9
29.5

14.8
6.9
24.2
44.8
29.5

16.0
7.8
23.2
44.9
29.5

10.6
11.2
13.3

10.4
9.9
11.4

12.4
12.4
13.2

14.7
15.2
16.2

59.1
29.2
4.5
4.3
6.3

55.0
27.5
3.9
3.6
5.9

43.5
21.8
3.2
3.0
5.4

32.8
17.0
2.7
2.5
4.8

2.0
0.5
1.6
1.2
1.2

2.7
0.6
1.7
1.3
1.3

1.9
0.5
2.4
1.8
1.8

1.4
0.4
2.3
1.8
1.8

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March)
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability
Minority Interest
Long term provisions
Other Non Current Liabilities
Total Liabilities
Gross Block - Fixed Assets
Accumulated Depreciation
Net Block
Capital WIP
Net Intangible assets
Goodwill on Consolidation
Total Fixed Assets
Investments
Inventory
Debtors
Loans & Advances, & other CA
Cash
Total Current Assets
Creditors
Provisions & Other CL
Total Current Liabilities
Net Current Assets
Long term loans & advances
Deferred Tax Assets
Application of Funds

Cash flow statement

FY15
69.6
3,100.6
3,170.2
1,992.3
422.2
74.2
3.4
5.0
5,667.3
4,043.5
1,010.7
3,032.8
532.6
46.1
165.2
3,776.8
310.6
350.3
609.3
456.4
377.3
1,793.3
419.1
393.0
812.1
981.2
578.5
20.3
5,667.3

FY16E
69.6
3,408.7
3,478.3
1,792.3
422.2
78.4
23.4
5.0
5,799.6
4,803.4
1,243.1
3,560.4
200.0
46.1
165.2
3,971.7
310.6
415.3
769.3
562.6
157.4
1,904.6
506.8
224.9
731.7
1,172.9
319.1
25.3
5,799.6

Source: Company, ICICIdirect.com Research

FY17E
69.6
3,817.6
3,887.2
1,692.3
422.2
84.1
43.4
15.0
6,144.3
5,453.4
1,511.3
3,942.2
150.0
46.1
165.2
4,303.5
310.6
467.9
903.1
542.8
196.5
2,110.4
594.6
223.2
817.8
1,292.6
207.3
30.3
6,144.3

Key ratios
(Year-end March)
Per share data (|)
Adjusted EPS
Cash EPS
BV per share
Dividend per share
Cash Per Share
Revenue per Share
Operating Ratios (%)
EBITDA margins
Net Profit margins
Inventory days
Debtor days
Creditor days
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt / EBITDA
Debt / Equity
Current Ratio
Quick Ratio
Quick Ratio

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 11

ICICIdirect.com coverage universe (Healthcare)

CMP TP
(|)
(|)

PE(x)
EV/EBITDA (x)
RoCE (%)
RoNW (%)
FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

I-Direct
Code

Ajanta Pharma

AJAPHA

1684 1488 BUY

14675.5

36.0

45.6

53.1

33.1

27.8

23.9

7.8

6.5

5.3

50.6

48.7

46.4

41.9

38.5

Apollo Hospitals

APOHOS

1337 1400 HOLD

18964.2

23.7

30.9

41.0

55.0

43.5

32.8

27.5

21.8

17.0

9.9

12.4

15.2

10.4

12.4

14.7

Aurobindo Pharma

AURPHA

43455.7

28.0

36.7

42.0

27.9

20.5

17.9

10.1

7.8

6.3

23.5

25.5

25.0

30.3

29.9

26.1
13.9

736

Rating M Cap
(| Cr)

EPS (|)
FY16E FY17E FY15

Company

840 BUY
469 HOLD

FY15

35.9

Biocon

BIOCON

462.9

9227.0

20.4

23.0

28.0

23.0

20.4

16.7

6.9

5.4

4.2

10.4

11.8

13.3

12.5

12.7

Cadila Healthcare

CADHEA

1945 2280 BUY

41189.3

56.2

75.1

95.6

20.8

15.6

12.2

14.7

11.2

8.6

21.3

24.6

26.6

26.4

27.3

26.8

Cipla

CIPLA

725.5

56831.7

14.9

22.3

29.5

30.1

20.1

15.2

3.4

2.8

2.2

13.2

17.6

19.9

10.8

14.3

16.2

Dr Reddy's Labs

DRREDD

4292 4600 BUY

72913.5 130.6 159.9 191.6

21.6

17.7

14.7

13.9

11.2

9.2

17.0

19.3

20.6

19.9

20.1

19.8

Glenmark Pharma

GLEPHA

1059 1000 HOLD

26.7

Indoco Remedies

INDREM

Ipca Laboratories

IPCLAB

Jubilant Life Sciences

VAMORG

Lupin

LUPIN

1643 1885 BUY

Natco Pharma

NATPHA

2280 2200 HOLD

Sun Pharma

SUNPHA

879.1

Torrent Pharma

TORPHA

1516 1660 BUY

Unichem Laboratories

UNILAB

236.5

650 HOLD

29183.4

16.5

33.7

47.5

38.6

18.9

13.4

16.5

11.6

8.7

12.6

23.7

29.5

14.3

24.0

385 BUY

3218.8

9.0

12.6

19.2

24.3

17.4

11.3

12.4

10.0

7.1

19.8

22.3

28.0

16.0

19.0

23.4

771.2

665 HOLD

9706.0

20.2

25.0

41.5

18.7

17.0

11.6

3.2

2.9

2.4

11.5

11.0

16.6

11.5

11.0

16.6

322

336 HOLD

4963.2

-3.7

13.2

23.6

0.0

11.8

6.6

9.5

7.2

5.3

5.7

8.9

12.1

-2.4

8.2

13.4

77484.7

53.6

55.7

75.4

30.7

29.5

21.8

-0.4

0.8

0.2

31.1

29.2

30.4

25.3

22.8

23.6

8026.9

31.2

46.4

67.1

23.0

15.5

10.7

15.9

12.2

9.2

15.6

19.6

23.0

12.4

16.6

19.8

208438.7

19.8

20.5

32.6

44.2

46.9

25.5

24.6

24.0

16.6

19.0

18.3

22.8

20.8

18.5

23.6

25754.9

44.4

94.4

79.0

32.0

15.0

18.0

13.6

5.1

6.6

19.8

44.9

30.3

30.2

44.4

29.0

2136.2

8.3

14.8

21.4

24.8

13.9

9.6

17.9

9.4

6.5

8.4

17.1

21.5

8.7

14.5

18.5

342

850 HOLD
214 HOLD

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 12

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 13

ANALYST CERTIFICATION
We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed
in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

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engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is Indias largest private sector bank and has its various
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and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
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temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
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