june 1, 2017 apollo hospitals (apohos) | 1210content.icicidirect.com/mailimages/idirect_apollo...in...
TRANSCRIPT
June 1, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
One-offs, new hospitals impact margins…
Revenues grew 15% YoY to | 1662 crore (I-direct estimate: | 1672
crore) on the back of 10% growth in the healthcare business to | 918
crore (I-direct estimate: | 913 crore) and 22% increase in pharmacy
business to | 743 crore (I-direct estimate: | 759 crore)
EBITDA margins declined 235 bps YoY to 10.2% (I-direct estimate:
13.2%) mainly due to higher other expenditure. EBITDA declined 6%
YoY to | 170 crore (I-direct estimate: | 220 crore)
Adjusted net profit declined 41% to | 48 crore (I-direct estimate: | 89
crore) mainly due to lower EBITDA, higher interest cost and
depreciation
Sustained expansions to drive healthcare business growth
The healthcare services segment (57% of consolidated revenues) has
grown at a CAGR of 14% in FY12-17 on account of incremental hospital
addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid
expansion and maturity of older hospitals has kept the overall growth
tempo at 12-14% per annum. In the past three years, the company has
added 2,400 beds, of which 1,500 are operational at 13 locations. This
includes commissioning of the Navi Mumbai hospital in Q3FY17. This is
likely to put some pressure on EBITDA margins and return ratios in the
short to medium term. However, in the past, the company has
demonstrated its ability to balance between expansion and margins. We
expect more focus on improvement of important parameters like average
length of stay (ALOS) and average revenue per operating bed (AROPB),
which were flat in the last few quarters due to incremental bed additions.
We expect healthcare sales to grow at a CAGR of 14% in FY17-19E to
| 4602 crore as the company keeps on investing in new assets.
Pharmacy business EBITDA continues to improve
The pharmacy business (40% of consolidated revenues) has grown at
~30% CAGR 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 old stores are maturing and
making a contribution. Current margins are at 3.6%. We expect the
pharmacy business to grow at 13% CAGR in FY17-19E to | 3673 crore on
the back of higher sales from existing stores. The company added 230
stores in FY17 taking total stores to 2556.
New hospitals to hold key for improvement in margins and return ratios
Q4 margins were impacted by certain one-offs on account of
demonetisation, VIP admission and regulation on stent pricing besides
expenses at Navi Mumbai hospital, which was recently commissioned.
The new hospitals and AHLL contribute 14% of total revenues but are
fetching EBITDA loss. However, some of the newly commissioned
hospitals have achieved the BE level fairly ahead of our expectations. This
is likely to improve overall healthcare margins. We expect benefit of
operating leverage to surpass asset addition, going ahead, which can
eventually improve margins and RoCE. On the pharmacy front, margins
have showed a substantial improvement in the last few quarters. The
trend is likely to continue. The RoCE for pharmacy has also improved to
~15%. We continue to value the stock on SOTP basis by valuing the
healthcare business (existing hospital) at 16x FY19E EV/EBITDA,
healthcare business (new hospital) at 1.0x FY19E EV/sales and pharmacy
business at 1.5x FY19E EV/sales. We have ascribed a target of | 1400.
Rating matrix
Rating : Buy
Target : | 1400
Target Period : 12-15 months
Potential Upside : 16%
What’s Changed?
Target Changed from | 1440 to | 1400
EPS FY18E Changed from | 20.5 to | 16.6
EPS FY19E Changed from | 26.9 to | 33.3
Rating Unchanged
Standalone Quarterly Performance
Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%)
Revenue 1,661.6 1,447.9 14.8 1,680.6 -1.1
EBITDA 170.1 182.2 -6.6 194.1 -12.4
EBITDA (%) 10.2 12.6 -235 bps 11.5 -131 bps
Adj. Net Profit 48.2 81.3 -40.8 72.8 -33.9
Key Financials
(| Crore) FY16 FY17E FY18E FY19E
Revenues 6214.7 7254.9 8235.2 9378.2
EBITDA 687.8 728.6 778.7 1064.0
Adjusted PAT 178.2 178.6 230.9 463.6
Adj. EPS (|) 13.2 12.8 16.6 33.3
Valuation summary
FY16 FY17E FY18E FY19E
PE (x) 86.7 94.3 72.9 36.3
EV to EBITDA (x) 27.7 26.4 24.5 17.4
Target EV/EBITDA (x) 28.2 26.6 24.9 18.2
Price to book (x) 4.9 4.6 4.3 3.9
RoNW (%) 5.3 4.9 6.0 10.9
RoCE (%) 6.6 6.0 6.7 10.8
Stock data
Particular
Market Capitalisation
Debt (FY16)
Cash (FY16)
EV
52 week H/L (|) 1443/1111
Equity capital
Face value | 5
| 69.6 crore
Amount
| 16834 crore
| 19369 crore
| 3152 crore
| 618 crore
Price performance (%)
1M 3M 6M 1Y
Apollo Hospitals -1.8 -7.0 1.3 -11.5
Fortis Healthcare -11.4 1.2 10.0 20.7
Research Analyst
Siddhant Khandekar
Mitesh Shah
Harshal Mehta
Apollo Hospitals (APOHOS) | 1210
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q4FY17 Q4FY17E Q4FY16 Q3FY17 YoY (%) QoQ (%) Comments
Revenue 1,661.6 1,671.7 1,447.9 1,680.6 14.8 -1.1 Growth mainly driven by 22% growth in the pharmacy segment and 10%
growth in the healthcare segment
Raw Material Expenses 866.4 884.5 730.4 889.2 18.6 -2.6
Employee Expenses 248.3 245.8 223.0 247.1 11.3 0.5
Marketing Expenses 0.0 61.0 0.0 0.0 0.0 0.0
Other expenditure 376.9 260.1 312.3 350.2 20.7 7.6
EBITDA 170.1 220.3 182.2 194.1 -6.6 -12.4
EBITDA (%) 10.2 13.2 12.6 11.5 -235 bps -131 bps YoY margins impacted due to one-offs – 1) ~| 10 crore towards VIP
admission and demonetisation 2) ~| 22 crore of startup cost at Navi
Mumbai hospital and 3) | 15-20 crore of impact due to government
regulation on stent pricing. Miss vis-à-vis I-direct estimates mainly due to
higher-than-expected one-offs impact
Interest 57.8 51.3 43.8 51.3 31.9 12.6 Increase in interest cost mainly due to new hospital capex
Depreciation 62.8 61.8 48.5 61.8 29.4 1.7 Higher depreciation due to new hospital capex
Other Income 9.1 5.0 9.5 3.1 -3.7 196.4
PBT before EO & Forex 58.6 112.2 99.3 84.1 -41.0 -30.3
EO 0.0 0.0 0.0 0.0 0.0 0.0
PBT after Exceptional Items 58.6 112.2 99.3 84.1 -41.0 -30.3
Tax 10.4 23.6 18.0 11.2 -41.9 -7.1
Tax rate (%) 21.0 21.0 18.1 13.4
Adj. Net Profit 48.2 88.6 81.3 72.8 -40.8 -33.9 YoY decline and miss- vis-à-vis I-direct estimates due to lower operational
performance, higher interest cost and depreciation
EPS (|) 3.5 6.4 5.8 5.2 -40.8 -33.9
Key Metrics
Healthcare Services 918.4 913.3 838.7 891.9 9.5 3.0 VIP admission, demonetisation and government regulation on stent pricing
impacted Q4FY17 sales. YoY growth was mainly driven by 74% YoY
growth in new hospitals to | 203 crore
Pharmacy 743.3 758.7 609.2 788.8 22.0 -5.8 Growth was driven by 50 stores (net) addition
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change
Revenue 8,129.5 8,235.2 1.3 9,133.0 9,378.2 2.7
EBITDA 900.1 778.7 -13.5 1,152.9 1,064.0 -7.7
EBITDA Margin (%) 11.1 9.5 -162 bps 12.6 11.3 -128 bps Reduced due to 1) changes in sync with Ind AS and 2) adverse product mix
PAT 284.5 230.9 -18.8 374.5 463.6 23.8
EPS (|) 20.5 16.6 -18.8 26.9 33.3 23.8 Changed mainly in sync with EBITDA and increase in financial expenses
FY18E FY19E
Source: Company, ICICIdirect.com Research
Assumptions
(% Growth) FY16 FY17E FY18E FY19E FY18E FY19E
Healthcare Services 3,085.8 3,567.7 4,044.0 4,602.1 4,038.2 4,595.5
Pharmacy 2,323.7 2,874.6 3,268.7 3,673.7 3,268.7 3,673.7
Current Earlier
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
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 the
standalone accounts - 1) healthcare services i.e. hospitals and 2)
standalone pharmacies. In the consolidated accounts, other reporting
segments are – 1) hospital revenues from JVs/subsidiaries and associates,
2) Apollo-Munich Health insurance JV, 3) Apollo Health & Lifestyle Ltd,
which is the retail healthcare business of Apollo Hospitals.
Apollo owns 70 hospitals with a total bed capacity of 10084 beds. Of
these 70 hospitals, 43 are owned by the company (including JVs,
subsidiaries and associates) while seven are managed by the company
with 1234 beds while 11 are day care/short surgical stay centres with 229
beds and nine cradles with 259 beds.
In case of managed hospitals, the company charges 5-6% management
fees for 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 that include hospitals in Madurai, Karur,
Karaikudi, Trichy, Mysore, Vizag, Pune, Karimnagar, Bilaspur,
Bhubaneswar, Vanagaram, Nashik, Nellore, Jayanagar, etc.
In June 2015, the company acquired a 51% stake in Assam Hospitals Ltd,
which runs a 220 bed hospital in Guwahati.
Apollo Healthcare and Lifestyle Ltd (AHLL) subsidiary covers the retail
healthcare business of the Apollo group, comprising Apollo Clinics,
Apollo Sugar, White Dental, Apollo Day Surgery centres and Apollo
Cradle. AHLL reported | 124.2 crore of sales in FY16.
Apollo Sugar Clinics is a one stop shop for diabetics and offer packages
to better manage diabetes through a combination of prescriptions,
dietary, exercise regimens and other lifestyle changes apart from
management of diabetes related complications. Sanofi has 20% stake in
Apollo Sugar Clinics business. The company has 26 Apollo Sugar Clinics.
Apollo Day Surgery centres focus on planned surgeries done in a
day/short stay basis. The company has 12 centres as of FY16.
Apollo Cradle denotes lifestyle birthing centres. It launched the first
Apollo Cradle in Delhi a decade ago and currently has three centres in the
network, and plans to add five more centres - two in Hyderabad, two in
Delhi and one in Bengaluru.
In FY15, AHLL acquired 11 day and short stay surgery centres (over 350
beds) from Nova Specialty Hospitals with a presence in eight cities across
India. This acquisition provides APL an opportunity to provide quality
healthcare delivery closer to home and also entry in new markets such as
Mumbai, Jaipur and Kanpur.
In case of standalone pharmacies, which are basically drug stores chain
selling prescription, OTC and private label FMCG products, the company
owns 2556 stores. In FY15, the company acquired Hyderabad-based
ICICI Securities Ltd | Retail Equity Research Page 4
Hetero Med Solutions Ltd (HMSL). HMSL has ~320 stores across
Telangana, Andhra Pradesh and Tamil Nadu.
Overall, we expect revenues to grow at 14% CAGR in FY16-19E to | 9378
crore.
Exhibit 1: Revenues to grow at CAGR of 14% in FY17-19E
3147.5
3768.7
4384.2
5178.5
6214.7
7254.9
8235.2
9378.2
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
Revenues
Source: Company, ICICIdirect.com Research
The healthcare services segment (57% of consolidated revenues) has
grown at a CAGR of 14.3% in FY12-17 on account of incremental hospital
addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid
expansion and maturity of older hospitals has kept the overall growth
tempo of ~14% per annum. In the past three years the company has
added 2,400 beds, of which 1,500 are operational at 13 locations. This
includes commissioning of Navi Mumbai hospital in Q3FY17. This is likely
to put some pressure on EBITDA margins and return ratios in the short to
medium term. However, in the past, the company has demonstrated its
ability to balance between expansion and margins. We expect more focus
on improvement of important parameters like average length of stay
(ALOS) and average revenue per operating bed (AROPB), which were flat
in the last few quarters due to incremental bed additions. We expect
healthcare sales to grow at a CAGR of 14% in FY16-19E to | 4602 crore as
the company keeps on investing in new assets.
Exhibit 2: Healthcare services to grow at CAGR of 14% in FY17-19E
1940.2
2216.7
2497.1
2820.7
3085.8
3567.7
4044.0
4602.1
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
Healthcare Services
Source: Company, ICICIdirect.com Research
The pharmacy business (40% of consolidated revenues) has grown at
30% CAGR 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 old stores are maturing and
making contribution. We expect the pharmacy business to grow at 13%
CAGR in FY17-19E to | 3674 crore on the back of higher sales from
20.2% CAGR
13.7% CAGR
14.3% CAGR
13.6% CAGR
ICICI Securities Ltd | Retail Equity Research Page 5
existing stores. The company added 230 stores in FY17 taking total stores
to 2556. In the last five years, we have seen a strong improvement in
revenues per store from | 63 lakh in FY12 to | 1.1 crore in FY17. The
Hetero acquisition may put some pressure on margins initially but augurs
well in the long run. The pharmacy business is also a candidate for
possible value unlocking.
Exhibit 3: Pharmacy business to grow at CAGR of 13% in FY17-19E
860.6
1101.7
1364.8
1772.6
2323.7
2874.6
3268.7
3673.7
0
500
1000
1500
2000
2500
3000
3500
4000
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
Pharmacy
Source: Company, ICICIdirect.com Research
Exhibit 4: EBITDA to grow at CAGR of 21% in FY17-19E
608.2
672.4
734.7687.8
728.6778.7
1064.0
16.115.3
14.2
11.1
10.09.5
11.3
0
200
400
600
800
1000
1200
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
0
4
8
12
16
20
(%
)
EBITDA EBITDA Margins (%)
Source: Company, ICICIdirect.com Research
Exhibit 5: Net profit to grow at CAGR of 61% in FY17-19E
275.5
316.8
339.9
194.1178.6
230.9
463.6
7.3 7.2
6.6
3.1
2.5
2.8
4.9
0
50
100
150
200
250
300
350
400
450
500
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
0
4
8(%
)
Net Profit Net Profit Margins (%)
Source: Company, ICICIdirect.com Research
30.4% CAGR
13.0% CAGR
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 6: Trends in return ratios
9.9
6.6
10.8
11.811.3
6.0
6.7
9.9 10.6
10.4
5.3 4.9
6.0
10.9
0
2
4
6
8
10
12
14
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(%
)RoCE (%) RoNW (%)
Source: Company, ICICIdirect.com Research
Exhibit 7: Trends in standalone quarterly financials
(| crore) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%)
Total Operating Income 777.4 1053.7 1152.9 1182.5 1203.7 1305.7 1409.7 1380.5 1447.9 1465.4 1634.1 1680.6 1661.6 14.8 -1.1
Raw Material Expenses 399.7 553.2 608.8 632.1 629.9 670.1 729.9 737.7 730.4 758.9 846.1 889.2 866.4 18.6 -2.6
as % revenues 51.4 52.5 52.8 53.4 52.3 51.3 51.8 53.4 50.4 51.8 51.8 52.9 52.1
Gross Profit 377.7 500.5 544.1 550.5 573.8 635.6 679.9 642.8 717.4 706.6 788.1 791.4 795.3 10.9 0.5
GPM (%) 48.6 47.5 47.2 46.6 47.7 48.7 48.2 46.6 49.6 48.2 48.2 47.1 47.9
Employee Expenses 125.7 170.7 179.5 179.7 191.1 190.7 202.3 222.2 223.0 215.5 230.9 247.1 248.3 11.3 0.5
as % revenues 16.2 16.2 15.6 15.2 15.9 14.6 14.4 16.1 15.4 14.7 14.1 14.7 14.9
Other expenditure 14.0 173.5 192.0 196.1 208.1 267.3 281.4 238.1 312.3 304.2 335.2 350.2 376.9 20.7 7.6
as % revenues 1.8 16.5 16.7 16.6 17.3 20.5 20.0 17.2 21.6 20.8 20.5 20.8 22.7
Total expenditure 647.0 897.4 980.3 1007.8 1029.2 1128.1 1213.5 1197.9 1265.7 1278.6 1412.2 1486.5 1491.6 17.8 0.3
EBITDA 130.4 156.3 172.6 174.7 174.5 177.7 196.2 182.6 182.2 186.9 221.9 194.1 170.1 -6.6 -12.4
EBITDA Margins (%) 16.8 14.83 14.97 14.77 14.50 13.61 13.92 13.23 12.58 12.75 13.58 11.55 10.23 -235 bps -131 bps
Depreciation 25.1 39.9 38.9 38.6 40.6 48.7 49.5 50.1 48.5 55.7 60.3 61.8 62.8 29.4 1.7
Interest 13.7 18.9 20.1 21.7 22.6 26.9 30.9 32.0 43.8 44.4 46.9 51.3 57.8 31.9 12.6
Other Income 4.1 6.5 8.2 25.8 4.8 5.3 0.9 55.0 9.5 5.3 9.4 3.1 9.1 -3.7 196.4
PBT 95.7 103.9 121.8 140.2 116.1 107.4 116.8 155.4 99.3 92.1 124.2 84.1 58.6 -41.0 -30.3
Less: Exceptional Items 0.0 0.0 0.0 -15.2 0.5 0.0 0.0 -25.7 0.0 0.0 0.0 0.0 0.0
Total Tax 25.9 21.2 30.3 30.0 39.3 19.9 27.2 20.5 18.0 19.9 32.2 11.2 10.4 -41.9 -7.1
Tax rate (%) 27.1 20.4 24.9 21.4 33.8 18.5 23.3 13.2 18.1 21.6 25.9 13.4 17.8
Net Profit 69.7 82.7 91.5 95.0 77.3 87.5 89.6 109.2 81.3 72.2 92.0 72.8 48.2 -40.8 -33.9
Net Profit Margin (%) 9.0 7.9 7.9 8.0 6.4 6.7 6.4 7.9 5.6 4.9 5.6 4.3 2.9
EPS (Adjusted) 5.1 5.9 6.6 6.8 5.6 6.3 6.4 7.9 5.8 5.2 6.6 5.2 3.5
Source: Company, ICICIdirect.com Research
Exhibit 8: Standalone healthcare service performance
(| Crore) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%)
Sales 590.9 636.5 636.3 633.4 667.6 715.8 711.5 725.8 745.0 784.4 769.1 838.7 918.4 23.3 9.5
EBITDA NA NA NA 168.3 157.9 162.0 171.9 158.2 187.0 165.0 188.2 157.9 187.0 0.0 18.4
EBITDA Margins (%) NA NA NA 26.6 23.7 22.6 24.2 21.8 25.1 21.0 24.5 18.8 20.4
Source: Company, ICICIdirect.com Research
Exhibit 9: Standalone pharmacy performance
Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%)
Sales (| crore) 304.2 338.6 357.1 364.9 386.2 437.17 471.2 478.0 520.1 583.1 611.5 788.84 743.31 42.9 -5.8
EBITDA (| crore) NA NA NA NA NA NA 22.9 24.4 18.6 21.9 34.8 35.7 33.6 80.9 -5.8
EBITDA Margins (%) NA NA NA NA NA NA 4.9 5.1 3.6 3.8 5.7 4.5 4.5
No of Stores 1632 1664 1717 1784 1822 2171 2217 2263 2326 2383 2430 2506 2546
Rev per store (| lakh) 18.6 20.4 20.8 20.5 21.2 20.1 21.3 21.1 22.4 24.5 25.2 31.5 29.2
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
SWOT Analysis
Strengths - Early mover in the healthcare space. Strong balance sheet
despite being in a business with higher gestation period. Strong brand
value - a significant aspect in this business
Weakness - Presence in the 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 the cost associated with it
ICICI Securities Ltd | Retail Equity Research Page 8
Conference call Highlights
New hospitals revenues grew 51.1% to | 586.3 crore in FY17.
New hospitals EBITDA (excluding Navi Mumbai loss) of | 25.6
crore in FY17 compared to EBITDA loss of | 1 crore in FY16
AHLL – Cradle & Clinics reported an EBITDA loss of | 106.9 crore
compared to loss of | 116.2 crore in FY16
Pharmacy margins were at 4.3% in FY17. Excluding Hetero
network of stores, EBITDA margins were at 4.5%
Pharmacy RoCE in FY17 was at 14.9% vs. 9.3% in FY16
Net addition of 230 pharmacy stores in FY17, pan-India network is
now at 2556 stores
Total 2,430 beds in 13 locations commissioned in the last 36
months – Vanagaram 260, Jayanagar 140, Trichy 200, Nashik 120,
Women and Child - OMR 60, Indore 120, Nellore 190, Perungudi
150, Women & Child - SMR 50, Vizag new 250, Malleswaram 190,
Assam 220, Navi Mumbai 480. The company plans to 200 beds in
South Chennai in FY19, 500 beds in Byculla Mumbai, in FY21-22
Cardiac cases contribute ~20% of hospital revenues, and that
equally split between walk-ins and third party payers. The
company expects regulation on stent pricing impact being spread
over the next three quarters
The company expects to improve pharmacy margins in FY18
Total spend on proton project in south Chennai was ~| 400 crore,
which includes proton equipment of | 300 crore. RoI of this
project is expected to be in the range of 16-18%
The management expects to reach EBITDA breakeven in Spectra
and Cradle by end of FY18
The company expects ~12% growth in hospital segment in FY18,
which includes ~7% growth in occupancy rate and 4-5% in
realisation
Government regulation on stent pricing impacted to the tune of
| 15-20 crore on EBITDA. The company expects half of this impact
in Q1FY18
Navi Mumbai Hospital- start-up cost is expected to be ~| 15 crore
in Q1FY18 and | 35-40 crore in FY18. The management expects to
reach break even by end of FY18. In Q4, the occupancy was 50,
which it expects to increase to 75 in Q1FY18 and ~150 over the
next four or five quarters. Total 90% of doctors are guaranteed
doctors
ICICI Securities Ltd | Retail Equity Research Page 9
Valuation
Q4 margins were impacted by certain one-offs on account of
demonetisation, VIP admission and regulation on stent pricing besides
expenses at Navi Mumbai hospital, which was recently commissioned.
The new hospitals and AHLL contribute 14% of total revenues but are
fetching an EBITDA loss. However, some of the newly commissioned
hospitals have achieved the BE level fairly ahead of our expectations. This
is likely to improve overall healthcare margins. We expect the benefit of
operating leverage to surpass asset addition, going ahead, which can
eventually improve margins and RoCE. On the pharmacy front, margins
have showed a substantial improvement in the last few quarters. The
trend is likely to continue. The RoCE for pharmacy has also improved to
~15%. We continue to value the stock on an SOTP basis by valuing the
healthcare business (existing hospital) at 16x FY19E EV/EBITDA,
healthcare business (new hospital) at 1.0x FY19E EV/sales and pharmacy
business at 1.5x FY19E EV/sales. We have ascribed a target of | 1400.
Exhibit 10: One year forward EV/EBITDA
0
3000
6000
9000
12000
15000
18000
21000
24000
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
(| c
rore)
EV 19.3x 18.5x 17.0x 14.7x 13.2x
[
Source: Company, ICICIdirect.com Research
Exhibit 11: Valuation
Particulers Valuation Matrix Multiple (x) Enterprise value (| cr)
Healthcare (Existing Hospitals) EV/EBITDA 16.0 13,760
Healthcare (New Hospitals) EV/Sales 1.0 1,467
Pharmacy EV/Sales 1.5 5,664
Others EV/Sales 1.0 397
Net Debt FY19E (| cr) 1,815.1
EV (| cr) 19,472
No of shares (cr) 13.9
Per Share Value (|) 1,400
Source: Company, ICICIdirect.com Research
Exhibit 12: Valuation
Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE
(| crore) (%) (|) (%) (x) (X) (%) (%)
FY16 6215 20.0 13.2 -45.4 27.7 3.1 6.6 7.4
FY17E 7255 16.7 12.8 0.2 26.4 2.7 6.0 6.7
FY18E 8235 13.5 16.6 29.3 24.5 2.3 6.7 7.1
FY19E 9378 13.9 33.3 100.8 17.4 2.0 10.8 11.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommendation history vs. Consensus
0
200
400
600
800
1,000
1,200
1,400
1,600
Apr-17Feb-17Dec-16Sep-16Jul-16Apr-16Feb-16Nov-15Sep-15Jul-15Apr-15
(|
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Reuters, 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$15 million. IFC also granted a
loan
May-11 Pharmacy business of company turns profitable for first time
Sep-12 Government allows foreign direct investment in multi brand retail. Pharmacy business of Apollo Hospitals falls into this category
Dec-12 Sells stake in its BPO company Apollo Health Street to US based company Sutherland Global Services. It holds 39.4% in Apollo Health Street
Jan-13 Plans to establish a proton therapy centre in India. It will be first of its kind across South East Asia, Africa and Australia.
May-13 Apollo Hospitals and Yash Birla Group call off their JV & shut down their plans to set up super specialty hospitals in Thane, Mumbai
Sep-14 Enters into agreement to acquire 320 pharmacy stores from Hetero for | 146 crore
Jan-15 Acquires Bengaluru-based Nova Specialty Hospitals at an estimated cost of | 135-145 crore
Jun-15 Acquires 51% stake in Assam Hospitals
Nov-16 Commisions 480 bed super speciality tertiary care hospital in Navi Mumbai
Dec-16 International Finance Corporation invests | 450 crore in AHLL for global expansion
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Investor Name Latest Filing Date % O/S Position Position Change
1 PCR Investments, Ltd. 31-Mar-17 19.6 27.2m 0.0m
2 OppenheimerFunds, Inc. 31-Mar-17 9.5 13.2m -1.1m
3 Integrated Mauritius Healthcare Holdings, Ltd. 31-Mar-17 4.8 6.7m -8.4m
4 Reddy (Prathap C) 31-Mar-17 3.9 5.4m 0.0m
5 Schroder Investment Management Ltd. (SIM) 31-Mar-17 3.6 5.0m 4.0m
6 Schroder Investment Management (Hong Kong) Ltd. 31-Jan-17 3.6 4.9m 0.0m
7 Reddy (Suneeta) 31-Mar-17 2.4 3.4m 0.0m
8 Reddy (Sangita) 31-Mar-17 1.7 2.4m 0.0m
9 MEAG Munich ERGO Kapitalanlagegesellschaft mbH 31-Mar-17 1.7 2.4m 0.0m
10 Khamineni (Shobana) 31-Mar-17 1.6 2.2m 0.0m
(in %) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Promoter 34.4 34.4 34.4 34.4 34.4
Others 65.7 65.7 65.7 65.7 65.7
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value ($) Shares Investor name Value ($) Shares
Schroder Investment Management Ltd. (SIM) 71.7m 4.0m Integrated Mauritius Healthcare Holdings, Ltd. -151.6m -8.4m
Deutsche Asset Management Americas 31.0m 1.7m OppenheimerFunds, Inc. -20.2m -1.1m
Birla Sun Life Asset Management Company Ltd. 11.9m 0.7m Allianz Global Investors Asia Pacific Limited -9.4m -0.5m
AllianceBernstein L.P. 8.8m 0.5m Lyxor Asset Management -5.2m -0.3m
Mirae Asset Global Investments (India) Pvt. Ltd. 5.0m 0.3m Wellington Management Company, LLP -3.1m -0.2m
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
.
Financial summary
Profit and loss statement | Crore
(Year-end March) FY16 FY17E FY18E FY19E
Revenues 6,214.7 7,254.9 8,235.2 9,378.2
Growth (%) 20.0 16.7 13.5 13.9
Raw Material Expenses 3,054.7 3,595.4 4,179.0 4,759.1
Employee Expenses 1,023.6 1,196.5 1,235.3 1,406.7
Other expenditure 1,448.6 1,734.4 2,042.2 2,148.4
Total Operating Expenditure 5,526.9 6,526.3 7,456.5 8,314.3
EBITDA 687.8 728.6 778.7 1,064.0
Growth (%) -6.4 5.9 6.9 36.6
Depreciation 263.8 314.0 335.5 348.9
Interest 180.0 257.4 209.0 168.2
Other Income 22.5 22.5 21.9 24.9
PBT 266.4 179.7 256.1 571.8
Total Tax 96.9 91.0 53.8 120.1
MI & Profit from Associates 8.7 89.8 28.6 11.9
Adjusted PAT 178.2 178.6 230.9 463.6
Growth (%) -45.4 0.2 29.3 100.8
EPS (Adjusted) 13.2 12.8 16.6 33.3
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY16 FY17E FY18E FY19E
Profit/(Loss) after taxation 275.9 178.6 230.9 463.6
Add: Depreciation & Amortization 253.3 314.0 335.5 348.9
Working Capital Changes -231.7 255.9 -34.8 -116.6
CF from operating activities 297.5 748.5 531.6 696.0
Change in Capex -830.6 -891.6 -400.0 -250.0
(Inc)/dec in Investments 117.1 -165.9 0.0 0.0
Others 29.5 24.6 112.8 126.0
CF from investing activities -684.0 -1,033.0 -287.2 -124.0
Issue of Equity 20.6 0.0 0.0 0.0
Inc/(dec) in loan funds 582.0 465.5 -592.4 -500.0
Dividend paid & dividend tax -161.6 -32.1 -32.3 -64.8
Others -168.5 71.2 0.0 0.0
CF from financing activities 272.5 504.6 -624.7 -564.8
Net Cash flow -114.0 220.2 -380.4 7.2
Opening Cash 385.9 397.6 617.8 237.4
Closing Cash 271.9 617.8 237.4 244.6
Free Cash Flow -533.1 -143.1 131.6 446.0
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY16 FY17E FY18E FY19E
Equity Capital 69.6 69.6 69.6 69.6
Reserve and Surplus 3,384.1 3,601.8 3,800.4 4,199.3
Total Shareholders funds 3,453.7 3,671.3 3,870.0 4,268.8
Total Debt 2,686.7 3,152.2 2,559.8 2,059.8
Deferred Tax Liability 497.7 226.9 237.6 261.6
Minority Interest 130.3 216.4 216.4 216.4
Long term provisions 3.2 5.4 7.4 9.4
Other Non Current Liabilities 1.3 31.2 31.2 31.2
Total Liabilities 6,772.9 7,303.4 6,922.4 6,847.2
Gross Block - Fixed Assets 4,707.5 5,842.3 6,242.3 6,492.3
Accumulated Depreciation 1,263.2 1,566.6 1,891.3 2,229.5
Net Block 3,444.3 4,275.8 4,351.0 4,262.8
Capital WIP 595.6 346.7 346.7 346.7
Net Intangible assets 168.3 148.6 137.9 127.1
Goodwill on Consolidation 212.0 226.7 226.7 226.7
Total Fixed Assets 4,420.2 4,997.8 5,062.3 4,963.4
Investments 269.7 435.7 435.7 435.7
Inventory 443.3 466.9 530.0 603.5
Debtors 702.0 748.2 849.3 967.2
Loans & Advances, & other CA 456.4 645.6 332.1 283.1
Cash 397.6 617.8 237.4 244.6
Total Current Assets 2,188.4 2,165.0 1,899.8 2,118.4
Creditors 503.7 500.5 568.1 646.9
Provisions & Other CL 393.0 410.6 426.2 438.8
Total Current Liabilities 914.3 926.6 1,006.9 1,101.8
Net Current Assets 1,274.1 1,238.4 892.9 1,016.6
Long term loans & advances 795.3 631.5 531.5 431.5
Deferred Tax Assets 13.4 0.0 0.0 0.0
Application of Funds 6,772.8 7,303.4 6,922.3 6,847.2
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY16 FY17E FY18E FY19E
Per share data (|)
Adjusted EPS 13.2 12.8 16.6 33.3
BV per share 248.2 263.9 278.2 306.8
Dividend per share 7.2 2.3 2.3 4.7
Cash Per Share 28.6 44.4 17.1 17.6
Operating Ratios (%)
Gross Profit Margins 50.8 50.4 49.3 49.3
EBITDA margins 11.1 10.0 9.5 11.3
Net Profit margins 3.0 2.5 2.8 4.9
Inventory days 26.0 23.5 23.5 23.5
Debtor days 41.2 37.6 37.6 37.6
Creditor days 29.6 25.2 25.2 25.2
Asset Turnover 0.9 1.0 1.2 1.4
EBITDA Conversion Rate 43.3 102.7 68.3 65.4
Return Ratios (%)
RoE 5.3 4.9 6.0 10.9
RoCE 6.6 6.0 6.7 10.8
RoIC 7.4 6.7 7.1 11.6
Valuation Ratios (x)
P/E 86.7 94.3 72.9 36.3
EV / EBITDA 27.7 26.4 24.5 17.4
EV / Net Sales 3.1 2.7 2.3 2.0
Market Cap / Sales 2.7 2.3 2.0 1.8
Price to Book Value 4.9 4.6 4.3 3.9
Solvency Ratios
Debt / EBITDA 3.9 4.3 3.3 1.9
Debt / Equity 0.8 0.9 0.7 0.5
Net Debt / Equity 0.8 0.8 0.6 0.5
Current Ratio 2.0 1.7 1.7 1.7
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
ICICIdirect.com coverage universe (Healthcare)
Company I-Direct CMP TP Rating M Cap
Code (|) (|) (| Cr) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Ajanta Pharma AJAPHA 1536 1,880 Buy 13520.2 45.4 58.5 61.7 72.4 33.8 26.3 24.9 21.2 42.9 40.6 33.8 31.7 34.2 32.6 27.0 25.2
Alembic Pharma ALEMPHA 535 615 Hold 10083.7 38.2 21.4 23.4 30.2 14.0 25.0 22.9 17.7 51.5 26.1 22.3 24.7 44.9 21.4 20.0 21.8
Apollo Hospitals APOHOS 1213 1,400 Buy 16876.6 13.2 12.8 16.6 33.3 91.9 94.5 73.1 36.4 6.6 6.0 6.7 10.8 5.3 4.9 6.0 10.9
Aurobindo Pharma AURPHA 560 753 Buy 30020.6 33.9 38.3 37.0 41.8 16.5 14.6 15.1 13.4 23.3 24.8 19.6 20.0 28.1 23.9 19.0 17.9
Biocon BIOCON 946 1,020 Hold 18919.0 23.1 31.0 25.5 40.8 40.9 30.5 37.0 23.2 9.1 11.4 10.4 15.3 11.4 13.5 10.2 14.5
Cadila Healthcare CADHEA 456 420 Hold 46667.3 15.0 13.7 16.8 20.9 30.5 33.2 27.2 21.8 26.7 13.4 16.7 19.0 28.6 20.2 20.8 21.7
Cipla CIPLA 505 470 Hold 40657.9 18.5 12.9 19.3 26.1 27.3 39.3 26.2 19.3 12.0 8.0 11.7 14.9 12.5 8.1 11.1 13.4
Divi's Lab DIVLAB 570 625 Hold 15118.4 41.5 39.7 41.8 44.8 13.7 14.4 13.6 12.7 30.5 25.1 23.1 21.7 25.7 19.7 18.0 16.9
Dr Reddy's Labs DRREDD 2426 2,610 Hold 40190.4 141.4 68.6 106.1 137.3 17.2 35.3 22.9 17.7 17.3 6.3 10.8 13.7 20.6 9.4 13.0 14.7
Glenmark Pharma GLEPHA 611 910 Buy 17251.8 32.2 46.9 47.2 50.5 19.0 13.0 13.0 12.1 16.2 19.2 18.6 18.0 21.2 25.9 20.9 18.4
Indoco Remedies INDREM 190 180 Hold 1750.9 9.4 8.4 8.3 12.0 20.2 22.7 22.8 15.8 12.9 8.4 9.4 12.6 14.8 12.0 10.9 14.0
Ipca Laboratories IPCLAB 490 525 Hold 6186.2 7.4 15.4 18.8 29.2 66.4 31.8 26.1 16.8 4.5 8.7 9.8 13.7 4.1 7.9 9.0 12.5
Jubilant Life JUBLIF 686 810 Buy 10931.5 26.0 36.1 48.8 66.0 26.4 19.0 14.1 10.4 12.0 13.3 15.1 18.4 14.2 16.8 18.7 20.4
Lupin LUPIN 1110 1,335 Buy 50144.5 50.4 56.6 56.2 66.8 22.0 19.6 19.8 16.6 18.6 17.2 16.7 19.0 20.7 19.1 16.4 16.8
Natco Pharma NATPHA 942 1,055 Buy 15492.5 9.0 27.8 22.9 21.2 104.2 33.8 41.1 44.4 16.0 33.6 25.1 20.8 12.2 29.5 20.5 16.6
Sun Pharma SUNPHA 503 550 Buy 120645.4 23.4 29.0 20.9 25.7 21.4 17.3 24.1 19.6 18.6 19.8 14.0 15.2 18.0 19.0 12.3 13.4
Syngene Int. SYNINT 457 515 Hold 9131.0 11.1 14.3 14.4 18.4 40.5 31.2 31.0 24.3 13.2 16.8 16.0 18.1 21.0 21.9 18.4 19.1
Torrent Pharma TORPHA 1220 1,200 Hold 20641.9 107.9 57.4 49.2 63.1 11.3 21.2 24.8 19.3 46.8 20.3 17.7 20.5 53.9 22.5 16.8 18.6
Unichem Lab UNILAB 248 235 Hold 2198.9 12.3 12.0 14.3 19.5 20.1 20.7 17.4 12.7 13.8 12.0 13.1 15.8 11.7 10.5 11.3 13.6
RoE (%)EPS (|) PE(x) RoCE (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 13
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 [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 14
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