Apollo Hospitals (APOHOS)

CMP: | 1711 Target: | 2060 (20%) Target Period: 12 months BUY

February 14, 2020

Numbers continue to strengthen…

Q3 standalone revenues grew 16.6% YoY to | 2529.5 crore (I-direct
estimate: | 2501.3 crore) on the back of 21.8% YoY growth in pharmacy

Result Update
business to | 1232.6 crore (I-direct estimate: | 1205.4 crore) and 12.1% YoY
growth in hospital business to | 1297.1 crore (I-direct estimate: | 1296.2
crore). EBITDA margins improved 254 bps YoY to 14.9% (I-direct estimate:
15.1%) mainly due to positive impact of Ind-AS 116. EBITDA grew 40.6% Particulars
YoY at | 376.7 crore (I-direct estimate: | 378.7 crore). Net profit grew 9.0% Particular Amount
to | 94.8 crore (I-direct estimate: | 100.6 crore). Delta vis-à-vis EBITDA was Market Capitalisation | 23804 crore
mainly due to negative impact of Ind-AS 116. Debt (FY19) | 3673 crore
Cash (FY19) | 347 crore
Healthcare expansion moderates; focus on asset sweating EV | 27130 crore
52 week H/L (|) 1748/1083
Rapid expansion and maturity of older hospitals has kept the overall growth Equity capital | 69.6 crore
tempo at 12-14% per annum. After an intense capex cycle, especially during Face value |5
FY14-18, the company is focusing on the profitability and return ratios with Key Highlights
calculated capex moderation. This has reflected in a marked improvement
 Q3FY20 revenues in line. However,
in both EBITDA margins and RoCE. The new hospitals and ventures are
net profit lower mainly due to higher
turning profitable ahead of schedule on the back of a judicious case mix
depreciation and interest cost
besides better occupancy and other matrix. We expect healthcare sales to
grow at a CAGR of ~12% in FY19-22E to | 7160.8 crore mainly due to strong  Overall narrative panning out on
growth at new hospitals and AHLL. expected lines with sustained margin

ICICI Securities – Retail Equity Research

expansion and improvement in
Pharmacy business EBITDA continues to improve RoCE, as guided by the management
at the beginning of the last fiscal
The pharmacy business (40% of FY19 revenues) has grown at ~22% CAGR
in the last five years on the back of consistent addition of new pharmacies  The company owns one of the best
and timely closure of non-performing pharmacies. FY19 margins were at integrated business models in the
5.2%. We expect the pharmacy business to grow at ~17% CAGR in FY19- healthcare space with strong
22E to | 6153 crore mainly on the back of new addition and improvement in management pedigree
realisation owing to ramp up in private label contribution.
 Maintain BUY
Valuation & Outlook
The company continues to deliver a healthy set of numbers on the revenue Research Analyst
and cost fronts. The overall narrative is panning out on expected lines with
Siddhant Khandekar
sustained margin expansion and improvement in RoCE, as guided by the
siddhant.khandekar@icicisecurities.com
management at the beginning of the last fiscal. The management has
reiterated a similar strategy, going ahead, with more focus on consolidation Mitesh Shah, CFA
of the existing hospitals and making new hospitals profitable. The company mitesh.sha@icicisecurities.com
owns one of the best integrated business models in the healthcare space
Sudarshan Agarwal
with a strong management pedigree. The management has reiterated plans sudarshan.agarwal@icicisecurities.com
for phased promoters pledge reduction. We value the stock on an SOTP
basis by valuing the healthcare business (existing hospitals & JV) at 13x
FY22E EV/EBITDA, healthcare business (new hospitals, JVs) and pharmacy
business at 2x FY22E EV/sales. We have a target price of | 2060.
Key Financial Summary
FY19 FY20E FY21E FY22E CAGR (FY19-22E) %
Net Sales 9617.4 11212.8 12711.1 14359.8 14.3
EBITDA 1064.6 1642.6 1994.9 2343.4 30.1
EBITDA margins (%) 11.1 14.6 15.7 16.3
PAT 236.0 228.1 397.3 970.5 60.2
EPS (|) 17.0 24.5 41.6 69.8
PE (x) 100.8 45.1 25.9 24.5
P/BV (x) 7.1 6.3 5.3 4.5
RoE (%) 7.1 9.1 12.9 18.5
RoCE (%) 8.8 10.9 14.3 17.6
Source: ICICI Direct Research; Company
 Result Update | Apollo Hospitals ICICI Direct Research

Exhibit 1: Variance Analysis

Q3FY20 Q3FY20E Q3FY19 Q2FY20 YoY (%) QoQ (%) Comments
YoY growth driven by 21.8% YoY growth in pharmacy business and
Revenue 2,529.5 2,501.3 2,169.0 2,463.6 16.6 2.7
12.1% YoY growth in healthcare business
Raw Material Expenses 1,331.7 1,298.9 1,132.9 1,291.6 17.5 3.1
Employee Expenses 392.4 386.8 340.5 380.9 15.3 3.0
Other expenditure 428.7 436.9 427.8 426.6 0.2 0.5
EBITDA 376.7 378.7 267.9 364.4 40.6 3.4
YoY improvement mainly due to improvement in case mix and
EBITDA (%) 14.9 15.1 12.3 14.8 254 bps 10 bps
impact of Ind-As 116
Interest 111.0 107.7 69.0 107.7 60.8 3.1 YoY increased mainly due to implementation of Ind-As 116
Depreciation 123.1 120.3 76.6 120.3 60.7 2.3 YoY increased mainly due to implementation of Ind-As 116
Other Income 3.0 4.0 8.1 3.9 -62.9 -23.6
PBT before EO & Forex 145.6 154.7 130.4 140.4 11.7 3.8
EO 0.0 0.0 0.0 0.0 0.0 0.0
PBT after Exceptional Items 145.6 154.7 130.4 140.4 11.7 3.8
Tax 50.9 54.1 43.5 49.8 17.1 2.3
Tax rate (%) 34.9 35.0 33.3 35.4
Strong growth in operational performance largely offset by impact
Adj. Net Profit 94.8 100.6 86.9 90.6 9.0 4.6 of Ind-As 116. Miss vis-à-vis I-direct estimates mainly due to higher-
than-expected depreciation and Interest cost
EPS (|) 6.8 7.2 6.2 6.5 9.0 4.6
Key Metrics
YoY growth mainly due to 16% YoY growth in new hospitals to |
Healthcare Services 1297.1 1296.2 1157.3 1291.2 12.1 0.5
345 crore mainly due to commencement of proton centre
YoY growth driven by 93 stores (net) addition and 8% growth in
Pharmacy 1232.6 1205.4 1011.9 1172.7 21.8 5.1
realisation
Source: ICICI Direct Research

Exhibit 2: Change in Estimates

FY20E FY21E Comments
(| Crore) Old New % Change Old New % Change
Revenue 11,175.6 11,212.8 0.3 12,625.2 12,711.1 0.7
EBITDA 1,640.5 1,642.6 0.1 1,968.5 1,994.9 1.3
EBITDA Margin (%) 14.7 14.6 -5 bps 15.6 15.7 9 bps

PAT 351.4 528.1 50.3 608.4 917.3 50.8 Included consideration of Apollo Munich and stake sale in pharmacy

EPS (|) 25.3 38.0 50.0 43.7 65.9 50.9

Source: ICICI Direct Research

Exhibit 3: Change in Estimates

Current Earlier
(% Growth) FY18 FY19 FY20E FY21E FY20E FY21E
Healthcare Services 4,515.6 5,142.1 5,800.4 6,460.4 5,837.1 6,543.1
Pharmacy 3,268.9 3,886.0 4,647.3 5,379.4 4,592.2 5,206.5
AHLL 458.9 588.8 726.1 871.3 729.7 875.6
Source: ICICI Direct Research

ICICI Securities | Retail Research 2

 Result Update | Apollo Hospitals ICICI Direct Research

Conference Call Highlights

 The promoters have brought down their pledge to 29.64% (down
from 67.33% earlier) of total 30.8% holding using proceeds from the
recently completed Apollo Munich deal. The management further
expects to bring the pledge down to 25% by March/April 2020

 Consolidated net debt as on January 20: | 3180 crore. The company

plans to bring down debt to | 2500-2600 crore (net debt/EBITDA
<2.5x) post completion of the pharmacy restructuring exercise,
which is expected to be completed by FY20 end

 The payer mix consisted of 55% walk-ins/cash; 25% insurance and

~20% scheme patients

 ARPOB for mature hospitals is expected to grow 7-8%, going

forward. New hospital margins are expected to expand to mid/high
teens in the next 12-18 months

 For 9MFY20, project capex: | 250 crore (including Proton; CNS &
oncology addition in Hyderabad; oncology addition in Vizag); non
project capex: | 150 crore; guidance for FY21 capex to be ~| 250-
300 crore mostly routine

 A ~| 100 crore of working capital locked in government scheme in

the last year; should get unlocked in the next six months

 Proton is growing at 17%. For Q3FY20, Proton had ~40 patients with
a 70:30 domestic: international split. On the capex front, the
management expects to spend further | 52 crore on this business

 The second gantry at Proton has been commissioned but not fully
utilised in Q3FY20. The third one is expected to begin operations
from Q1FY21. The management expects ~| 25 crore profitability at
the EBITDA level next year

 The 9M region wise YoY growth- 1) Tamil Nadu- 13% growth to

| 1712 crore; 2) AP, Telangana- 10% to | 838 crore, Karnataka- 14%
to | 556 crore, new hospitals- 18% to | 834 crore

 New hospitals (excluding Proton) reported EBITDA of | 30.2 crore

(| 17.0 crore in Q3FY19) at the consolidated level

 AHLL reported EBITDA of | 3.4 crore (loss of | 48.4 crore in 9MFY19).

Revenues grew 22% to | 529 crore driven by 34% growth in
diagnostics and 21% growth in specialty care

 For 9MFY20, SAP recorded | 3462.1 crore in revenues with 5.9%

EBITDA margin and has achieved RoCE of 23.7%. OTC and generic
sales along with private label (8.1% of SAP sales) contributed to the
profitability

 Matured hospitals EBITDA margins were at 22.2% in 9MFY20 while

new hospitals EBITDA margins were at 9.0%

 Consolidated healthcare services EBITDA margins were at 18.4% in

Q3FY20

 Of the 9,373 owned hospital beds capacity, 7,476 beds were

operational and had an occupancy of 69% in 9MFY20

 The total number of pharmacies as on December 31, 2019 was

3,700. Gross additions of 113 stores happened with 20 stores
closure thereby adding net 93 stores in Q3FY20

 Overall ARPOB growth- 10.1% to | 36946/day for 9MFY20

ICICI Securities | Retail Research 3

 Result Update | Apollo Hospitals ICICI Direct Research

Exhibit 4: Trend in standalone quarterly financials

(| crore) Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 YoY (%) QoQ (%)
Total Operating Income 1680.6 1661.6 1684.5 1851.6 1896.1 1862.9 1910.4 2090.1 2169.0 2167.1 2229.2 2463.6 2529.5 16.6 2.7
Raw Material Expenses 889.2 866.4 885.0 946.1 990.5 979.8 1009.2 1100.7 1132.9 1126.2 1163.1 1291.6 1331.7 17.5 3.1
as % revenues 52.9 52.1 52.5 51.1 52.2 52.6 52.8 52.7 52.2 52.0 52.2 52.4 52.6
Gross Profit 791.4 795.3 799.5 905.6 905.7 883.2 901.2 989.4 1036.1 1041.0 1066.1 1172.0 1197.8 15.6 2.2
GPM (%) 47.1 47.9 47.5 48.9 47.8 47.4 47.2 47.3 47.8 48.0 47.8 47.6 47.4
Employee Expenses 247.1 248.3 261.2 283.0 283.7 290.9 295.9 311.4 340.5 347.4 352.8 380.9 392.4 15.3 3.0
as % revenues 14.7 14.9 15.5 15.3 15.0 15.6 15.5 14.9 15.7 16.0 15.8 15.5 15.5
Other expenditure 350.2 376.9 364.6 401.3 400.7 378.7 378.7 420.2 427.8 427.8 387.5 426.6 428.7 0.2 0.5
as % revenues 20.8 22.7 21.6 21.7 21.1 20.3 19.8 20.1 19.7 19.7 17.4 17.3 16.9
Total expenditure 1486.5 1491.6 1510.8 1630.4 1674.9 1649.3 1683.7 1832.3 1901.2 1901.3 1903.4 2099.2 2152.8 13.2 2.6
EBITDA 194.1 170.1 173.6 221.2 221.3 213.6 226.7 257.8 267.9 265.8 325.8 364.4 376.7 40.6 3.4
EBITDA Margins (%) 11.55 10.23 10.31 11.95 11.67 11.46 11.86 12.33 12.35 12.27 14.62 14.79 14.89 254 bps 10 bps
Depreciation 61.8 62.8 64.6 66.5 67.8 73.1 72.4 73.9 76.6 77.0 109.8 120.3 123.1 60.7 2.3
Interest 51.3 57.8 55.5 58.8 63.5 62.4 62.1 66.0 69.0 70.9 99.9 107.7 111.0 60.8 3.1
Other Income 3.1 9.1 -3.8 2.6 7.9 5.8 2.1 -0.1 8.1 2.2 4.7 3.9 3.0 -62.9 -23.6
PBT 84.1 58.6 49.8 98.6 97.8 83.9 94.2 117.8 130.4 120.0 120.8 140.4 145.6 11.7 3.8
Less: Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total Tax 11.2 10.4 14.6 27.7 30.4 24.2 34.1 38.9 43.5 43.3 41.5 49.8 50.9 17.1 2.3
Tax rate (%) 13.4 17.8 29.3 28.1 31.1 28.9 36.2 33.0 33.3 36.1 34.4 35.4 34.9
Net Profit 72.8 48.2 35.2 70.9 67.4 59.6 60.2 79.0 86.9 76.7 79.3 90.6 94.8 9.0 4.6
Net Profit Margin (%) 4.3 2.9 2.1 3.8 3.6 3.2 3.1 3.8 4.0 3.5 3.6 3.7 3.7
EPS (Adjusted) 5.2 3.5 2.5 5.1 4.8 4.3 4.3 5.7 6.2 5.5 5.7 6.5 6.8
Source: ICICI Direct Research, Company

Exhibit 5: Quarterly Performance - Healthcare

| crore Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 YoY (%) QoQ (%)
Sales 891.9 918.4 920.4 1023.6 1008.2 1000.0 1019.0 1126.6 1157.3 1148.9 1172.6 1291.2 1297.1 12.1 0.5
EBITDA NA 139.6 161.2 212.3 202.1 184.3 210.3 234.9 238.6 241.4 231.5 261.4 266.5 11.7 1.9
EBITDA Margins (%) NA 15.2 17.5 20.7 20.0 18.4 20.6 20.9 20.6 21.0 19.7 20.2 20.5
Source: ICICI Direct Research, Company

Exhibit 6: Quarterly Performance - Pharmacy

| crore Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 YoY (%) QoQ (%)
Sales (| crore) 788.84 743.31 764.21 828.2 888.09 863.08 892.07 963.7 1011.9 1018.4 1056.8 1172.7 1232.6 21.8 5.1
EBITDA (| crore) 35.7 30.4 32.0 35.6 40.1 40.2 41.7 50.8 54.9 55.7 94.4 105.9 115.0 109.5 8.6
EBITDA Margins (%) 4.5 4.1 4.2 4.3 4.5 4.7 4.7 5.3 5.4 5.5 8.9 9.0 9.3
No of Stores 2506 2556 2643 2742 2849 3021 3085 3167 3272 3428 3496 3607 3700
Rev per store (| lakh) 31.5 29.1 28.9 30.2 31.2 28.6 28.9 30.4 30.9 29.7 30.2 32.5 33.3
Source: ICICI Direct Research, Company

ICICI Securities | Retail Research 4

 Result Update | Apollo Hospitals ICICI Direct Research

Company Background
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 total bed capacity of 10167 beds. Of these 70
hospitals, 44 are owned by the company (including JVs, subsidiaries and
associates) while five are managed by the company with 934 beds while 11
are day care/short surgical stay centres with 267 beds and 11 cradles with
283 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 four clusters- 1) Tamil Nadu
Region (Chennai and others), 2) AP, Telangana Region (Hyderabad and
others) 3) Karnataka Region (Bangalore and others) and 3) others that
include hospitals in Bhubaneswar, Bilaspur, Nashik and Navi Mumbai.
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 (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 | 459 crore of sales in FY18.
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 30 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 FY18.
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 2742 stores in FY17. In FY15, the company acquired Hyderabad-based
Hetero Med Solutions Ltd (HMSL). HMSL has ~320 stores across Telangana,
Andhra Pradesh and Tamil Nadu.
The Apollo board has decided to segregate the front-end retail pharmacy
business carried out in the standalone pharmacy segment into a separate
company Apollo Pharmacies (APL) as part of the proposed reorganisation.
APL to focus on- 1) Building a growth platform for the standalone
pharmacies business to get to a medium-term target of over 5000 pharmacy
outlets over five years with a goal of over | 10,000 crore sales and 30% RoCE
for the standalone pharmacy business in five years, 2) enabling foray into
digital commerce as part of AHEL’s omni-channel strategy to provide
consumers increased convenience and ability to choose between online and

ICICI Securities | Retail Research 5

 Result Update | Apollo Hospitals ICICI Direct Research

physical stores, 3) enhancing the private label business further from the
current 6%+ levels to over 12% in five years through a combination of both
broadening and deepening the product portfolio.
APL will become a wholly-owned subsidiary of Apollo Medicals Pvt Ltd
(AMPL). The entire shareholding of AMPL will be held by AHEL and certain
identified investors. AHEL will hold 25.5% of total share capital of AMPL with
other investors collectively holding the remaining share capital of AMPL.
Specifically, Jhelum Investment Fund 1 will hold 19.9%, Hemendra Kothari
will hold 9.9% while Enam Securities Pvt Ltd will hold 44.7% of total share
capital of AMPL.
AHEL shall have the right to acquire the shares of AMPL from investors in
compliance with the regulatory framework AHEL will be the exclusive
supplier for APL under a long-term supplier agreement while AHEL will enter
into a brand licencing agreement with APL to licence the “Apollo Pharmacy”
brand to the frontend stores and online pharmacy operations. The proposed
reorganisation is not expected to have a material impact on the financials of
AHEL as the backend business related to the standalone pharmacies, which
represents ~85% of the business economics, will continue to be held by
AHEL. The structure is likely to take AHEL one step closer to a potential
unlocking of value in the standalone pharmacy segment.
For the purposes of effectuating the restructuring, AHEL will transfer the
business of the front-end retail pharmacy business carried out in the
standalone pharmacy segment to APL by way of slump sale under a scheme
of arrangement with such transfer being effective from April 1, 2019. The
slump sale has been decided at | 527.8 crore.

ICICI Securities | Retail Research 6

 Result Update | Apollo Hospitals ICICI Direct Research

Exhibit 7: Revenues to grow at CAGR of 14% over FY19-22E Exhibit 8: Hospitals to grow at CAGR of 12% over FY19-22E
16000.0 CAGR 14.3% 14359.8 8000.0 CAGR 11.7% 7160.8
6460.4
14000.0 CAGR 16.7% 12711.1 CAGR 12.4% 5800.4
11212.8 6000.0 5142.1
12000.0 4515.6
9617.4 4085.1
10000.0 8243.5 3703.3

(| crore)
4000.0 3221.4
(| crore)

8000.0 7254.9
6214.7
6000.0 5178.5
2000.0
4000.0
2000.0 0.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
0.0
Healthcare Services
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Source: ICICI Direct Research, Company
Revenues
Source: ICICI Direct Research, Company

Exhibit 9: Pharmacy to grow at CAGR of 17% over FY19-22E Exhibit 10: AHLL to grow at CAGR of 21% over FY19-22E
7000.0 1200.0 CAGR 21.1%
CAGR 16.6% 6153.4 1045.6
6000.0 5379.4 1000.0
CAGR 21.7% 871.3
5000.0 4647.3
800.0 CAGR 51.8% 726.1
3886.0
4000.0 588.8
(| crore)
(| crore)

3268.9 600.0
2785.2 458.9
3000.0 2322.0 385.4
1772.6 400.0
2000.0 189.4
200.0 111.0
1000.0
0.0
0.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
AHLL
Pharmacy
Source: ICICI Direct Research, Company Source: ICICI Direct Research, Company

Exhibit 11: EBITDA & EBITDA margins trend Exhibit 12: RoE & RoCE trend
20.0
1200.0 8.0 18.5
970.5 18.0 17.6
1000.0 917.37.2 6.8 16.0
6.6
14.0 14.3
800.0
4.7 12.0 9.1 12.9
528.1 10.4 10.9
(| crore)

600.0 4.0 10.0 9.9

(%)
(%)

339.9 3.1 3.0 8.0 8.8

400.0 236.02.5 6.6 7.1
194.1 221.0 6.0 5.3 6.1
6.0 6.2
200.0 117.61.4 3.6
4.0
0.0 0.0 2.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E 0.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Net Profit Net Profit Margins (%) RoCE (%) RoNW (%)
Source: ICICI Direct Research, Company Source: ICICI Direct Research, Company

ICICI Securities | Retail Research 7

 Result Update | Apollo Hospitals ICICI Direct Research

Exhibit 13: One-year forward EV/EBITDA

45000
40000
35000
30000
25000
(| crore)

20000
15000
10000
5000
0
Aug-17

Aug-18

Aug-19
Feb-17

Feb-18

Feb-19

Feb-20
EV 20.9x 16.2x 13.8x 10.2x 7.8x

Source: ICICI Direct Research, Bloomberg

Exhibit 14: Valuation

Particulers Valuation Matrix Multiple (x) EV (| cr)
Healthcare (Existing Hospitals & JV) EV/EBITDA 13.0 16,072
Healthcare (New Hospitals) EV/Sales 2.0 3,744
Pharmacy EV/Sales 2.0 10,461
Others EV/Sales 1.0 1,277
Net Debt FY21E (| cr) 2,910.2
Targeted MCap (| cr) 28,643
No of shares (cr) 13.9
Per Share Value (|) 2,060
Source: ICICI Direct Research, Bloomberg

Exhibit 15: Summery

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE
(| crore) (%) (|) (%) (x) (X) (%) (%)
FY19 9617 16.7 17.0 100.6 25.4 2.8 8.8 10.1
FY20E 11213 16.6 24.5 -3.4 16.0 2.3 10.9 12.3
FY21E 12711 13.4 41.6 74.2 12.8 2.0 14.3 15.5
FY22E 14360 13.0 69.8 144.2 10.5 1.7 17.6 18.8
Source: ICICI Direct Research, Bloomberg

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 Result Update | Apollo Hospitals ICICI Direct Research

Exhibit 16: Recommendation history vs. Consensus

2,000 100.0
1,800 90.0
1,600
80.0
1,400
1,200 70.0
(|)

1,000 60.0

(%)
800 50.0
600
40.0
400
200 30.0
0 20.0
Feb-17 Apr-17 Jun-17 Sep-17 Nov-17 Feb-18 Apr-18 Jun-18 Sep-18 Nov-18 Feb-19 Apr-19 Jul-19 Sep-19 Dec-19 Feb-20

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: ICICI Direct Research; Bloomberg

Exhibit 17: Top 10 Shareholders

Rank Investor Name Filing Date % O/S Position (m) Change
1 PCR Investments Ltd 30-Jun-19 19.6 27.22m 0.00m
2 Apollo Hospitals Ent 31-Mar-18 14.5 20.19m 20.19m
3 Life Insurance Corp 30-Jun-19 5.7 7.90m 0.00m
4 Schroders Plc 31-Dec-19 4.4 6.05m 0.68m
5 Alliance Bernstein 30-Nov-19 3.6 5.05m 0.01m
6 Reddy Suneeta 11-Sep-19 2.9 3.98m 0.60m
7 Vanguard Group 31-Dec-19 2.7 3.69m (0.01)m
8 Copthall Mauritius I 30-Jun-19 1.9 2.63m 0.21m
9 Reddy Sangita 30-Jun-19 1.8 2.43m 0.00m
10 Munchener Ruckversic 30-Jun-19 1.7 2.40m 0.00m
Source: ICICI Direct Research, Bloomberg

Exhibit 18: Shareholding Pattern

(in %) Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Promoter 34.4 34.4 34.4 30.8 30.8
Others 65.6 65.6 65.6 69.2 69.2
Source: ICICI Direct Research, Company

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 Result Update | Apollo Hospitals ICICI Direct Research

Financial Summary

Exhibit 19: Profit & Loss (| crore) Exhibit 20: Cash Flow Statement (| crore)
(Year-end March) FY19 FY20E FY21E FY22E (Year-end March) FY19 FY20E FY21E FY22E
Revenues 9,617.4 11,212.8 12,711.1 14,359.8 Profit/(Loss) after taxation 200.2 528.1 917.3 970.5
Growth (%) 16.7 16.6 13.4 13.0 Add: Depreciation & Amortization 395.5 613.1 644.1 658.4
Raw Material Expenses 4,660.9 5,433.6 6,159.6 6,958.6 Working Capital Changes -45.8 -143.2 -134.0 -147.9
Employee Expenses 1,598.2 1,849.0 2,096.0 2,367.9 CF from operating activities 549.9 998.0 1,427.4 1,481.0
Other expenditure 2,293.7 2,287.6 2,460.5 2,689.9 Change in Capex -672.0 -2,003.5 -290.0 -260.0
Total Operating Expenditure 8,552.8 9,570.1 10,716.1 12,016.4 (Inc)/dec in Investments -103.6 0.0 -300.0 -300.0
EBITDA 1,064.6 1,642.6 1,994.9 2,343.4 Others -177.5 -0.9 64.2 97.6
Growth (%) 34.2 54.3 21.4 17.5 CF from investing activities -953.2 -2,004.4 -525.8 -462.4
Depreciation 395.5 613.1 644.1 658.4 Issue of Equity 0.0 0.0 0.0 0.0
Interest 327.0 535.0 465.4 395.4 Inc/(dec) in loan funds 234.7 1,481.2 -500.0 -700.0
Other Income 31.4 46.1 101.7 129.2 Dividend paid & dividend tax -83.7 -108.8 -189.1 -200.0
PBT 373.5 540.7 987.1 1,418.8 Others -365.5 0.0 0.0 0.0
Total Tax 173.4 314.8 527.5 354.7 CF from financing activities -214.5 1,372.4 -689.1 -900.0
MI & Profit from Associates 35.9 2.3 -62.2 -93.6 Net Cash flow -617.8 366.0 212.6 118.5
Adjusted PAT 236.0 228.1 397.3 970.5 Opening Cash 417.2 347.0 713.0 925.5
Growth (%) 100.6 -3.4 74.2 144.2
EPS (Adjusted) 17.0 24.5 41.6 69.8 Closing Cash -200.5 713.0 925.5 1,044.1
Source: ICICI Direct Research Free Cash Flow -122.1 -1,005.5 1,137.4 1,221.0
Source: ICICI Direct Research

Exhibit 21: Balance Sheet (| crore) Exhibit 22: Key Ratios (| crore)
(Year-end March) FY19 FY20E FY21E FY22E (Year-end March) FY19 FY20E FY21E FY22E
Equity Capital 69.6 69.6 69.6 69.6 Per share data (|)
Reserve and Surplus 3,263.9 3,683.1 4,411.4 5,181.8 Adjusted EPS 17.0 24.5 41.6 69.8
Total Shareholders funds 3,333.5 3,752.7 4,481.0 5,251.4 BV per share 239.6 269.7 322.1 377.5
Total Debt 3,673.1 3,250.3 2,750.3 2,050.3 Dividend per share 6.9 7.8 13.6 14.4
Lease Liabilities 0 1904 1904 1904 Cash Per Share 24.9 51.2 66.5 75.0
Deferred Tax Liability 314.9 321.2 327.6 334.1 Operating Ratios (%)
Minority Interest 135.5 133.9 197.6 294.8 Gross Profit Margins 51.5 51.5 51.5 51.5
Long term provisions 11.4 11.7 11.9 12.1 EBITDA margins 11.1 14.6 15.7 16.3
Other Non Current Liabilities 480.3 489.9 499.7 509.7 Net Profit margins 2.5 3.0 4.6 6.8
Total Liabilities 7,948.6 9,863.7 10,172.1 10,356.5 Inventory days 22.2 22.2 22.2 22.2
Gross Block - Fixed Assets 6,252.9 8,456.4 8,946.4 9,406.4 Debtor days 38.8 38.8 38.8 38.8
Accumulated Depreciation 1,624.0 2,237.2 2,881.3 3,539.8 Creditor days 27.1 27.1 27.1 27.1
Net Block 4,628.9 6,219.3 6,065.1 5,866.7 Asset Turnover 1.5 1.3 1.4 1.5
Capital WIP 821.8 621.8 421.8 221.8 EBITDA Conversion Rate 51.7 60.8 71.6 63.2
Goodwill on Consolidation 346.2 346.2 346.2 346.2 Return Ratios (%)
Total Fixed Assets 5,796.8 7,187.2 6,833.1 6,434.6 RoE 7.1 9.1 12.9 18.5
Investments 468.2 468.2 768.2 1,068.2 RoCE 8.8 10.9 14.3 17.6
Inventory 584.8 681.8 772.9 873.1 RoIC 10.1 12.3 15.5 18.8
Debtors 1,023.2 1,192.9 1,352.3 1,527.7 Valuation Ratios (x)
Loans & Advances, & other CA 456.4 645.6 332.1 294.9 P/E 100.8 45.1 25.9 24.5
Cash 347.0 713.0 925.5 1,044.1 EV / EBITDA 25.4 16.0 12.8 10.5
Total Current Assets 2,212.9 2,850.8 3,319.1 3,718.7 EV / Net Sales 2.8 2.3 2.0 1.7
Creditors 713.1 831.4 942.5 1,064.8 Market Cap / Sales 2.5 2.1 1.9 1.7
Provisions & Other CL 393.0 410.6 426.2 474.9 Price to Book Value 7.1 6.3 5.3 4.5
Total Current Liabilities 1,234.5 1,363.2 1,484.9 1,618.0 Solvency Ratios
Net Current Assets 978.4 1,487.6 1,834.2 2,100.7 Debt / EBITDA 3.5 2.0 1.4 0.9
Long term loans & advances 687.8 701.5 715.6 729.9 Debt / Equity 1.1 0.9 0.6 0.4
Deferred Tax Assets 17.4 19.1 21.0 23.1 Net Debt / Equity 1.1 0.8 0.6 0.4
Application of Funds 7,948.6 9,863.7 10,172.1 10,356.5 Current Ratio 1.5 1.6 1.6 1.7
Source: ICICI Direct Research Source: ICICI Direct Research

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 Result Update | Apollo Hospitals ICICI Direct Research

Exhibit 23: ICICI Direct Coverage Universe (Healthcare)

Company I-Direct CMP TP Rating M Cap EPS (|) PE(x) RoCE (%) RoE (%)
Code (|) (|) (| cr) FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19FY20EFY21EFY22E
Ajanta Pharma AJAPHA 1443 1,180 Buy 12590 43.5 43.5 63.4 76.2 33.1 33.1 22.8 18.9 21.8 21.8 20.8 21.9 17.1 17.1 16.0 17.2
ALEMPHA
Alembic Pharma 648 620 Hold 12217 31.4 31.4 26.6 31.0 20.6 20.6 24.4 20.9 19.6 19.6 13.4 14.9 21.8 21.8 13.3 13.8
Apollo HospitalsAPOHOS 1711 2,060 Buy 23804 17.0 17.0 41.6 69.8 100.8 100.8 41.1 24.5 8.8 8.8 14.3 17.6 7.1 7.1 12.9 18.5
AURPHA
Aurobindo Pharma 522 555 Hold 30586 42.1 42.1 56.3 61.7 12.4 12.4 9.3 8.5 15.9 15.9 15.7 16.4 17.7 17.7 17.0 15.8
Biocon BIOCON 304 310 Hold 36462 6.2 6.2 10.3 15.7 49.0 49.0 29.5 19.4 10.9 10.9 15.1 19.4 12.2 12.2 14.7 18.6
CADHEA
Cadila Healthcare 269 285 Hold 27503 18.1 18.1 15.6 19.0 14.9 14.9 17.2 14.1 13.0 13.0 11.1 12.6 17.8 17.8 12.8 13.9
Cipla CIPLA 445 490 Hold 35853 18.6 18.6 22.3 27.3 23.9 23.9 19.9 16.3 10.9 10.9 13.1 14.6 10.0 10.0 10.0 11.1
Divi's Lab DIVLAB 2164 1,850 Hold 57445 51.0 51.0 58.4 71.0 42.5 42.5 37.1 30.5 25.5 25.5 22.1 22.8 19.4 19.4 17.0 17.6
DRREDD 3306 3,255
Dr Reddy's Labs Hold 54908 114.8 114.8 148.2 175.9 28.8 28.8 22.3 18.8 11.1 11.1 14.1 16.8 13.6 13.6 14.0 14.6
GLEPHA
Glenmark Pharma 333 410 Hold 9388 26.9 26.9 36.7 46.1 12.4 12.4 9.1 7.2 15.3 15.3 15.0 17.0 13.5 13.5 14.0 15.1
Hikal HIKCHE 124 160 Buy 1594 8.4 9.6 11.1 13.3 14.8 12.9 11.2 9.3 14.3 13.3 13.6 14.5 13.6 14.1 14.2 14.9
Ipca LaboratoriesIPCLAB 1430 1,560 Buy 18068 35.1 35.1 64.5 78.0 40.8 40.8 22.2 18.3 15.0 15.0 20.7 21.4 14.2 14.2 18.7 19.0
INDREM
Indoco remedies 250 240 Hold 2304 -0.3 3.0 8.4 15.1 -794.6 84.7 29.8 16.5 1.0 4.6 9.3 15.3 -0.4 4.0 10.1 15.4
Lupin LUPIN 715 675 Hold 32367 16.5 16.5 18.0 30.7 43.2 43.2 39.7 23.3 9.4 9.4 7.8 12.2 5.4 5.4 5.9 9.3
NARHRU
Narayana Hrudalaya 350 360 Buy 7150 2.9 2.9 9.8 13.3 120.5 120.5 35.8 26.3 7.7 7.7 13.9 16.5 5.5 5.5 14.5 16.7
Natco Pharma NATPHA 672 650 Hold 12230 34.9 26.9 24.6 23.4 19.3 25.0 27.4 28.7 21.3 14.6 12.7 11.3 18.5 12.6 10.4 9.1
Sun Pharma SUNPHA 423 460 Hold 101453 15.9 15.9 18.4 23.0 26.7 26.7 22.9 18.4 10.3 10.3 10.6 11.9 9.2 9.2 9.0 10.1
Syngene Int. SYNINT 310 360 Buy 12402 8.3 8.3 9.6 12.0 37.0 37.0 31.7 25.6 14.8 14.8 13.1 15.1 16.8 16.8 14.1 14.9
Torrent PharmaTORPHA 2084 2,020 Hold 35268 48.9 48.9 71.5 91.8 42.6 42.6 29.2 22.7 14.2 14.2 18.4 21.2 17.5 17.5 19.1 20.7
Source: ICICI Direct Research, Bloomberg

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 Result Update | Apollo Hospitals ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorises them as Buy, Hold,
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

Buy: >15%;
Hold: -5% to 15%;
Reduce: -5% to -15%;
Sell: <-15%

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

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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 Result Update | Apollo Hospitals ICICI Direct Research

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ICICI Securities | Retail Research 13