India | Healthcare

Institutional Equities

Initiating Coverage

Apollo Hospital Enterprise Limited BUY

Out'REACH'ing growth

Current Price: 1year Target: Expected Upside:

INR 484 INR 576 19%

Tier-II/III cities to fuel growth

Investment in tier-II/III cities to earn ROE of 25% vs. 12% in metros. Aggressive expansion plans in the tierII/III city to help Apollo register 14% CAGR in net profit over FY11-13E. We expect free cash flow generation of INR11bn in the next 5 years

Operating profitability to register CAGR 27% over FY11-13E Stock details

Bloomberg code O/S shares (mn) Market Cap (INR mn) 52 week H/L (INR) Avg. daily 6M Vol APHS IN 125 60,298 600 / 365 121,345 We expect Apollo Hospitals to continue its strong performance with a CAGR 27% operating profit growth during FY11-13E on the back of higher occupancy and increased ARPOB. The average occupancy rate is likely to remain stable at 80% which is higher than its peers. Apollo's focus in the tier-II/III cities through 'Reach' initiative will help improve efficiency, profitability and will help reduce the payout period for the new projects.

Non core business hive off to add value

Apollo plans to unlock value of its non-core businesses like pharmacy, Health Street and the insurance business. Apollo has filled a DRHP for Health Street in March 2008 to raise USD70mn through initial public offering by diluting 15% stake valuing the entire business at USD470mn, however, was subsequently withdrawn due to the global economic slowdown and non-interest of investors in the capital markets. We expect Apollo to unlock values of its non-core business in the next few years which will impart strength to its consolidated financials.

Shareholding pattern (%)

Promoter group FII DII Others 33.2 29.4 3.5 33.9

Outlook and valuation

Stock chart
60% 50% 40% 30% 20% 10% 0% -10% Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
APHS IN Equity NIFTY Index
PIHC IN = 484 Nifty = 5,486

We expect earnings to continue its strong performance (CAGR 14% over FY11-13E) over the next 2 years on the back of higher occupancy and increased ARPOB. Going forward, the average occupancy rate is likely to remain stable at 80% which is higher than its peers. We expect Apollo's core operating margin to remain between 16-18% in the long term. The stock currently trades at 26x FY13E earnings and 12.5x EV/EBITDA. We initiate coverage recommending BUY with a target price of INR576 (average of DCF value of INR545 and 14x FY13 EV/EBITDA value of INR603) with a potential upside of 19% from CMP.

Key Risks
a) b) Delay in execution of newer projects and sudden increase in man-power cost due to shortage of skilled staff. Higher interest rates and intense competition could also affect our forecasts adversely.

Stock price performance

Return(%) 1 Mth Absolute Relative 0 1 6 Mths 0 8 1Yr 26 21

Summary financials
Particular FY 10 FY 11P FY 12E FY 13E CAGR(%) (FY 10-13E) Net Sales (INRmn) EBITDA (INRmn) 20,265 3,013 10.6 17.0 8.1 34.3 126.3 23,320 3,770 14.6 17.2 8.4 32.4 137.3 29,930 4,940 16.2 14.9 10.6 29.8 155.9 37,512 5,972 18.9 12.4 10.4 25.6 182.0 22.8 25.6 21.0 NA NA NA NA

Analyst
Souvik Chatterjee +91 22 22877009 souvikchatterjee@smcindiaonline.com Mitesh Shah miteshpshah@smcindiaonline.com June 14, 2011

EPS (INR) EV/EBITDA (x) ROE (%) PE (x) BV per share

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Consolidated financial summary

Profit and Loss
Particulars (INR mn) Income from operations Total operating expenses EBITDA Depreciation EBIT Interest expenses Other income/Extraordinary item Profit before tax Provision for tax Net profit Reported PAT FY10 20,265 17,252 3,013 757 2,256 587 322 1,992 676 1,315 1,315 FY11P 23,320 19,550 3,770 703 3,067 587 214 2,693 876 1,817 1,817 FY12E 29,930 24,990 4,940 1,111 3,829 1,071 289 3,047 1,006 2,042 2,042 FY13E 37,512 31,540 Less: Changes in W.C. 5,972 1,319 4,653 1,474 Investing cash flows 364 3,543 1,169 2,374 2,374 Increase in equity Debt raised/ (repaid) Dividends Financing cash flow Net change in cash Closing cash balance (1,975) 869 2,368 (401) 2,237 2,238 3,117 (504) (630) (1,721) (2,057) (1,702) 1,413 (2,446) 700 (494) 206 2,392 3,806 (2,921) (100) (548) (648) (883) 2,923 Tax Net Operating Cash Flow Change In fixed Assets Change In Investments (296) (865) 1,976 (3,892) 1,664 (1,662) (876) 858 1,572 319 (1,006) 4,632 (2,891) (2,554) (1,169) 2,687 (3,509) -

Cash Flow
Particulars (INR mn) Profit before tax Depreciation, Amortisation etc. FY10 1,976 752 FY11P 2,693 703 FY12E 3,047 1,111 FY13E 3,543 1,319

Source: SMC Research

Source: SMC Research

Balance Sheet
Particulars (INR mn) Equity Capital Reserves and surplus Shareholders funds Borrowings Total Liabilities Gross block Depreciation Net block Capital WIP Total fixed assets Investments Total current assets Total current liabilities Net current assets Total Assets FY10 618 15,917 16,535 9,131 26,443 17,449 4,231 13,219 3,037 16,256 4,166 11,995 5,973 6,022 26,443 FY11P 624 17,098 17,722 7,410 26,203 15,930 4,933 10,997 2,984 13,982 6,241 11,330 5,350 5,980 26,202 FY12E 629 20,884 21,513 16,381 37,894 18,320 5,339 12,981 3,664 16,645 6,616 24,607 9,973 14,634 37,894 FY13E 629 23,675 24,305 16,381 40,685 21,828 6,502 15,326 4,366 19,692 7,012 26,585 12,604 13,981 40,685

Key Ratio
Particulars (INR mn) Diluted EPS (INR) Book value per share (INR) ROE (%) ROCE (%) Net debt/Equity Growth (%) Revenues EBITDA EBIT Net profit Diluted EPS Margins (%) EBITDA EBIT Net profit Valuation ratios Particulars (INR mn) Diluted P/E (x) Price/BV(x) Market cap/sales (x) EV/sales (x) EV/EBITDA (x) FY10 34.3 2.9 2.2 2.5 17.0 FY11P 32.4 3.4 2.5 2.8 17.2 FY12E 29.8 3.1 2.0 2.5 14.9 FY13E 25.6 2.7 1.6 2.0 12.4 14.9 11.1 6.5 16.2 13.2 7.8 16.5 12.8 6.8 15.9 12.4 6.3 23.9 21.3 22.4 25.1 10.6 15.1 25.1 35.9 35.2 14.6 28.3 31.1 24.8 13.1 16.2 25.3 20.9 21.5 16.3 18.9 FY10 10.6 126.3 8.1 8.2 0.6 FY11P 14.6 137.3 8.4 10.9 0.4 FY12E 16.2 155.9 10.6 10.1 0.8 FY13E 18.9 182.0 10.4 12.3 0.7

Source: SMC Research

Source: SMC Research

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

INVESTMENT RATIONALE
Tier-II/III cities to fuel growth
Apollo is eyeing for the growth in its hospital segment through its 'Reach' project which aims at establishing affordable medical facility in tier-II/III cities. Apollo is expanding its presence with 10 new projects, majorly in Andhra Pradesh (Hyderguda, Karaikudi and Vikrampuri), followed by Maharashtra (Nasik, Belapur and Thane) and Karnataka with an investment of INR7bn over the next 3 years. Apollo plans to commence operations of 4 owned hospitals with a combined capacity of 522 beds by FY11 and another 4 hospitals in FY12 with a combined capacity of 550 beds. In our view, Apollo's affordable healthcare segment (Reach) will add more value to its core business in terms of occupancy and ARPOB. However, Apollo's ARPOB is lower than its peers but the market mix and greater reach through its presence in both secondary and tertiary care segment across the country nullifies the discount in per bed revenue. We expect tier-II/III city green field hospitals of Apollo to turn EBITDA positive within 2 years of operation having an ARPOB of INR3,000-8,000.

Exhibit-I: Apollo's Expansion Plan

Expected year of commission FY11 Hyderabad# Hyderguda # Kakaikudi * Total FY12 Nashik* Nellore* Ayanambakkam* Bangalore # Total FY13 Navi Mumbai # Thane # Total
(# Tier I/Metro cities, * tier II/III cities)

No. of beds

Ownership

Investment (INR mn)

100 175 100 375

Owned Owned Owned

230 445 230 905

120 200 200 52 572

Owned Owned Owned JV/Associate

540 670 615 60 1,885

300 260 560

Owned JV/Associate

3,500 500 4,000

Source: Company, SMC Research

Operating profit register CAGR 27%; revenue to grow 32% over FY11-13E
Apollo's operating performance over the last 5 years showed a robust growth of 20% and we expect it to continue its strong performance with a CAGR 27% operating profit growth during FY11-13E on the back of higher occupancy and increased ARPOB. We expect revenues from Chennai cluster to register a growth of 26% CAGR over the next 5 years, whereas the standalone segment to grow at 30% CAGR over the same time period. The total in-patient revenue is expected to grow at CAGR 32% over in the next 2 years. Going forward, the average occupancy rate is likely to remain stable at 80% which is higher than its peers. Apollo's focus in the tier-II/III cities through 'Reach' initiative will help improve efficiency, profitability and will help reduce the payout period for the new projects.

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Exhibit-II: EBITDA (standalone) unlikely to expand over FY11-13E

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY10 Chennai Cluster Subsidiaries & JVs FY11P FY12E Hydrabad Cluster Revenue Growth
Source: Company, SMC Research

2801 1423 1646 24%

3316 2533 2695

47%

50%

4686 3394
4269

43%

6503 3961 5535 25%

45% 40% 35% 30% 25% 20% 15%

5056

7550

10611

12786

10% 5% 0%

FY13E Others

Occupancy levels to remain steady

Being the largest player in the Indian hospitality segment, Apollo enjoys a higher occupancy rate than its listed peers. The average occupancy ratio for Apollo is steady at c80% over the last 5 years. We expect Apollo's occupancy to remain steady over the long run, between 80-85%, on the back of higher occupancy in tier-II/III city hospitals.

Exhibit-III
Occupancy Rate Standalone Chennai Cluster Hydrabad Cluster Others Subsidiaries & JVs FY10 79% 77% 85% 75% 75% FY11P 77% 81% 73% 76% 76% FY12E 75% 80% 70% 75% 76% FY13E 75% 80% 70% 75% 76% FY14E 75% 80% 80% 75% 76% FY15E 75% 80% 80% 75% 76%

Source: Company, SMC Research

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Financial outlook and valuation

Revenue to grow by 27% CAGR over FY11-13E
We expect Apollo's consolidated revenues to grow at a ~27% (CAGR) over FY11-13E on the back of increase in occupancy and ARPOB. We expect Apollo's inpatient revenue to increase by ~32% (CAGR) over FY10-12E contributing in excess of 65% to the overall revenue. Chennai and Hydrabad cluster are expected to grow by 30% and 40% respectively over FY11-13E, while Apollo's subsidiary segment is expected to grow by 40%, majorly contributed by Apollo Glenegles, Kolkata and other super speciality hospitals. Operating margin likely to remain steady at 16% over the next 2 years. We forecast further margin expansion post FY13E due to increased contribution from the tier II/III hospitals and better operational efficiency. The average revenue per bed is likely to increase by 19% (CAGR) over FY11-13E.

Exhibit-IV: EBITDA margin to remain steady over the next 2 years (INR Mn)
40000 35000 30000 25000 20000 15000 10000 5000 0 FY 09 FY10 Net Sales FY11 P FY12 E EBITDA Margin(RHS)
Source: SMC Research

17.0% 16.5% 16.0% 15.5% 15.0% 14.5% 14.0% FY13 E

Earnings CAGR of 14% over FY11-13E; ROE to improve

We expect Apollo's consolidated earnings to grow at 24% (CAGR) over FY11-13E on the back of higher ARPOB. We expect the average per bed revenue is to at CAGR 19% over FY11-13E, due to improved operating efficiency particularly in the tierII/III hospitals. Return on equity (ROE) to remain steady at ~10% over FY11-13E.

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Exhibit-V: Apollo Hospitals EPS to grow by CAGR 14% over FY11-13E

20.0 15.0

12.0% 10.0% 8.0%

INR

10.0 5.0

6.0% 4.0% 2.0%

-FY 09 FY 10
EPS

0.0% FY 11 P FY 12 E FY 13 E
Source: SMC Research

RoE (%) (RHS)

Non-core business overview

Apollo plans to unlock value of its non-core businesses like pharmacy, Health Street and the insurance business. Apollo has filled a DRHP for Health Street in March 2008 to raise USD70mn through initial public offering by diluting 15% stake valuing the entire business at USD470mn, however, was subsequently withdrawn due to the global economic slowdown and non-interest of investors in the capital markets. We expect Apollo to unlock values of its non-core business in the next few years which will impart strength to its consolidated financials.

Apollo Pharmacy
Apollo's pharmacy business (set up in FY07) recorded impressive margins of 5% during FY11on the back of higher sale of branded generics and consumer goods. The company plans to add at least 200 pharmacies every year and improve profitability of the 1200 odd existing stores. The company has invested INR1,500mn in FY11 in the retail pharmacy and plans for a JV in the next 12-18 months. We expect revenue per store Apollo's pharmacy business to grow at15% (CAGR) over the next 5 years.

Exhibit-VI: Pharmacy business expected to grow by 15% (CAGR) over FY15E

8.0 1,900 1,700 1,500 1,300 1,100 900 700 500 FY 09 FY10 FY11 E FY 12 E FY 13 E FY14 E FY 15E
Source: SMC Research

7.4 6.8 6.3 5.5 5.8 5.9 7.0 6.0 5.0 4.2 4.0 3.0 2.0

No. of Stores

Revenue/store (INR Mn.) (RHS)

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Apollo Munich Insurance

Apollo Munich (name changed from Apollo DKV) is one of the late entrant in the Indian health insurance segment. Apollo holds ~20% stake in the joint venture with Munich Re of Germany. The company has 30 offices at the end of FY10 and plans to open 10 more offices in FY11.

Exhibit-VII: Financials
Particulars (INR Mn.) Premium income Claims and commission Staff cost Administration exp. Total expense EBITDA Other income Depreciation PBT FY09 316.0 411.0 271.0 750.0 1,433.0 (1,116.0) 113.0 62.0 (1,065.0) FY10 1,175.0 1,211.0 481.0 981.0 2,673.0 (1,498.0) 169.0 123.0 (1,453.0) FY11E 1,838.0 2,423.0 962.0 1,495.0 4,879.0 (3,041.0) 289.0 163.0 (2,915.0) FY12E 2,991.0 4,845.0 1,923.0 1,951.0 8,720.0 (5,729.0) 367.0 266.0 (5,629.0)

Source: Company & SMC Research

Apollo Health Street

Apollo Health Street is the revenue management and custom IT solution provider company providing services to the US healthcare industry. Apollo holds ~45.5% stake in Health Street which turned profitable in FY09. The company has completed full integration of the Zavata business (BPO), which it had bought in 2007 for USD170mn. Post completion of restructuring of debt, we expect Health Street to do well as the US market is gradually coming out of the slowdown effect. Moreover, the healthcare industry received a big boost with the US President Obama's health care plans, which adds 30mn additional American citizens into the healthcare bracket.

Exhibit-VIII: Financials
Particulars (INR Mn.) Revenues Total Expenses EBITDA Margin (%) Profit Before Tax Tax Profit After Tax FY09 4,994.0 4,239.0 755.0 0.2 134.0 (13.0) 147.0 FY10 4,577.0 4,124.0 453.0 0.1 106.0 23.0 83.0 (44.0)
Source: SMC Research

Growth (%) (8.0) (3.0) (40.0)

(21.0)

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Valuation methodology
Two valuation methods We assess the value of these hospital companies using two valuation methods: DCF and EV/EBITDA. With DCF, we attempt to capture the net present value of the hospital's future cash flows. We have also used EV/EBITDA multiple to ascertain relative valuation comparison among the various listed players in India and across other emerging markets (EM). We initiate Apollo with a BUY rating and a target price of INR576 (upside of 19%) from the CMP. We believe that Apollo, with its operating efficiency will continue to generate better returns on its newer establishments, as compared to its peers. We expect Apollo to generate free cash flow of INR11bn in the next 5 years mainly on the back of the higher revenue generation and better operating efficiency from tier-II/III hospitals.

DCF Methodology We have considered the cost of equity for Apollo at 11% based on the CAPM model. We forecast earnings growth of 9% over the period after considering potential upside from the upcoming projects in tier-II/III cities across India and also international expansion. The terminal value is calculated assuming 4% terminal growth rate. We expect Apollo to generate a free cash flow of INR30bn in the next 10 years mainly on the back of the higher revenue generation and better operating efficiency from the tier-II/III hospitals. Accordingly, we estimate the fair value of Apollo at INR533 per share based on DCF analysis.

Exhibit-IX: WACC Calculation

Risk free rate (%) Country Risk Premium (%) Stock Beta (x) Cost of Equity (%) Debt/Equity WACC (%) Equity Value (INR Mn.) Shares O/S (Mn) Intrinsic Value (INR) 8.5 5.0 0.6 11.7 0.6 10.6 66,450 125 533
Source: Bloomberg, SMC Research

EV/EBITDA Multiple
Apollo Hospitals is currently trading at 30x/26x earnings and 15x/12.5x EV/EBITDA on FY12/13E. We have valued Apollo on an EV/EBITDA multiple in comparison to its global peers as there are few listed comparables in the domestic market. Historically, Apollo has been trading in a band of 10-14x on a 1-year forward EV/EBITDA multiple. We have valued Apollo at 14x FY13E EBITDA to arrive at a price of INR619.

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Exhibit-X: EV/EBITDA valuation

EBITDA (FY13) Target Multiple (x) EV Net Debt Mcap Number O/s Shares (Mn) Value per share (INR) 5,972 14 83,613 6,445 77,167 125 619
Source: SMC Research

We expect earnings to continue its strong revenue performance with a CAGR of 24% over FY11-15E on the back of higher occupancy and increased ARPOB. Going forward, the average occupancy rate is likely to remain stable at 80% which is higher than its peers. We expect Apollo's core operating profit to grow by 14-18% in the long term. The stock currently trades at 26x FY13E earnings and 12.5x EV/EBITDA. We initiate coverage on Apollo Hospitals recommending Buy with a target price of INR576 (average of DCF value of INR533 and 14x FY13 EV/EBITDA value of INR619) with an upside of 19% from CMP.

Exhibit-XI: Target price calculation

Average Valuation (DCF & EV/EBITDA) DCF EV/EBITDA Target Price 533 619 576
Source: SMC Research

Peer valuation
We have selected few major listed hospital chains across the Emerging Markets for the peer group comparison. Indian hospital sector offers high growth opportunities compared to its Asian players. We find that only relative valuation does not reflect the intrinsic value of these companies as their growth is strong. We believe Indian hospitals should trade at a premium to their global counterparts given the much higher growth opportunity in the domestic market. Apollo hospitals have a reasonable and well-diversified global peer group, but we believe that in the healthcare delivery model segment, global comparison is not appropriate as the markets are not uniform.

Exhibit-XII: EM Hospital Peers

Particulars Apollo Hospitals Fortis Healthcare EM Peers Sonic Healthcare, Australia Netcare Ltd, South Africa Diag America, Brazil Aier Eye Hospital, China Odontoprev, Brazil 5,040 3,097 4,158 1,289 3,020 14 13.6 18.4 NA 27 1.0 0.2 1.1 0.2 0.9 13.6 19.5 24.7 16.9 35.9 1.3 0.7 2.4 3.7 3.9 8.9 7.8 9.2 NA 14.4
Source: Bloomberg

Market Cap (USD Mn.) 1,358 1,475

FY13E P/E (x) 17 32

FY13E EPS (USD) 0.5 0.1

FY13E ROE (%) 10.4 6.4

FY13E P/Sales (x) 1.6 2.6

FY13E EV/EVITDA (x) 12.4 24.9

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Exhibit-XIII: Share price performance vs. Nifty

60% 50% 40% 30% 20% 10% 0% - 10% Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11

APHS IN Equity

NIFTY Index
Source: Bloomberg

Key Risks
Execution risk The project execution depends on various regulatory and commercial clearances. Delay in getting these clearances from the authorities may delay execution. Non-timely execution of hospital projects will increase the project cost substantially, thus reducing the IRR. Shortage of skilled manpower Shortage of skilled manpower in the metro and in tier-II/III city hospitals is a major risk to our assumptions as this will adversely impact the operational efficiency of the hospital. This will impact in reducing occupancy and per bed revenue thus impacting the overall margins. Competition risk Increased competition in tier-II/III cities due to cost advantage may result in lower occupancies and per bed revenue thus negatively impacting profitability. Rise in interest rates Substantial rise in interest cost may affect investment thus delaying expansion plans. On the other hand, rise in interest rate, would adversely impact profitability as debt service cost increases pulling down profitability.

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India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Company description
Apollo hospital Ltd is the leading healthcare services provider in India. Started it's by Dr Prathap C Reddy, Apollo commenced its first hospital in Chennai in 1983. Apollo Healthcare with over 8,500 beds across 54 hospitals, more than 1200 pharmacies and over 100 diagnostic clinics is one of the major integrated healthcare service providers in Asia. Apollo Hospital also offers retail pharmacy, medical business process outsourcing services, health insurance services and clinical research divisions with a focus on epidemiological studies, stem cell research and genetic research.

Exhibit-XIV: Share holding pattern (%)

Others, 33.9

Promoter group, 33.2

DII, 3.5 FII, 29.4

Source: Bloomberg

Key Management Team:

Dr. Prathap C. Reddy - Chairman Dr Prathap Reddy, M.D, MBBS, FCCP, FICA, FRCS (Hony) is a Cardiologist and an entrepreneur who founded the first corporate chain of hospitals in India the Apollo Hospitals Group. Dr. Reddy has undertaken pioneering work by establishing Apollo Institutes for post graduate Medical and Nursing Education, Hospital Administration, Physiotherapy, Clinical Research and a large number of Paramedical Programs. Dr. Preetha Reddy - Managing Director Dr. Preetha Reddy is Managing Director of the Apollo Hospitals Group, looking after the operations of 44 Hospitals, 51 Clinics and 400 Pharmacies of the Group in India and parts of Asia. She Joined the Apollo Hospitals Group in 1989 as Joint Managing Director. Ms. Suneeta Reddy- Director Ms. Suneeta Reddy is Executive Director-Finance at Apollo Hospitals Enterprise Limited (AHEL). She is also on the Board of many organizations in the healthcare, hospitality and telecom sectors. Ms. Suneeta Reddy received Bachelor of Arts degree in Economics and Marketing. She holds a diploma in Financial Management from the Institute of Financial Management and Research, Chennai and has completed the Owner / President Management Program at Harvard Business School (HBS), Boston, USA. Ms. Sangita Reddy-Executive Director She is the Executive Director Operations of Apollo Group of Hospitals. She is also the Managing Director of Apollo Health Street Ltd. & Director-Family Health Plan Ltd. As founder Secretary & Treasurer of AIHA she has provided dynamic leadership and is instrumental in its development. She is associated with several organizations

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India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Detailed financial statement

Profit and loss statement
Particulars (INR mn) Net Sales Raw Material Consumed Employee Expenses Selling,General & Administrative Exp Other Expenses General Administrative Exp Total Expenditure EBITDA EBITDA Margin(RHS) % Depreciation EBIT Other Income/Extraordinary items Interest Profit Before Tax Tax Tax rate (%) Net Profit After Tax FY09 16,350 8,173 2,594 288 554 2,257 13,867 2,483 15 640 1,843 208 459 1,593 490 31 1,103 FY10 20,265 10,092 3,308 267 634 2,951 17,252 3,013 15 757 2,256 322 587 1,992 676 34 1,315 FY11P 23,320 12,276 3,572 379 516 2,808 19,550 3,770 16 703 3,067 214 587 2,693 876 33 1,817 FY12E 29,930 15,749 4,734 555 558 3,394 24,990 4,940 17 1,111 3,829 289 1,071 3,047 1,006 33 2,042 FY13E 37,512 20,158 5,918 749 642 4,073 31,540 5,972 16 1,319 4,653 364 1,474 3,543 1,169 33 2,374

Balance sheet
Particulars (INR mn) SOURCES OF FUNDS : Share Capital Reserves Total Total Shareholders Funds Secured Loans Unsecured Loans Deferred tax Expenses Total Liabilities APPLICATION OF FUNDS : Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Loan and Advances Other current assets Total Current Assets Sundry Creditors Other Liabilities Provisions Total Current Liabilities Total Assets 10,438 2,446 5,914 1,162 1,744 876 3,663 7,445 908 1,240 1,989 4,137 22,107 13,219 3,037 4,166 1,412 2,228 3,117 5,238 11,995 1,967 1,373 2,633 5,973 26,443 10,997 2,984 6,241 1,505 2,696 1,413 5,715 11,330 1,238 1,421 2,692 5,350 26,202 12,981 3,664 6,616 1,911 3,558 3,806 6,640 8,693 24,607 3,592 792 5,590 9,973 37,894 15,326 4,366 7,012 2,220 4,459 2,923 7,651 9,332 26,585 4,501 2,224 5,878 12,604 40,685 679 14,009 14,688 6,402 304 446 22,106 618 15,917 16,535 6,764 2,367 536 26,443 624 17,098 17,722 5,043 2,367 1,071 26,203 629 20,884 21,513 13,514 2,867 37,894 629 23,675 24,305 13,814 2,567 40,685 FY09 FY10 FY11P FY12E FY13E

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India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Cash flow statement

Particulars (INR mn) Cash Flow from operating activities PBT Depritiation Interest paid Provision for bad debts Interest & Dividend received Bad debts written off Liability & sundry balances written back Total adjustments Operating profit before WC change Trade or other receivables Inventories Trade payables Others Change in WC Cash generated from operations Foreign Echange loss Taxes paid Adjustments for Misc.Exp.written off Total adjustments Cash flow before extraordinary items Adjustments for Misc.Exp.written off Net cash from operating activities Purchase of fixed assets Pre-operative expenses Purchase of investments Sale of investments Net purchase of investment Sale of fixed assets Interest received Dividend received Cash flow before extraordinary item Net cash used in Investing activities Proceeds from issue of share premium Proceeds from issue of share capital Proceeds from advance against share capital Proceeds from long term borrowings Proceeds from short term borrowings Repayment of finance/lease liabilities Interest paid Dividend paid Others Net cash from financing activities Net increase in cash and cash equivalents (A+B+C) Cash and cash equivalents (opening balance ) Cash and cash equivalents (Closing balance ) 1,384 632 428 17 (211) 36 (5) 946 2,330 (502) (298) 371 (360) (789) 1,540 (31) (595) (3) (629) 911 911 (3,724) (6) (6,920) 7,683 763 86 46 167 (40) (2,708) 783 28 1,410 37 (113) (399) (352) 1,394 (402) 1,278 876 1,976 752 587 12 (250) 103 (3) 1,158 3,135 (666) (251) 1,341 (720) (296) 2,839 7 (865) (6) (864) 1,976 1,976 (3,938) (21) (3,052) 4,717 1,664 47 119 155 (1,975) 818 51 15 2,717 383 (732) (613) (401) 2,237 2,238 876 3,114 2,693 703 703 3,396 (468) (93) (730) (371) (1,662) 1,734 (876) (876) 858 858 1,572 (2,075) (504) (630) (1,721) 294 (2,057) (1,702) 3,114 1,413 3,047 1,111 1,071 34 (50) 107 (1) 2,271 5,318 (861) (405) 933 653 319 5,638 (1,006) (1,006) 4,632 4,632 (2,891) 374 71 (2,446) 200 500 (494) 206 2,392 1,413 3,806 3,543 1,319 1,474 42 (100) 134 (2) 2,868 6,410 (901) (520) 910 (2,043) (2,554) 3,856 (1,169) (1,169) 2,687 2,687 (3,509) 397 190 (2,921) 200 (300) (548) (648) (883) 3,806 2,923 FY09 FY10 FY11P FY12E FY13E

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India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Common size metrics- as % of net revenues

Particulars (INR mn) Cost of revenues Other operating costs Depreciation Interest expenses Other income Income taxes Common size metrics- as % of Total Assets Particulars (INR mn) Current assets Current assets - Cash Net fixed assets Investments Other assets Common size metrics- as % of Total Liability & Equity Particulars (INR mn) Current liabilities Long-term debt Short-term debt Other liabilities Shareholder's equity FY09 18.7 29.0 1.4 5.6 66.4 FY10 22.6 25.6 9.0 6.2 62.5 FY11P 20.4 19.2 9.0 6.4 67.6 FY12E 26.3 35.7 7.6 3.6 56.8 FY13E 31.0 34.0 6.3 10.1 59.7 FY09 33.7 4.0 47.2 26.8 0.0 FY10 45.4 11.8 50.0 15.8 0.0 FY11P 43.2 5.4 42.0 23.8 0.0 FY12E 64.9 10.0 34.3 17.5 0.0 FY13E 65.3 7.2 37.7 17.2 0.0 FY09 52.6 28.5 4.2 1.6 2.1 3.5 FY10 50.0 31.4 3.9 2.8 1.3 3.0 FY11P 49.8 32.2 3.7 2.9 1.6 3.3 FY12E 52.6 29.0 3.0 2.5 0.9 3.8 FY13E 52.6 29.0 3.7 3.6 1.0 3.4

Key ratios
Particulars (INR mn) Key Operating Ratios EPS P/E (x) Book Value per share RoE (%) (RHS) RoCE (%) Earnings Yield (%) Valuation Ratios P/E (x) P/Sales (x) P/B EV/Sales (x) EV/ EBIDTA (x) EV/Bed (INR Mn) Du Pont Analysis Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenues) Asset Turnover (Revenues/Avg TA) Leverage (Avg TA/Avg equtiy) Du Pont RoE 69.2 86.4 11.3 73.3 164.8 8.1 66.0 88.3 11.1 83.5 155.5 8.4 67.5 87.8 13.2 88.6 153.7 10.6 67.0 79.6 12.8 93.4 163.4 10.4 67.0 76.1 12.4 95.5 171.5 10.4 14 22.2 1.5 1.8 1.9 12.2 11.4 34.3 2.2 2.9 2.5 17.0 10.5 32.4 2.5 3.4 2.8 17.2 9.4 29.8 2.0 3.1 2.5 14.9 8.4 25.6 1.6 2.7 2.0 12.4 8.0 9.2 22.2 112.4 8.1 7.6 4.5 10.6 34.3 126.3 8.4 8.2 2.9 14.6 32.4 137.3 10.6 10.9 3.1 16.2 29.8 155.9 10.4 10.1 3.4 18.9 25.6 182.0 10.4 12.3 3.9 FY09 FY10 FY11P FY12E FY13E

India | Healthcare Apollo Hospital Enterprise Limited - Initiating Coverage Institutional Equities

Key to Ratings:
BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto 5%; REDUCE: -5% to -15%; SELL: -15% and below

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