Result Update

August 14, 2015

Rating matrix
Rating : Hold Apollo Hospitals (APOHOS) | 1337
Target : | 1400
Target Period
Potential Upside
:
:
12 months
4%
Margin improvement; work in progress…
• Revenues increased 20% YoY to | 1265 crore (I-direct estimate of
What’s Changed? | 1316 crore) on the back of 34.7% YoY increase in pharmacy
Target Unchanged business to | 520.1 crore (I-direct estimate: | 550.7 crore). The
EPS FY16E Changed from | 35.3 to | 30.9
healthcare business grew 11.6% to | 745 crore (I-direct estimate:
EPS FY17E Changed from | 43.4 to | 41.0
| 765.6 crore) to | 745 crore
Rating Changed from Buy to Hold
• EBITDA margins declined only 52 bps to 14.3% (I-direct estimate:
Standalone Quarterly Performance 14.2%) on account of lower-than-expected other expenditure.
Q1FY16 Q1FY15 YoY (%) Q4FY15 QoQ (%) EBITDA increased 15.8% YoY to | 181.1 crore
Revenue 1,265.0 1,053.7 20.0 1,203.7 5.1 • Net profit rose 9.8% to | 90.8 crore (I-direct estimates: | 98.6 crore)
EBITDA 181.1 156.3 15.8 174.5 3.8 Healthcare business growth to piggyback on sustained expansion
EBITDA (%) 14.3 14.8 -52 bps 14.5 -18 bps
The healthcare services segment (54% of consolidated revenues) has
Net Profit 90.8 82.7 9.8 77.3 17.5
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
Key Financials expansion and maturity of older hospitals have kept the overall growth
(| Crore) FY14 FY15 FY16E FY17E
tempo over and above 15% per annum. The next phase of expansion
Revenues 4384.2 5178.5 6261.0 7346.3
includes addition of 1350 beds to the existing network of 40 hospitals and
EBITDA 672.4 734.7 926.5 1176.7
7123 beds (own hospitals) by FY19 with an additional capex of | 1477
Net Profit 316.8 326.5 429.7 570.4
EPS (|) 22.8 23.7 30.9 41.0
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
Valuation summary speciality and Assam Hospitals, the company has also opted for the
FY14 FY15 FY16E FY17E
inorganic route for expansion. We expect more focus in improvement of
PE (x) 59.1 55.0 43.5 32.8
important parameters such as average length of stay (ALOS) and average
EV to EBITDA (x) 29.2 27.5 21.8 17.0
Target EV/EBITDA (x) 31.4 29.5 23.4 18.3
revenue per operating bed (AROPB) that have been flat in the last few
Price to book (x) 6.3 5.9 5.4 4.8 quarters on account of incremental bed additions. We expect healthcare
RoNW (%) 10.6 10.4 12.4 14.7 sales to grow at a CAGR of 12.4% in FY15-17E to | 4007.7 crore as the
RoCE (%) 11.2 9.9 12.4 15.2 company keeps on investing in new assets.
Pharmacy business EBITDA positive; candidate for value unlocking
Stock data The pharmacy business (34% of consolidated revenues) has grown at a
Particular Amount CAGR of ~30% over the last five years on the back of consistent addition
Market Capitalisation | 18711 crore of new pharmacies and timely closure of non-performing pharmacies.
Debt (FY15) | 422 crore This business has become EBITDA positive as old stores are maturing
Cash (FY15) | 377 crore and making a contribution. We expect the pharmacy business to grow at
EV | 18756 crore a CAGR of 13.7% in FY15-17E to | 2605 crore on the back of higher sales
52 week H/L 1480/1022 from existing stores. The company has added 45 stores in Q1FY16 along
Equity capital | 69.6 crore
with consolidation of 304 Hetero stores taking total stores to 2171. In the
Face value |5
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
Price performance (%) may put some pressure on margins initially but augurs well in the long
1M 3M 6M 1Y run for scalability.
Apollo Hospitals -0.1 8.2 3.0 18.1
Fortis Healthcare -1.0 11.7 29.0 55.8
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
Research Analyst commissioned hospitals have achieved the break even (BE) level fairly
ahead of our expectations. The focus will now shift to operational gauges
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com for different cluster hospitals as the current phase of capex cycle nears
Mitesh Shah the end. The Nova and Assam acquisition have demonstrated Apollo’s
mitesh.sha@icicisecurities.com willingness to opt for the inorganic route for expansion through localised
Nandan Kamat targets with good capability. On the other hand, pharmacy margins that
nandan.kamat@icicisecurities.com 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.

ICICI Securities Ltd | Retail Equity Research

Variance analysis
Q1FY16 Q1FY16E Q1FY15 Q4FY15 YoY (%) QoQ (%) Comments
Revenue 1,265.0 1,316.0 1,053.7 1,203.7 20.0 5.1 Growth driven by ~34.7% growth in pharmacy segment
Raw Material Expenses 672.5 684.3 553.2 629.9 21.6 6.8
Employee Expenses 193.1 197.4 170.7 191.1 13.1 1.0
Other expenditure 178.1 207.4 143.7 174.1 23.9 2.3
EBITDA 181.1 187.4 156.3 174.5 15.8 3.8
EBITDA (%) 14.3 14.2 14.8 14.5 -52 bps -18 bps 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%
Interest 26.9 18.9 18.9 22.6 42.0 19.1 Higher financial cost was mainly due to higher leverage for new facilities
commissioned in Q4FY15
Depreciation 45.0 44.0 39.9 40.6 12.8 10.8
Other Income 4.2 5.3 6.5 4.8 -34.9 -12.9
PBT before EO & Forex 113.4 129.7 103.9 116.1 9.1 -2.4
EO 0.0 0.0 0.0 -0.5 0.0 0.0
PBT after Exceptional Items 113.4 129.7 103.9 116.6 9.1 -2.8
Tax 22.5 31.1 21.2 39.3 6.4 -42.7
Tax rate (%) 24.0 24.0 20.4 33.7 17.8 -28.8
Net Profit 90.8 98.6 82.7 77.3 9.8 17.5 YoY growth was lower vis-à-vis EBITDA due to higher financial cost
EPS (|) 6.5 7.1 5.9 5.6 9.8 17.4
Key Metrics
Healthcare Services 745.0 765.6 667.6 725.8 11.6 2.6 Growth mainly driven by new hospital additions
Pharmacy 520.1 550.7 386.2 478.0 34.7 8.8 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
FY16E FY17E
(| Crore) Old New % Change Old New % Change Comments
Revenue 6,403.1 6,261.0 -2.2 7,519.5 7,346.3 -2.3
EBITDA 1,013.9 926.5 -8.6 1,225.3 1,176.7 -4.0
EBITDA Margin (%) 15.8 14.8 -100 bps 16.3 16.0 -28 bps Reduced margin expectation due to slower-than-expected margin improvement at new
facilities
PAT 491.5 429.7 -12.6 604.3 570.4 -5.6
EPS (|) 35.3 30.9 -12.5 43.4 41.0 -5.5
Source: Company, ICICIdirect.com Research

Assumptions
Current Earlier
(% Growth) FY14 FY15 FY16E FY17E FY16E FY17E
Healthcare Services 2,497.1 2,820.7 3,396.3 4,007.7 3,475.9 4,101.6
Pharmacy 1,364.8 1,772.6 2,214.2 2,604.9 2,263.1 2,663.8
Subsidiaries & consulting fees 249.7 285.6 313.3 350.9 327.1 366.3
JVs 272.9 294.1 334.0 384.1 338.2 388.9
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
6000 5178.5
5000 4384.2
(| crore)

3768.7
4000 3147.5
3000 2605.4
2026.5
2000 1614.2

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
2820.7
3000
2497.1
2500 2216.7
(| crore)

1940.2
2000 1671.2
1341.5
1500 1123.8
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

2000 1772.6
(| crore)

1500 1364.8
1101.7
1000 860.6
661.4
484.6
500 334.3

0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Pharmacy

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 4

Exhibit 4: Subsidiaries & others to grow at CAGR of 7.1% in FY15-17E Exhibit 5: JVs sales to grow at CAGR of 9.3% in FY15-17E
400 350.9 500
350 313.3 384.1
285.6 400
300 334.0
249.7 294.1
250 215.0 300 272.9
(| crore)

235.8

(| crore)
200 153.7 153.0 194.5
150 200 157.1
94.5 105.8
100 72.9 83.1
100
50
0 0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Subsidiaries & consulting fees Add JV

Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research

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

1400 20
1176.7
1200

1000 926.5

800 734.7
16.3 608.216.1 672.4
(| crore)

16.1 16.0 16

(%)
600 513.1 15.3
14.8 418.3 14.8
400 300.6 14.2
226.714.0
200

0 12
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
EBITDA EBITDA Margins (%)

Source: Company, ICICIdirect.com Research

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

600 570.4 12

500
429.7
400 7.8 8
7.1 6.9 7.2 316.87.2 330.3 6.9
6.8
(| crore)

6.5 271.4 6.4

300
(%)

218.6
183.9
200 137.6 4
105.0
100

0 0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Net Profit 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
12.4
11.2 10.4 14.7
12 11.8 11.7 12.4
9.7 11.4
10.6
10 9.8 9.9
8.3 9.9
8.7
8

(%)
7.2 8.4
6
4
2
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
RoCE (%) RoNW (%)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 6

Exhibit 9: Trends in Standalone quarterly financials
(| crore) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 YoY (%) QoQ (%)
Total Operating Income 836.3 855.8 848.3 895.0 975.1 993.3 998.2 1053.7 1152.9 1182.5 1203.7 1265.0 20.0 5.1
Raw Material Expenses 435.2 442.6 442.2 463.7 505.7 519.2 513.3 553.2 608.7 632.1 629.9 672.5 21.6 6.8
as % revenues 52.0 51.7 52.1 51.8 51.9 52.3 51.4 52.5 52.8 53.4 52.3 53.2
Gross Profit 401.1 413.2 406.1 431.3 469.3 474.2 484.9 500.5 544.1 550.5 573.8 592.5 18.4 3.3
GPM (%) 48.0 48.3 47.9 48.2 48.1 47.7 48.6 47.5 47.2 46.6 47.7 46.8
Employee Expenses 130.5 135.8 132.4 139.1 151.3 157.2 162.7 170.7 179.5 179.7 191.1 193.1 13.1 1.0
as % revenues 15.6 15.9 15.6 15.5 15.5 15.8 16.3 16.2 15.6 15.2 15.9 15.3
Marketing Expenses 103.5 108.9 118.9 125.0 133.7 132.6 141.4 143.7 156.1 157.2 34.0 40.2 -72.0 18.2
as % revenues 12.4 12.7 14.0 14.0 13.7 13.3 14.2 13.6 13.5 13.3 2.8 3.2
Other expenditure 23.1 22.1 22.0 21.3 24.2 26.6 30.8 29.8 35.9 39.0 174.1 178.1 498.3 2.3
as % revenues 2.8 2.6 2.6 2.4 2.5 2.7 3.1 2.8 3.1 3.3 14.5 14.1
Total expenditure 692.3 709.4 715.5 749.1 815.0 835.6 848.1 897.4 980.2 1007.8 1029.2 1083.9 20.8 5.3
EBITDA 144.0 146.4 132.8 145.9 160.1 157.8 150.1 156.3 172.6 174.7 174.5 181.1 15.8 3.8
EBITDA Margins (%) 17.2 17.1 15.7 16.3 16.4 15.9 15.0 14.83 14.97 14.77 14.50 14.31 -52 bps -18 bps
Depreciation 27.0 27.6 28.9 30.7 31.7 33.5 33.1 39.9 38.9 38.6 40.6 45.0 12.8 10.8
Interest 18.8 19.3 20.8 20.5 22.6 23.1 20.9 18.9 20.1 21.7 22.6 26.9 42.0 19.1
Other Income 14.4 8.0 4.6 6.2 5.5 3.8 7.0 6.5 8.2 25.8 4.8 4.2 -34.9 -12.9
PBT 112.5 107.6 87.7 100.9 111.3 105.0 103.0 103.9 121.8 140.2 116.1 113.4 9.1 -2.4
Less: Exceptional Items 0.0 0.0 4.5 0.0 0.0 0.0 0.0 0.0 0.0 -15.2 0.5 0.0
Total Tax 29.3 26.9 16.7 22.0 24.3 21.5 21.7 21.2 30.3 30.0 39.3 22.5 6.4 -42.7
Tax rate (%) 26.0 25.0 19.1 21.8 21.8 20.5 21.0 20.4 24.9 21.4 33.8 19.9
Net Profit 83.2 80.6 75.5 78.9 87.0 83.4 81.3 82.7 91.5 95.0 77.3 90.8 9.8 17.5
Net Profit Margin (%) 10.0 9.4 8.9 8.8 8.9 8.4 8.1 7.9 7.9 8.0 6.4 7.2
EPS (Adjusted) 6.0 5.8 5.4 5.7 6.3 6.0 5.8 5.9 6.6 6.8 5.6 6.5
Source: Company, ICICIdirect.com Research

Exhibit 10: Standalone healthcare service performance

(| Crore) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 YoY (%) QoQ (%)
Sales 558.9 565.3 562.7 590.9 636.5 636.3 633.4 667.6 715.8 711.5 725.8 745.0 11.6 2.6
EBITDA 135.9 138.6 125.6 136.9 149.0 145.5 137.5 144.3 158.2 173.2 158.2 162.2 12.4 2.5
EBITDA Margins (%) 24.3 24.5 22.3 23.2 23.4 22.9 21.7 21.6 22.1 24.3 21.8 21.8
Source: Company, ICICIdirect.com Research

Exhibit 11: Standalone pharmacy performance

Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q2FY15 Q3FY15 Q4FY15 YoY (%) QoQ (%)
Sales (| crore) 247.7 277.6 290.5 285.9 304.2 338.6 357.1 364.9 386.22 437.17 471.2 520.1 42.6 10.4
EBITDA (| crore) 6.1 8.1 7.8 7.2 9.0 11.1 12.2 12.5 12.01 14.4 15.1 18.9 50.8 25.2
EBITDA Margins (%) 2.5 2.9 2.7 2.5 3.0 3.3 3.4 3.4 3.1 3.3 3.2 3.6
No of Stores 1357 1399 1445 1503 1526 1560 1586 1632 1664 1717 1784 2171
Rev per store (| lakh) 18.3 19.8 20.1 19.0 19.9 21.7 22.5 22.4 23.2 25.5 26.4 24.0
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

• 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 | 80-
100 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

ICICI Securities Ltd | Retail Equity Research 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 Apollo’s
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.

Exhibit 12: One year forward EV/EBITDA

(| crore)

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14
Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15
EV 18.9x 18.1x 16.5x 14.1x 12.5x
[

Source: Company, ICICIdirect.com Research

Exhibit 13: Valuation

Particulers Valuation Matrix Multiple (x) Enterprise value (| cr)

Healthcare EV/EBITDA 16.0 16,351
Pharmacy EV/Sales 1.5 3,907
Others EV/Sales 1.0 734
Cash 197
Expected Net Debt (| cr) 1,692
EV 19,497
No of shares (cr) 13.9
Per Share Value 1,401
Source: Company, ICICIdirect.com Research

Exhibit 14: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE
(| crore) (%) (|) (%) (x) (X) (%) (%)
FY14 4384 16 22.8 17 29.2 4.5 11.2 13.3
FY15 5178 18 23.7 3 27.5 3.9 9.9 11.4
FY16E 6261 21 30.9 32 21.8 3.2 12.4 13.2
FY17E 7346 17 41.0 33 17.0 2.7 15.2 16.2
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 9

Company snapshot

1,600 Target Price:| 1400

1,400
1,200
1,000
800
600
400
200
0
Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16
Jan-09

Jul-09

Oct-09

Jan-10

Jul-10

Oct-10

Jan-11

Jul-11

Oct-11

Jan-12

Jul-12

Oct-12

Jan-13

Jul-13

Oct-13

Jan-14

Jul-14

Oct-14

Jan-15

Jul-15

Oct-15

Jan-16

Jul-16
Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date Event
Sep-08 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-based Nova Specialty Hospitals at an estimated cost of | 135-145 crore
Source: Company, ICICIdirect.com Research

Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Position Chan (in %) Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
1 PCR Investments, Ltd. 30-Jun-15 19.57 27.2 0.0 Promoter 34.4 34.4 34.4 34.4 34.4
2 Integrated Mauritius Healthcare Holdings, Ltd. 30-Jun-15 10.85 15.1 0.0 FII 41.6 42.6 43.0 43.8 43.8
3 OppenheimerFunds, Inc. 30-Jun-15 8.69 12.1 0.4 DII 4.0 3.2 2.9 2.2 2.3
4 Reddy (Prathap C) 30-Jun-15 3.91 5.5 0.0 Others 20.1 19.9 19.8 19.6 19.6
5 Fidelity Management & Research Company 30-Jun-15 2.92 4.1 -1.0
6 Newton Investment Management Ltd. 30-Jun-15 2.58 3.6 3.6
7 Reddy (Suneeta) 30-Jun-15 2.43 3.4 0.0
8 Schroder Investment Management Ltd. (SIM) 30-Jun-15 1.99 2.8 0.0
9 Reddy (Sangita) 30-Jun-15 1.75 2.4 0.0
10 MEAG Munich ERGO Kapitalanlagegesellschaft mbH 30-Jun-15 1.72 2.4 0.0
Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys Sells
Investor name Value Shares Investor name Value Shares
Newton Investment Management Ltd. 74.24m 3.59m Fidelity Management & Research Company -20.17m -0.97m
Mirae Asset Global Investments (Hong Kong) Limited 14.51m 0.70m Life Insurance Corporation of India -13.69m -0.66m
OppenheimerFunds, Inc. 8.43m 0.41m Schroder Investment Management (Singapore) Ltd. -4.03m -0.23m
Reddy (Karthik Anand) 6.39m 0.33m Capital Investment Trust Corporation -3.59m -0.20m
Reddy (Harshad) 6.19m 0.32m Sydinvest -3.11m -0.20m
Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 10

Financial summary
Profit and loss statement | Crore Cash flow statement | Crore
(Year-end March) FY14 FY15 FY16E FY17E (Year-end March) FY14 FY15 FY16E FY17E
Revenues 4,384.2 5,178.5 6,261.0 7,346.3 Profit/(Loss) after taxation 316.7 339.9 429.7 570.4
Growth (%) 16.3 18.1 20.9 17.3 Add: Depreciation & Amortization 167.8 211.7 232.4 268.2
Raw Material Expenses 2,150.1 2,581.2 3,268.4 3,820.1 Working Capital Changes -120.2 -207.4 -411.6 -80.6
Employee Expenses 727.5 860.0 957.5 1,124.0 CF from operating activities 364.3 344.1 250.5 758.0
Marketing Expenses 115.2 155.5 214.6 235.1 Change in Capex -591.8 -722.7 -427.3 -600.0
Other expenditure 719.1 847.0 894.0 990.5 (Inc)/dec in Investments 205.1 10.9 0.0 0.0
Total Operating Expenditure 3,711.8 4,443.7 5,334.5 6,169.7 (Increase)/Decrease in Long term -162.9 -68.3 259.4 111.8
EBITDA 672.4 734.7 926.5 1,176.7 Other investing activities 95.0 115.4 19.2 30.8
Growth (%) 9.3 26.1 27.0 CF from investing activities -454.5 -664.8 -148.8 -457.5
Depreciation 167.8 211.7 232.4 268.2 Issue of Equity 1.1 0.0 0.0 0.0
Interest 119.3 117.9 157.5 149.4 Inc/(dec) in loan funds 132.1 648.0 -200.0 -100.0
Other Income 21.5 36.8 19.5 19.5 Dividend paid & dividend tax -93.6 -96.4 -121.6 -161.4
PBT 406.8 442.0 556.2 778.6 Other financing activities 5.6 -127.8 0.0 0.0
Total Tax 101.9 130.0 133.5 202.4 CF from financing activities 45.3 423.8 -321.6 -261.4
MI & Profit from Associates 11.8 14.5 7.0 -5.8
Adjusted PAT 316.8 326.5 429.7 570.4 Net Cash flow -44.9 103.2 -219.9 39.1
Growth (%) 16.7 3.1 31.6 32.7 Opening Cash 319.1 274.2 377.3 157.4
EPS (Adjusted) 22.8 23.7 30.9 41.0 Closing Cash 274.2 377.3 157.4 196.5
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Balance sheet | Crore Key ratios

(Year-end March) FY14 FY15 FY16E FY17E (Year-end March) FY14 FY15 FY16E FY17E
Equity Capital 69.6 69.6 69.6 69.6 Per share data (|)
Reserve and Surplus 2,907.1 3,100.6 3,408.7 3,817.6 Adjusted EPS 22.8 23.7 30.9 41.0
Total Shareholders funds 2,976.7 3,170.2 3,478.3 3,887.2 Cash EPS 16.0 16.8 22.1 29.4
Total Debt 1,344.3 1,992.3 1,792.3 1,692.3 BV per share 214.0 227.9 250.0 279.4
Deferred Tax Liability 351.9 422.2 422.2 422.2 Dividend per share 6.7 6.9 8.7 11.6
Minority Interest 18.8 74.2 78.4 84.1 Cash Per Share 62.2 72.6 89.3 108.6
Long term provisions 2.3 3.4 23.4 43.4 Revenue per Share 315.1 372.2 450.0 528.0
Other Non Current Liabilities 3.8 5.0 5.0 15.0 Operating Ratios (%)
Total Liabilities 4,697.7 5,667.3 5,799.6 6,144.3 EBITDA margins 15.3 14.2 14.8 16.0
Gross Block - Fixed Assets 3,379.5 4,043.5 4,803.4 5,453.4 Net Profit margins 7.2 6.4 6.9 7.8
Accumulated Depreciation 866.0 1,010.7 1,243.1 1,511.3 Inventory days 23.2 24.7 24.2 23.2
Net Block 2,513.6 3,032.8 3,560.4 3,942.2 Debtor days 43.3 42.9 44.8 44.9
Capital WIP 473.9 532.6 200.0 150.0 Creditor days 27.1 29.5 29.5 29.5
Net Intangible assets 35.2 46.1 46.1 46.1 Return Ratios (%)
Goodwill on Consolidation 149.9 165.2 165.2 165.2 RoE 10.6 10.4 12.4 14.7
Total Fixed Assets 3,172.6 3,776.8 3,971.7 4,303.5 RoCE 11.2 9.9 12.4 15.2
Investments 321.6 310.6 310.6 310.6 RoIC 13.3 11.4 13.2 16.2
Inventory 278.6 350.3 415.3 467.9 Valuation Ratios (x)
Debtors 519.8 609.3 769.3 903.1 P/E 59.1 55.0 43.5 32.8
Loans & Advances, & other CA 272.9 456.4 562.6 542.8 EV / EBITDA 29.2 27.5 21.8 17.0
Cash 274.2 377.3 157.4 196.5 EV / Net Sales 4.5 3.9 3.2 2.7
Total Current Assets 1,345.4 1,793.3 1,904.6 2,110.4 Market Cap / Sales 4.3 3.6 3.0 2.5
Creditors 325.0 419.1 506.8 594.6 Price to Book Value 6.3 5.9 5.4 4.8
Provisions & Other CL 349.8 393.0 224.9 223.2 Solvency Ratios
Total Current Liabilities 674.8 812.1 731.7 817.8 Debt / EBITDA 2.0 2.7 1.9 1.4
Net Current Assets 670.6 981.2 1,172.9 1,292.6 Debt / Equity 0.5 0.6 0.5 0.4
Long term loans & advances 510.1 578.5 319.1 207.3 Current Ratio 1.6 1.7 2.4 2.3
Deferred Tax Assets 22.8 20.3 25.3 30.3 Quick Ratio 1.2 1.3 1.8 1.8
Application of Funds 4,697.7 5,667.3 5,799.6 6,144.3 Quick Ratio 1.2 1.3 1.8 1.8
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 11

ICICIdirect.com coverage universe (Healthcare)
I-Direct CMP TP Rating M Cap EPS (|) PE(x) EV/EBITDA (x) RoCE (%) RoNW (%)
Company Code (|) (|) (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E
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 35.9
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 736 840 BUY 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
Biocon BIOCON 462.9 469 HOLD 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 13.9
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 725.5 650 HOLD 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 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 26.7
Indoco Remedies INDREM 342 385 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
Ipca Laboratories IPCLAB 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
Jubilant Life Sciences VAMORG 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
Lupin LUPIN 1643 1885 BUY 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
Natco Pharma NATPHA 2280 2200 HOLD 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
Sun Pharma SUNPHA 879.1 850 HOLD 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
Torrent Pharma TORPHA 1516 1660 BUY 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
Unichem Laboratories UNILAB 236.5 214 HOLD 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
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
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ICICI Securities Ltd | Retail Equity Research Page 14