EXECUTIVE SUMMARY

The Indian healthcare industry is growing at an average rate of 15% annually1. In this study, we
have evaluated the financial statements of Apollo Hospitals Enterprise Ltd. and Fortis Healthcare
Ltd. over the past five financial years. As far as the sales growth is concerned, Apollo has
registered a stable growth in sales of roughly 18%. On the other hand, Fortis' growth has
fluctuated over the years considerably due to acquisitions and divestments. Further, while the
profit margin of Apollo stands at 7.5% on an average, the profit margin of Fortis has shown a lot
of volatility - increase in Net Operating Profit after Tax (NOPAT) is attributed to investments in
subsidiaries while fall in NOPAT is because of an increase in contractual manpower expenses.
We also observe that the Return on Equity for Fortis has been negative over the last three years
which follows from the fact that NOPAT in the last two years has been negative and finance
expenses have been high. For both the companies we saw that inventories formed a minor
fraction of the current assets, implying that their Current and Quick Ratios are almost equal and
were found to be mainly over one. Fortis again showed a lot of instability in its debt to equity
ratio which climbed to 2.04 in 2012-13 and was brought down to 0.56 in 2014-15 through
divestment in subsidiaries. In summary, we found that while Apollo has been on a stable growth
path, Fortis has shown a lot of volatility across the different parameters studied.

INTRODUCTION
The private healthcare sector dominates the Indian healthcare system in terms of revenue and
market share. They are responsible for providing the bulk of secondary, tertiary and quaternary
services in the country. We chose two of the leading performers in this sector for our study Apollo Hospitals Enterprise Ltd. and Fortis Healthcare Ltd. for their radically different strategies
towards growth which have not only made them the leaders in the private healthcare sector but
also given rise to something peculiar over the past few years - Fortis Healthcare Ltd. has shown a
downward trend in their Operating Profits to the extent of incurring losses. On the other hand,
Apollo is showing stable profits over the same period.

SALES GROWTH ANALYSIS

A comparison of net revenues from operations (in Rs. Millions) for Apollo Hospitals and Fortis
Healthcare over the fiscal years 2011 to 2015 is shown below.
Table 1: Net Sales of Apollo Hospitals and Fortis Healthcare

All figures in INR million

2011

2012

2013

2014

2015

Apollo

24,636.56

29,577.07

35,394.29

41,171.21

51,784.53

Fortis

14,829.70

29,840.37

42,431.66

36,656.66

39,658.61

An analysis of the sales from operations of Apollo Hospitals and Fortis HealthCare indicate that
the two companies are comparable in terms of the revenues from operations they earn.
Apollo Hospitals has been seeing a steady increase in its revenues from services over the entire
period of consideration from 2011 to 2015.
Fortis has also seen increased sales. However, it has seen a dip in its sales in the year 2014. This
can be accounted for by several divestments in overseas operations in 2013-14.
Table 2: Growth in Revenues for Apollo Hospitals and Fortis Healthcare
2011

2012

2013

2014

2015

Apollo

28.27%

20.05%

19.67%

16.32%

25.78%

Fortis

58.11%

101.22%

42.20%

-13.61%

8.19%

Apollo has maintained stable positive growth during the entire period well above the industry
standards. Revenue from operations include Income from healthcare services, pharmacy sales
and hospital project consultancy activities. The growth figures of Fortis show us that its growth
has been stupendous in 2012. This is due to the expansionist strategy of Fortis by which they had
acquired a 74.59% stake in Super Religare Laboratories Limited (SRL), resulting in SRL

(together with its wholly owned subsidiary and two joint ventures) becoming a subsidiary of the
Company. They had acquired 45% of total equity share capital of Hiranandani Healthcare Private
Limited (HHPL), consequently raising its shareholding to 85% in HHPL. Post 2012 we see a dip
in growth to the extent of a negative growth in 2014. This again can be attributed to the
divestment of stakes of Fortis in overseas operations. As per the directors' report of Fortis
Healthcare, they plan to concentrate their entire healthcare operations in Asia and in India
particularly. Hence we see discontinuing operations overseas. The sales growth has thus taken a
hit.

PROFITABILITY: DU PONT ANALYSIS

The following profitability ratios were observed for Apollo Hospitals and Fortis Healthcare
Table 3: Profitability Ratios for Apollo Hospitals
Profitability
Ratios

2011

2012

2013

2014

2015

Net Operating
Profit Margin,
After Tax

3.1%

3.98%

4.78%

4.16%

8.52%

Profit
Margin(1)
= Net Operating
Profit/Total
Revenues

7.4%

7.37%

8.55%

7.64%

6.46%

Asset
Turnover(1)
= Net Sales/ATA

0.71

0.75

0.78

0.81

0.87

Asset Turnover
(2)
= Net
Sales/AOA

0.82

0.86

0.88

0.88

0.92

5.29%

5.52%

6.64%

6.16%

5.65%

Return on

Assets (1)
= Profit Before
Minority
Interest/ATA
Return on
Assets (2)
= Profit After
Tax & Before
EI/ATA

0.94%

1.86%

2.69%

2.01%

6.82%

Return on
Assets (3)
= NOPAT/AOA

2.55%

3.44%

4.22%

3.65%

7.86%

Return on
Equity
= Profit After
Tax & Before
EI/ASE

3.36%

3.3%

4.64%

3.56%

12.95%

-9.57%

-8.30%

-9.38%

-16.16%

-17.96%

Return on
Financial Assets
= Net Financial
Income/Average
Investments

The profit margin of Apollo stands at 7.5% on an average with a minimum of 6.46% in 2012 and
a maximum of 8.55% in 2015. We see a stable increase in revenue from operations. A drop in
Profit Margin in 2014 due to 27% increase in advertisement expenses. Further drop in 2015 is
due to an increase in Employee Benefits by 18.6%. A 115% increase in Return on Assets in 2015
is due to rise in revenue from operations by 97% attributed to increased advertising in 2014.
Increased revenue also contributes to an increased return on equity by 263.7% from 2014-2015

Table 4: Profitability Ratios for Fortis Healthcare

Profitability
Ratios
Net Operating

2011
-0.59%

2012
4.90%

2013
1.14%

2014
-5.78%

2015
-3.16%

Profit Margin,
after Tax
Profit Margin
(1) = Net
Operating
Profit/Total
Revenues

9.19%

2.24%

12.05%

-7.39%

-4.14%

Asset Turnover
(1) = Net
Sales/ATA

0.28

0.37

0.5

0.59

0.51

Asset Turnover
(2) = Net
Sales/AOA

0.53

0.37

0.6

0.9

0.65

Return on
Assets (1)
= Net
Profit/ATA

2.54%

0.82%

6.05%

-4.38%

-2.12%

Return on
Assets (2)
= Profit after
Tax before
EI/ATA

2.56%

0.77%

-2.20%

-4.38%

-2.12%

-0.32%

1.82%

0.68%

-5.20%

-2.05%

4.05%

1.67%

-4.77%

-6.16%

-3.30%

162.09%

-50.56%

-17.68%

-2.81%

-2.39%

Return on
Assets (3)
= NOPAT/AOA
Return on
Equity
= Profit after
Tax before
EI/ASE
Return on
Financial Assets
= Net Financial
Income/Average
Investment

Following inferences have been drawn from the Profitability Ratios of Fortis where we see
several fluctuations.
Profit Margin: - From the net operating profit margin figures we observe a lot of volatility.
Margin has increased between 2011 to 2013. In 2012 revenue from In-patient services increased
by 24% because SRL was acquired which gave Fortis access to SRLs distribution network in
400 odd cities. This gave improved opportunities for conversion from testing to in-patient
services and vice-versa. Even though operating revenues have seen a decline, the NOPAT has
been on the rise because of profit on sale of investment (631 to 99000 lakhs from 2011-12 to
2012-13 in exceptional items). We see a dip in profit margin in 2014. This can be attributed to
the fact that there was a shift towards contractual manpower and income from medical services
fell down by 88% in 2014 from 2013
Asset Turnover: - Asset turnover is very low mainly because the hospital industry is highly asset
intensive and as can be seen, fixed assets constitute a major chunk of the overall assets and they
cant be turned over very frequently to obtain higher sales(inventory levels are low ~2600
lakhs). The AOA increased heavily by 3 times because of an 86% acquisition in stakes of Super
Religare Laboratories in May, 2011. Both Apollo and Fortis maintain similar asset turnover
ratios suggesting similar asset utilization.
Return on Equity: - Over the years from 2013 to 2014 and 2015, the profit after tax and before
exceptional items is highly negative because the NOPAT is fairly negative. However, the
shareholder's equity has been increasing thus clearly showing that the money of the shareholders
is not being put to use rightly as the profit from operations seems to be dwindling.
Return on Financial Asset: - In 2011 the net financial income is positive due to high other
income (profit on sale of investment) and so the RNFA is positive. However, over the years, the
finance costs increased due to high debts which led to net finance expense. Also, the non-current
investments go up due to investments in derivative financial instruments (for expansion plans)
which leads to overall RNFA being negative but lesser in magnitude.

LIQUIDITY ANALYSIS

The various ratios that help in the analysis of the liquidity or the ability of these businesses to
meet their short-term obligations when they fall due are calculated as under.
Table 5: Liquidity Ratios for Apollo Hospitals

Current Ratio

2011

2012

2013

2014

2015

1.90

1.46

2.15

1.88

1.80

1.65

1.20

1.85

1.53

1.48

16.44

16.90

17.26

16.56

16.47

9.42

8.61

8.23

8.29

9.17

38.22

41.81

43.74

43.42

39.24

21.89

21.30

20.86

21.74

21.86

60.12

63.11

64.60

65.16

61.10

= Current
Assets/Current
Liabilities
Quick Ratio
= Quick
Assets/Current
Liabilities
Inventory Turnover
= Sales/Average
Inventories
Debtor Turnover
= Net Sales/Average
Receivable
Avg. Debt
Collection Period
= Average
Receivable/ADS
days
Avg. Inventory
Holding Period
= 360/Inventory
Turnover days
Operating Cycle
= Debt Collection
Period + Inventory
Holding Period

Apollo's current and quick ratios show that inventory accounted for 14-18% of their current
assets and they have been consistently maintained above one - implying that the business has a
healthy liquidity position and would be able to meet its short-term obligations. There was a dip in
the current and quick ratio in the year 2011-12 due to an increase in Apollo's short-term
borrowing. The average debt collection period has been around 38-44 days across the study
period while the average inventory holding period hovered around 20-22 days implying that
Apollo has a relatively stable operating cycle of 60-65 days.
Table 6: Liquidity Ratios for Fortis Healthcare
FORTIS

2010-11

2011-12

2012-13

2013-14

2014-15

Current Ratio

5.26

0.43

2.12

2.09

1.08

5.18

0.41

2.11

2.03

1.04

59.19

56.17

100.12

109.71

62.98

8.43

8.04

13.27

13.69

9.10

42.71

44.75

27.14

26.29

39.54

6.08

6.41

3.60

3.28

5.72

= Current
Assets/Current
Liabilities
Quick Ratio
= Quick
Assets/Current
Liabilities
Inventory Turnover
= Sales/Average
Inventories
Debtor Turnover
= Net Sales/Average
Receivable
Avg. Debt
Collection Period
= Average
Receivable/ADS
days
Avg. Inventory
Holding Period
= 360/Inventory

Turnover days
Operating Cycle

48.57

51.67

30.77

29.42

45.11

= Debt Collection
Period + Inventory
Holding Period

For Fortis, it was observed that inventories account for less than 5% of their current assets,
therefore the quality of current assets is largely liquid and hence their quick ratio is
approximately equal to the current ratio. There was a sudden drop in the current and quick ratio
value in 2011-12 as short-term borrowings went up significantly (by about 11 times compared to
previous year) during the year, taking the value of current ratio to below one. This fall in the
value of current ratio to 0.43 in 2011-12 reflected poorly for Fortis' short-term creditors as the
company would not have been able to pay for its short-term obligations. Fortis has been able to
maintain its average inventory holding period to a low value of 3-6 days owing to its business
which requires very low inventory holding and therefore a high inventory turnover. The average
debt collection period was around 40-45 days (similar to Apollo) except between 2012 and 2014
due to an increase in net sales from operations by 40% while there was a fall in the average
receivables by 13%.

CAPITAL MARKET RATIOS

Capital market ratios relate the market price of companys share to the companys earnings and
dividends. Price-Earnings ratio, Price-to-book ratio, dividend per share, Dividend-yield ratio and
dividend payout ratio are used to get the understanding of strength of the company in the capital
market.

PRICE-EARNINGS RATIO
Table 7: Price-Earnings Ratio for Apollo Hospitals and Fortis Healthcare2

2011

2012

2013

2014

2015

Apollo

32.18

36.91

38.34

39.03

62.34

Fortis

46.35

58.83

8.00

35.76

-50.35

The P/E ratio for Fortis is highly volatile, while that for Apollo is quite stable. This is because
while the number of outstanding shares for Fortis has remained constant for the first three years
during the study period, the profit has also fluctuated significantly. Due to this EPS (which is
dependent on profit) also shows a similar trend as that of profit. Hence the P/E ratio also shows a
fluctuating trend. (Here the market price also changes slightly but the rate of change of EPS is
more than that of the market price)
PRICE TO BOOK RATIO
Table 8: Price-Book Ratio for Apollo Hospitals and Fortis Healthcare
2011

2012

2013

2014

2015

Apollo

3.1

3.32

4.17

4.13

5.99

Fortis

1.81

1.05

1.09

0.88

1.49

The low P/B ratio for Fortis signifies a lower ROE which is evident from the data. From a
shareholder's point of view, since the P/B ratio for Fortis' shares is less than 1.5, while that for
Apollo is greater than 4 on an average, the market expects Apollo to perform at a better rate than
Fortis.

SOLVENCY ANALYSIS
DEBT-EQUITY RATIO
Table 9: Debt to Equity Ratio (total liability/total equity) - Apollo
2011

2012

2013

2014

2015

10

0.89

0.70

0.75

0.79

1.00

From 2011-2012, D/E ratio fell by 21%. This was due to increase in equity due to major increase
in Securities Premium account as well as the increase in reserves from 1000 to 1500 million.
Long term borrowings have decreased by 1737 million. This is due to repayment of loans taken
from Canara Bank, Bank of India and Indian Bank.
From 2012-2013, D/E ratio increased by 7%. This was again due to major borrowings from
HDFC bank, YES bank and ICICI, totaling to 2500 million. Similar analysis follows for 20132014 year.
Now, D/E ratio increases by 26% from 2014 to 2015, this was due to increase in long term
borrowings and deferred tax liabilities

Table 10: Debt to Equity Ratio (total liability/total equity) Fortis

2011

2012

2013

2014

2015

0.43

2.04

1.82

0.55

0.56

As we can see the major increase in D/E ratio is in 2012 where it increased by 377%. The major
reasons for this are as follows:
a.

Increased secured and unsecured loans from banks and body corporates.

b.

Issue of convertible bonds and non-convertible debentures.

The exact opposite happened in 2014 when D/E ratio fell by 69% due to major reduction in long
term borrowings, short term borrowings, trade payables and other current liabilities.
INTEREST-COVER

11

Table 11: Interest Cover Ratio (total liability/total equity) - Apollo

2011

2012

2013

2014

2015

2.47

3.11

3.14

2.71

5.33

As we can see, Apollo has considerable income to pay its interest expenses and it has increased
by 96.67%. This is due to increase in revenue from operations and increase in other income due
to 184.10 million income from the divestiture of the Out-Patient diabetes clinics related business
to Apollo Sugar Clinics Ltd, a subsidiary of AHLL.
Table 12: Interest Cover Ratio (total liability/total equity) - Fortis
2011

2012

2013

2014

2015

-0.22

0.74

0.07

-0.67

-0.68

For the year 2011, PBIT was negative due to low revenue, but in 2012, the revenue increased by
almost 100%. This was due to
1.

Introduction of clinical services as a part of their operations.

2.

24% increase in in-patient service.

Negative PBIT in 2014 was due to the decrease in revenue because of reduction in profit from
the sale of investment items in 2014, which was present in 2013.

CASH FLOW ANALYSIS

The following table summarizes cash flow from various activities for Apollo

Table 13: Cash Flow Figures- Apollo

All figures in INR million

12

Cash flow

2011

2012

2013

2014

2015

Net profit

2,613.18

3,259.73

3,990.78

4,067.12

4,554.13

Operating
activities

2,587.67

3,870.54

4,427.52

3,733.89

4,699.46

Investing
activities

(4,414.65)

(4,679.65)

(7,325.19)

(3,558.28)

(7,590.70)

Financing
activities

467.44

1,354.02

3,729.93

(634.77)

3,923.10

Net
increase /
(decrease)

(1,359.54)

544.92

832.26

(459.17)

1,031.86

The net cash outflow for investing activities has decreased from 2012-13 to 2013-14. This was
because they had redeemed their short-term investments in mutual funds to finance new hospital
projects and upgradation of existing facilities.
The cash inflow from financing activities decreased from 2012-13 to 2013-14 due to a heavy
decrease of 3700 mn in proceeds from borrowings.
The following table summarizes cash flow from various activities for Fortis
Table 14: Cash Flow Figures- Fortis
Cash flow

2011

All figures in INR Lacs

2012

2013

2014

2015

Net profit

1,396.02

1,067.390

7,312.52

1490.46

(1,374.44)

Operating
activities

(818.13)

2,915.60

16,435.93

4,859.87

241.41

Investing
activities

21,696.37

(9,016.49)

(10,028.19)

26,622.78

2,125.98

Financing
activities

(32,398.61)

6,912.32

(740.67)

(32,172.88)

(3,035.26)

Net
increase /
(decrease)

(11,520.37)

811.43

5,667.05

(689.72)

(667.86)

13

In 2010-11, the net inflow in cash from investing activities was primarily due to heavy sale of
investments in subsidiaries and associates. Also, the cash outflow from financing activities was
attributed to the repayment of long term and short tem borrowings. This trend changed in 201112. Due to the increase in the cash inflow from operating activities, Fortis indulged in short term
borrowing to expand their current scale of activities. Hence they witnessed an increase in net
cash flow from financing activities in 2011-12.
In 2013-14 the cash inflow from operating activities decreased, however in order to repay their
long term borrowings Fortis sold their investments in subsidiaries and associates.
Thus, we clearly see that there is a need to focus more on the operating activities as cash inflow
from these has decreased in the last three years of the study period. Fortis has engaged in
repayment of borrowings through sale of investments which should ideally have been done
through operating cash flows.

EARNINGS QUALITY
Table 15: Earnings Quality Ratios for Apollo Hospitals and Fortis Healthcare
Year

2011

2012

2013

2014

2015

Apollo

0.73

0.86

0.82

0.65

0.70

-0.34

1.01

1.63

1.34

0.25

CFO/(P+D)
Fortis CFO/
(P+D)

Financial statement analysis is also important to estimate future earnings from current earnings.
Sources of revenue and profit are to be identified to conclude whether earnings are from
continued operation of the firm or from one time earnings. Thus, it is very important to separate
non operating item from total revenue. This determines the true earnings of the firm or its

14

quality. To analyses earnings quality ratio of cash flow through operations to sum of profit and
depreciation is taken.
Fortis went on global acquisition spree in 2010 with vision to become largest healthcare provider
in Asia thus, in did huge investments in international assets. Because of this, its cash flow was
mainly from investments in 2011. Its cash flow from operations was negative which lead to a
very low value of ratio in 2011. From 2012 however, the earning quality has improved. It is
above 1 which implies that the quality is good. In 2013 Fortis was involved in intensive fund
raising to reduce its debt to equity ratio (evident from its debt to equity ratio in 2013 and
onwards). It went ahead with divestment of international assets, thus investments formed major
portion of its cash flow, thus reducing the earning quality ratio in 2014. Operating profit is
continuously decreasing since 2013 to the extend of going negative. However, it compensates it
from exceptional and other incomes to make the profit positive. However, in 2015 the net profit
gets negative, cash flow from operations reaches a minimal value thus earning quality value is
very low.
For Apollo over the past 5 years its CFO to sum of profit and depreciation ratio has remained
below 1. It shows cash from operations does not are not proportionate with accrued profits
reported and company has poor earning quality.

RECOMMENDATIONS: BUY, HOLD or SELL

EV/EBIDTA Trend Analysis
Table 16: EV/EBIDTA Ratio for Apollo Hospitals
EV/EBITDA
ratio

6.46

5.91

5.89

5.96

6.35

43.83

82.51

Table 17: EV/EBIDTA Ratio for Fortis Healthcare

EV/EBITDA
ratio

17.24

32.17

24.86

15

A lower value of EV/EBITDA indicates spending less money for 1 rupee of earnings. This ratio
looks at a firm from the point of view of a potential acquirer because it takes debt into account
which is generally not taken into consideration by other performance ratios.
In this case, EV/EBITDA ratio for Apollo is lower as compared to Fortis. The values for Fortis
are exceedingly high. This clearly signals that Fortis is overvalued. Also, since Apollo is having a
low value of the ratio, this indicates that it is an attractive target for takeover.
Analyzing it from a different perspective, we notice that this ratio is also an indicator of the
duration in which a company can pay its acquirer through its earnings. Thus looking at the
companies in this regard, we can say that Fortis due to its low earnings will take a lot more time
to pay off its acquirers as compared to Apollo.

P/E RATIO ANALYSIS

Table 18: P/E Ratio for Apollo Hospitals and Fortis Healthcare
Company

Apollo

Fortis

P/E Ratio

62.34

-50.35

Theoretically, the P/E ratio for a company tells us about how much investors are willing to pay
per rupee of earnings. It is a reflection of the market's sentiment concerning a firm's growth
prospects.
In view of the above table, it is noticed that Apollo has a higher P/E as compared to Fortis which
shows a negative P/E ratio. This implies that Fortis is posting losses.As we can see from the last
three years of the study period, Fortis is not generating enough cash from its operating activities.
This has led them to indulge in sale and purchase of investments to repay their long term and
short term borrowings.
APOLLO : Buy/Hold
FORTIS

: Sell

16

REFERENCES

1. Fortis Annual Report 2014-15

2. Stock Prices taken from http://www.bseindia.com/

17