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					     Result Update
                                                                                                                                                                           August 18, 2010
Rating matrix
Rating                            :        Add                                                                           Apollo Hospitals (APOHOS)
Target                            :        Rs 880
Target Period                     :        12 months                                                                                                                                     Rs 802
Potential Upside                  :        10%                               WHAT’S CHANGED…
                                                                             PRICE TARGET ............................................................. Changed from Rs 810 to Rs 880
Key Financials
                                                                             EPS (FY09E) .................................................................................................. Unchanged
                          FY09          FY10         FY11E          FY12E
                                                                             EPS (FY10E) .................................................................................................. Unchanged
Net Sales               1,614.2       2,026.5       2,518.8        3,170.9
                                                                             RATING.......................................................................................................... Unchanged
EBITDA                   227.4         301.3           395.8         478.8
Net Profit               102.5         137.5           178.3         244.9   Performance in line…
                                                                             Apollo Hospitals’ revenues grew 28.9% YoY to Rs 523.3 crore with the
Valuation summary                                                            hospital and pharmacy segment’s revenues growing 25.2% and 40.1%
                          FY09             FY10      FY11E          FY12E    YoY, respectively. The revenue growth was higher than our expectation
PE (x)                     46.3            35.7           27.5        20.0   backed by healthy growth in patient volumes, increase in revenue per
                                                                             bed (ARPOB) and additional revenue inflow from six new hospitals.
Target PE (x)              49.2            39.5           30.5        22.2
                                                                             Operating margin also improved 22 bps YoY and 386 bps QoQ to 16.9%.
EV to EBITDA (x)           24.3            18.4           14.0        12.1   However, interest costs continued to remain high to the tune of Rs 15.7
Price to book (x)           3.7             2.8            2.6         2.3   crore (growth of 88% YoY and 47% QoQ) due to increase in debt. As a
RoNW (%)                    6.9             6.9            8.4        11.8   result, net profit for the quarter declined 12.3% YoY to Rs 39.3 crore, in
RoCE (%)                    7.6             7.3           10.0        11.7
                                                                             line with our estimated net profit of Rs 38.4 crore.
                                                                                     Strong revenue growth backed by improved performance
Stock data                                                                            During the quarter, operating revenue recorded growth of 28.9%
Market Capitalisation                                      Rs 4,912 crore             YoY and 8.4% QoQ. The growth has mainly been driven by a rise in
Debt                                                         Rs 894 crore             both inpatient (up 16.9% YoY) and outpatient volumes (up 25.6%
Cash                                                           Rs 271crore            YoY) and increase in ARPOB (up 10.2% YoY). Revenues from the
EV                                                         Rs 5,535 crore
                                                                                      pharmacy segment also grew 40.1% YoY to Rs 139.7 crore. This
                                                                                      was led by a rise in number of pharmacy outlets (up 15% YoY to
52 week H/L                                                       849/506
                                                                                      1066) and increase in realisation per outlet (up 21% YoY).
Equity capital                                              Rs 61.8 crore
                                                                                     Higher interest cost drags down net profit
Face value                                                          Rs.10
MF Holding (%)                                                         0.6           Despite a robust operating performance, the net profit for the
FII Holding (%)                                                      24.1
                                                                                     quarter declined by 12.3% YoY to Rs 39.3 crore on account of
                                                                                     higher interest costs that increased by 89% YoY to Rs 15.7 crore on
                                                                                     account of an increase in the debt burden.
Price movement
                                                                             Valuation
     850                                                            6000
     800
                                                                             At the CMP of Rs 802, the stock is trading at 14.0x and 12.1x its FY11E
     750
                                                                    5500     and FY12E EV/EBITDA, respectively. The company has constantly
                                                                             maintained its growth trajectory. However, the pace of turnaround in the
     700                                                            5000
                                                                             pharmacy business and subdued performance of subsidiary companies
     650
                                                                    4500     remains a concern over the medium-term. We are marginally revising our
     600
                                                                             target price from Rs 810 to Rs 880, i.e. at 13.0x FY12E EV/EBITDA. We
     550                                                            4000
                                                                             continue to maintain our ADD rating on the stock.
     500
                                                                    3500
     450
     400                                              3000                    Exhibit 1: Performance Highlights (Standalone)
       Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10                                               Q1FY11 Q1FY11E         Q1FY10                        Q4FY10 YoY Gr. (%) QoQ Gr. (%)
                                                                              Net Sales                 523.3       501.7      406.0                         482.9       28.9          8.4
                        Apollo Hospitals          NIFTY
                                                                              EBITDA                     88.3        72.8       67.6                          62.9       30.6        40.5
Analyst’s name                                                                EBITDA Margin (%)          16.9        14.5       16.7                          13.0  +22 bps     +386 bps
                                                                              Depreciation               16.3        17.5       13.1                          14.4       25.0        13.3
 Rashesh Shah
 rashes.shah@icicisecurities.com
                                                                              Interest                   15.7        18.5        8.3                          10.7       88.8        47.0
                                                                              Net Profit                 39.3        38.4       44.8                          29.2      -12.3        34.5
                                                                              EPS (Rs)                     6.4        6.2        7.3                           4.7      -12.3        34.5
                                                                              Source: Company, ICICIdirect.com Research



       ICICIdirect.com | Equity Research
 Apollo Hospitals (APOHOS)



                                                            Exhibit 2: Hospital performance
                                                            Particulars         AHEL Standalone                                   Chennai Cluster                 Hyderabad Cluster        Others*
                                                                            Q1FY10 Q1FY11 Growth                            Q1FY10 Q1FY11               Growth Q1FY10 Q1FY11 Growth Q1FY10 Q1FY11 Growth
The Chennai cluster continued to report higher growth in    Inpatient volume         33,512 39,192              16.9         15,232     17,178            12.8      8,588    9,362      9.0     9,692     12,652        30.5
patient volumes compared to the Hyderabad cluster. As a     Outpatent volume         89,154 111,959             25.6         44,790     53,549            19.6     22,268   24,176      8.6    22,096     34,234        54.9
result, the average occupancy in Chennai increased by 700
bps YoY to 82%                                              Inpatient ALOS (days)      5.17         5.03        -2.7           4.91       4.75            -3.3       4.66     4.75      1.9      6.03         5.61      -7.0
                                                            Occupancy (%)              75.0         79.0         5.3           75.0       82.0             9.3       81.0     81.0      0.0      71.0         75.0       5.6
                                                            ARPOB (Rs. Per day)      17,678       19,477        10.2         20,003     23,639            18.2     12,586   14,648     16.4     7,772        8,642      11.2

                                                            Inpatient Revenue         262.3          323.2      23.2          119.2      153.3            28.6       43.0     54.0     25.6      39.2         51.5      31.4
On the other hand, the Hyderabad cluster reported a 173     Outpatient Revenue         44.0           60.4      37.3           30.4       39.5            29.9        7.4     11.2     51.4       6.3          9.8      55.6
bps improvement in the EBITDA margin while in Chennai       Total Revenue             306.3          383.6      25.2          149.6      192.8            28.9       50.4     65.2     29.4      45.5         61.3      34.7
it declined marginally by 40 bps compared to last year
                                                            EBITDA                     53.4           67.1      25.7           39.2       49.8             27.0       6.7      9.8     46.3       7.6          7.5      -1.3
                                                            EBITDA Margin (%)          17.4           17.5   +10 bps           26.2       25.8          -40 bps      13.3     15.0 +173 bps      16.7         12.2 -447 bps
                                                            Source: Company, ICICIdirect.com Research
                                                            * Others include Madurai, Mysore, Vishakhapatnam, Pune, Karur, Karimnagar, Bilaspur and Bhubaneshwar.

                                                            Pharmacy division reports negative EBITDA
                                                            At the topline level, the pharmacy segment reported a better performance
                                                            with 21% increase in the revenue per outlet despite the addition of 144
                                                            stores compared to last year. Overall net revenues grew 40% YoY, rising
                                                            by 4.4% QoQ to Rs 139.5 crore. However, at the operating level, the
                                                            company reported a loss of Rs 2.8 crore as against operating profit of Rs
                                                            20 lakh in the last quarter. We believe the sustainable operational
                                                            turnaround of the pharmacy business remains a key challenge for the
                                                            company in the medium-term.
                                                            Exhibit 3: No of pharmacy outlets

                                                                                                                                                                    1,049                     1,066
                                                                 1,100                                                                  1,035                                                                        1.40
                                                                                                              972
                                                                 1,000               922
Revenue per store has increased by 21% YoY despite the                                                                                                                                                1.31           1.30
                                                                    900                                                                                                      1.27
                                                                                                                                                  1.27
addition of 144 stores compared to last year
                                                                    800                                                1.21                                                                                          1.20
                                                                    700
                                                                                              1.08                                                                                                                   1.10
                                                                    600
                                                                    500                                                                                                                                              1.00
                                                                                    Q1FY10                   Q2FY10                   Q3FY10                       Q4FY10                 Q1FY11

                                                                                                                     No of Stores                   Revenue per store

                                                            Source: Company, ICICIdirect.com Research

                                                              Exhibit 4: Trends in operating margin of pharmacy business

                                                                    150.0                                                                                          133.6                  139.5                      2.0
                                                                                                                                      131.7
                                                                    130.0                                    117.7
                                                                                                                                                                            0.1                                      0.0
We believe the sustainable operational turnaround of                110.0           99.5
pharmacy business remains a key challenge for the                                                                      -1.9                       -2.1                                                -2.0           -2.0
                                                                     90.0
company in the medium term                                           70.0                                                                                                                                            -4.0
                                                                                              -4.6
                                                                     50.0                                                                                                                                            -6.0
                                                                     30.0
                                                                     10.0                                                                                                   0.2                                      -8.0
                                                                                           -4.6                      -2.2                        -2.7                                              -2.8
                                                                    -10.0                                                                                                                                            -10.0
                                                                                     Q1FY10                   Q2FY10                    Q3FY10                       Q4FY10                   Q1FY11

                                                                                                             Revenues                  EBITDA                     EBITDA margin (%)

                                                              Source: Company, ICICIdirect.com Research




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                                                                                                                                                                                                        Page 2
 Apollo Hospitals (APOHOS)



                                                       Performance of associates/JVs continues to remain subdued
                                                       The performance of Apollo Health Street and Apollo Munich continued to
                                                       remain subdued at the operating level. Apollo Health Street reported an
                                                       18% YoY decline in operating profit led by a subdued topline. On the
                                                       other hand, though Apollo Munich reported a strong growth in topline, its
Financial performance of associates/JVs continues to   operating loss for the quarter widened by 57.8% YoY to Rs 16.1 crore.
remain subdued for FY10
                                                       Exhibit 5: Performance of JVs/Associates
                                                                                       Apollo Health Street*          Apollo Munich Health Insurance**
                                                       Rs. Crore                   Q1FY11      Q1FY10 Growth (%)       Q1FY11      Q1FY10 Growth (%)
                                                       Total Revenue                 109.4       120.8       (9.4)         31.1       14.8         110.1

                                                       EBITDA                         15.1         18.5      (18.4)       -16.1       -10.2         NA
                                                       EBITDA Margins (%)             13.8         15.3   -150 bps          NA          NA          NA

                                                       PAT                              3.3        -3.9        LP         -18.1       -11.8         NA
                                                       * Owns 39.46% of Apollo Healthstreet
                                                       ** Owns 19.72% of Apollo DKV Insurance
                                                       Source: Company, ICICIdirect.com Research



                                                       Key developments
                                                       The company has added six new hospitals with 750 in the past one year.
                                                       The locations in which these hospitals have been added include Chennai,
                                                       Madurai, Karur, Bhubaneshwar, Hyderabad and Secunderabad.

                                                       During the quarter, 17 new pharmacy outlets have been added. With this
                                                       addition, the total number of outlets has increased to 1,066.




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                                                                                                                                               Page 3
Apollo Hospitals (APOHOS)




ICICIdirect.com Coverage Universe (Hospitals)

Apollo Hospitals                                           Sales (Rs Crore}   EPS (Rs)   PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code       APOHOS      CMP          802    FY10              2026.5       22.3    35.7     18.4        7.0      7.3
                               Target       880    FY11E             2518.8       28.9    27.5     14.0        8.4    10.0
Mcap (Rs crore)    4,912.1     Upside (%)   9.7%   FY12E             3171.0       39.6    20.1     12.2      11.8     11.7

Fortis Health                                              Sales (Rs Crore}   EPS (Rs)   PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code       FORHEA      CMP          154    FY10               937.9        2.2    70.3     39.2        3.3      1.4
                               Target       168    FY11E             1417.2        2.7    58.0     26.6        3.4      1.8
Mcap (Rs crore)  6,237.9       Upside (%)   9.1%   FY12E             1723.9        4.3    35.9     21.7        5.5      3.5
*EV/E = EV/EBITDA




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                                                                                                                       Page 4
    Apollo Hospitals (APOHOS)




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, Add, Reduce 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: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

                                  Pankaj Pandey                                         Head – Research                                       pankaj.pandey@icicisecurities.com

                                                                        ICICIdirect.com Research Desk,
                                                                        ICICI Securities Limited,
                                                                        7th Floor, Akruti Centre Point,
                                                                        MIDC Main Road, Marol Naka,
                                                                        Andheri (East)
                                                                        Mumbai – 400 093

                                                                         research@icicidirect.com

ANALYST CERTIFICATION
We /I, Rashesh Shah, CA 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 personal views about any and all of 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. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.


Disclosures:
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underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of
companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities
generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts
cover.

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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