India Ratings Assigns Apollo Hospitals Enterprise & its NCDs

IND AA+; Outlook Stable

08

By VinayBetala
India Ratings and Research (IndRa) has assigned Apollo Hospitals Enterprise Limited (Apollo) a

MAR2016

LongTerm Issuer Rating of 'IND AA+'. The Outlook was Stable. The agency also assigned
Apollosnonconvertibledebentures(NCDs)an'INDAA+'ratingwithaStableOutlook.Afulllist
ofratingactionsisattheendofthiscommentary.

KEY RATING DRIVERS

The ratings reflect Apollos strong and established brand name, operational track record of 33 years, and strong
positionintheIndianhealthcaremarket.TheratingsalsoconsiderIndiasfavourabledemographicswhicharelikely
todrivesustaineddemandgrowthforhealthcareservices.ApollossteadyoperatingEBITDAmarginsofaround23%
at its mature hospitals and the quick start up time of about two years for its new hospitals to reach profitability
underlinethesuccessfulexpansionmodelusedbythecompanytobecometheleadingprivatehealthcareproviderin
India.

Apollosmarketpositionisdrivenbyitstrackrecordofdeliveringqualityhealthcare,ashighlightedbytheJCI(Joint
Commission International international accreditation agency for healthcare) accreditation awarded to eight of its
hospitals.ApollospositionasthelargestchainofhospitalsandpharmaciesinIndiaprovidesitastrongcompetitive
advantageinattractingthebesttalentintermsofdoctorsandrelatedstaffandalsogivesitthebenefitofscalein
purchase of medicines and other consumables. Apollos healthcare business, with its key focus areas such as
oncology,cardiology,neurologyandorthopaedics,islikelytowitnesssustainedgrowthindemand.IndRaexpects
demand growth to be driven by Indias large population, increasing urbanisation and consequently lifestylerelated
health problems, underspending by the government, increasing disposable incomes, improving health insurance
penetration,andincreasingawareness.

TheratingsalsoreflectApollosstrongcashflowsandliquidity,andrelativelystableEBITDAmarginsinthehospitals
segmentdespitecapacityadditions.Apolloreportedfundflowfromoperationsmarginofabout10%andcashflow
fromoperationsmarginofabout7%inFY15.WhilefreecashflowhasbeennegativeduetocapexofINR21.40bn
during FY13FY15, the company had cash & equivalents of INR5.04bn at FYE15 (FYE14: INR4.11bn FYE13:
INR6.78bn)andINR4.47bnatendSeptember2015.Also,thecompanysdebthasalongmaturityprofile.


Theratingsarehoweverconstrainedbythecompanysongoingpartlydebtfundedcapexplanwhichhasledtoan
increaseindebttoINR20.08bnatFYE15fromINR8.23bnatFYE12andnetadjustedleverageto3.15xfrom1.92x.
Apollohasalreadyaddedabout1,300hospitalbedsduringFY13FY15andplanstoaddadditional1,350bedsby
FY19.Thecompanyisnowinthefinalstagesofitscurrentexpansionplans,underwhichitplanstoadd875beds
inFY16and475bedsinFY19atatotalinvestmentofINR14.54bn,outofwhichINR7.24bnhasalreadybeenspent
bySeptember2015.Apollowillpartfundthebalancecapexusingdebt.ThenetadjustedleveragepeakedinFY15,
and is likely to be stable in FY16 and improve thereafter, as the new capacities start contributing to revenue and
profits.ApolloisalsoplanningtoraiseINR7.5bnthrougharightsissue,whichmaypartlybeusedforreducinghigh
costdebt,whichmayimprovethecreditmetricsfurther.

RATING SENSITIVITIES
Positive:AnincreaseintheEBITDAmarginsduetoprofitableoperationsinthenewhospitalsaswellasimprovement
inmarginsinthepharmacybusiness,leadingtopositivefreecashflowandasignificantimprovementinthecredit
metricswithnetadjustedleveragebeingsustainedbelow1xcouldleadtoapositiveratingaction.

Negative: Substantial debtfunded capex or acquisitions or inability to improve the EBITDA margins leading to the
netadjustedleverageexceeding2.5xbeyondFY18couldleadtoanegativeratingaction.

COMPANY PROFILE
Apollo started in 1983 with its first hospital in Chennai (150 beds), and it currently operates the largest chain of
hospitalsinIndiaunderitswellrecognisedbrandApolloHospitalsandalargechainofpharmaciesunderthebrand
Apollo Pharmacy. It operated 64 hospitals (8,985 beds) and 2,171 pharmacies as of September 2015. Apollo is
34.35%ownedbythepromoterfamily(Dr.PrathapReddyandfamily)andislistedontheBombayStockExchange
andtheNationalStockExchange.

Italsohasotherbusinesssuchashealthinsurance(throughan11%stakeinApolloMunichHealthInsurance)and
theclinicsanddiagnosticsbusiness(throughApolloHealthandLifestyleLimited),underwhichitoperates73Clinics
(32franchiseesand41owned,threecradlesand11daysurgerycentres).

In FY15, Apollo reported revenue of INR51.78bn (FY14: INR43.84bn), operating EBITDA of INR7.35bn
(INR6.72bn), operating EBITDAR of INR9.07bn (INR8.01bn) and net profit of INR3.40bn (INR3.17bn). At FYE15,
thecompanyhadadjusteddebtofINR33.65bn(INR23.02bn).

Accordingtotheinterimresultsfor1HFY16,thecompanyreportedrevenueofINR29.72bn(1HFY15:INR25.17bn),
operating EBITDA of INR4.09bn (INR3.66bn), operating EBITDAR of INR4.97bn (INR4.34bn) and net profit of
INR1.89bn(INR1.67bn).AtendSeptember2015,thecompanyhaddebtofINR23.99bnandcash&equivalentsof
INR4.47bn.

Apollosratings:
LongTermIssuerRating:assigned'INDAA+'/Stable
INR3,940mnonconvertibledebentures:assigned'INDAA+'/Stable
ProposedINR3,560mnonconvertibledebentures:assigned'ProvisionalINDAA+'/Stable
INR4,587.8mforeigncurrencydebt:assigned'INDAA+'/Stable
INR6,165mtermloans:assigned'INDAA+'/Stable
INR2,650mfundbasedworkingcapitallimits:assigned'INDAA+'/Stable/'INDA1+'
INR3,700mshorttermloans:assigned'INDA1+'
ProposedINR397.2mtermloans:assigned'ProvisionalINDAA+'/Stable

SOLICITATION DISCLOSURES
Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of,
theissuer,andtherefore,IndiaRatingshasbeencompensatedfortheprovisionoftheratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell,
make or hold any investment, loan or security or to undertake any investment strategy with respect to any
investment,loanorsecurityoranyissuer.

DISCLAIMER
ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
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PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA
RATINGS CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE,
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OFTHISSITE.

Rating Outstanding

(Ason08/Mar/2016)

LongTermIssuerRating

INDAA+/Stable

Debenture

INDAA+/Stable

INR4587.8m

FundBasedWorkingCapitalLimit

INDAA+/Stable

INR2650m

FundBasedWorkingCapitalLimit

INDA1+

INR2650m

NonConvertibleDebenture

INDAA+/Stable

INR3940m

NonConvertibleDebenture

ProvisionalINDAA+/Stable

INR3560m

Termloan

INDAA+/Stable

INR6165m

Termloan

ProvisionalINDAA+/Stable

INR397.2m

TermLoan

INDA1+

INR3700m

Applicable Criteria
CorporateRatingMethodology
OperatingLeases:ImplicationsforLesseesCredit

Analyst Names
PrimaryAnalyst
VinayBetala

AssociateDirector
IndiaRatingsandResearchPvtLtd4thFloor,DSouth,TIDELParkNo4,RajivGandhiSalai,
TaramaniChennai600113
+914443401719

SecondaryAnalyst
KarthikeyanThangarajan

SeniorAnalyst
+914443401712

CommitteeChairperson
SreenivasaPrasanna

SeniorDirector
+914443401711

MediaRelation
MihirMukherjee

ManagerCorporateCommunicationsandInvestorRelations
+912240356121