RESEARCH

CRISIL IER Independent Equity Research

Apollo Hospitals
Enterprise Ltd

Q3FY14 Results First Cut

Enhancing investment decisions

CRISIL IER Independent Equity Research

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis
of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a
five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL
Fundamental Grade

Assessment

CRISIL
Valuation Grade

Assessment

5/5

Excellent fundamentals

5/5

Strong upside (>25% from CMP)

4/5

Superior fundamentals

4/5

Upside (10-25% from CMP)

3/5

Good fundamentals

3/5

Align (+-10% from CMP)

2/5

Moderate fundamentals

2/5

Downside (negative 10-25% from CMP)

1/5

Poor fundamentals

1/5

Strong downside (<-25% from CMP)

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Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias
the grading recommendation of the company.

Disclaimer:
This Company commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd.
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Apollo Hospitals Enterprise Ltd

Q3FY14 results first cut: Earnings slightly below expectations
Fundamental Grade

5/5 (Excellent fundamentals)

Valuation Grade

3/5 (CMP is aligned)

Industry

Healthcare Providers & Services

RESEARCH
February 11, 2014
Fair Value
CMP

Apollo Hospitals Enterprise Ltds (Apollos) Q3FY14 standalone revenues were in line but
earnings were slightly below CRISIL Researchs expectations due to lower margin and higher
interest cost. Highlights of the results are mentioned below; this will be followed by a detailed
quarterly update. Our outstanding fundamental grade is 5/5 and fair value is 982 per share.
We may revise our assessment post our discussion with the management.

Excellent
Fundamentals
5

Standalone revenues grew by 16.1% y-o-y and 1.9% q-o-q to 9,933 mn. Revenues of
the healthcare services business increased 12.6% y-o-y (flat q-o-q) to 6,363 mn driven
by steady growth in the existing hospitals. The pharmacy segments revenues grew

4
3
2
1

22.9% y-o-y and 5.5% q-o-q to 3,571 mn; its contribution to the top line increased to

Poor
Fundamentals

35.8% from 33.6% in Q3FY13.

EBITDA margin contracted by 123 bps y-o-y and 54 bps q-o-q to 15.9%. We believe

y-o-y and 82 bps q-o-q to 18.0%. The pharmacy business EBIT margin improved by
PBT declined 2.4% y-o-y and 5.7% q-o-q to 1,050 mn owing to lower EBITDA margin,
increase in interest cost (up 19.6% y-o-y) and lower other income (down 53% y-o-y).
Adjusted PAT grew 3.5% y-o-y (down 4.1% q-o-q) to 834 mn due to lower tax outgo.
Adjusted EPS was 6.0 compared to 5.8 in Q3FY13.
Valuations: Current market price is aligned
Our discounted cash flow-based outstanding fair value for Apollo is 982 per share. The fair
value implies EV/EBITDA multiples of 20x FY14E and 16.3x FY15E EBITDA. At the current
market price of 946, the valuation grade is 3/5.

KEY FORECAST (CONSOLIDATED)

( mn)
Operating income
EBITDA
Adj net income

NIFTY/SENSEX
NSE/BSE ticker
Face value ( per share)
Shares outstanding (mn)
Market cap ( mn)/(US$ mn)
Enterprise value ( mn)/(US$ mn)
52-week range ()/(H/L)
Beta
Free float (%)
Avg daily volumes (30-days)
Avg daily value (30-days) ( mn)

6053/20334
APOLLOHOSP
5
139.1
131,565/2,109
137,289/2,201
1,098/781
0.7
65.7%
176,394
165

SHAREHOLDING PATTERN

FY11

FY12

FY13

FY14E

FY15E

31,475

37,697

44,959

54,713

100%

4,216

5,168

6,121

7,206

8,837

90%

21.1%

20.3%

20.3%

20.3%

80%

2.9%

2.9%

3.3%

3.3%

41.8%

42.4%

42.1%

42.1%

34.3%

34.4%

34.4%

34.4%

Mar-13

Jun-13

Sep-13

3,011

3,588

4,435

Adj EPS ()

14.4

16.1

21.6

25.8

31.9

60%

EPS growth (%)

35.8

12.0

34.2

19.2

23.6

50%

0.4

0.4

0.6

0.7

0.9

40%

RoCE (%)

12.0

12.6

12.8

13.6

15.5

RoE (%)

10.2

10.0

11.5

12.4

14.0

PE (x)

65.7

58.6

43.7

36.7

29.7

6.4

5.1

4.8

4.4

4.0

29.8

25.6

22.4

19.3

15.7

EV/EBITDA (x)

26,054

2,169

P/BV (x)

KEY STOCK STATISTICS

1,795

Dividend yield (%)

Strong
Downside

services business. EBIT margin of the healthcare services business declined by 204 bps
81 bps y-o-y and 18 bps q-o-q to 2.7%.

Valuation Grade

initial operating losses in the new hospitals led to margin contraction in the healthcare

Strong
Upside

CFV MATRIX

Fundamental Grade

The above grades are outstanding ones and are currently under review

982
946

NM: Not meaningful; CMP: Current market price

70%

30%
20%
10%
0%

Promoter

FII

DII

Dec-13
Others

PERFORMANCE VIS--VIS MARKET

Apollo

1-m
3%

Returns
3-m
6-m
6%
4%

12-m
13%

CNX 500

-3%

-1%

0.2%

Source: Company, CRISIL Research estimates

10%

ANALYTICAL CONTACT
Mohit Modi (Director)

mohit.modi@crisil.com

Ravi Dodhia

ravi.dodhia@crisil.com

Bhaskar Bukrediwala

bhaskar.bukrediwala@crisil.com

Client servicing desk

+91 22 3342 3561

clientservicing@crisil.com

For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

CRISIL IER Independent Equity Research

Q3FY14 results summary (Standalone)

( mn)

Q3FY14

Q2FY14

Q3FY13

q-o-q (%)

y-o-y (%)

9MFY14

9MFY13

y-o-y (%)

Net sales

9,933

9,751

8,558

1.9

16.1

28,635

24,695

16.0

Raw materials cost

5,192

5,057

4,426

2.7

17.3

14,886

12,776

16.5

52%

52%

52%

40bps

55bps

52%

52%

25bps

Employees cost

1,572

1,513

1,358

3.9

15.8

4,475

3,920

14.2

Other expenses

1,592

1,580

1,310

0.8

21.5

4,635

3,792

22.2

EBITDA

1,578

1,601

1,464

(1.5)

7.8

4,638

4,208

10.2

15.9%

16.4%

17.1%

-54bps

-123bps

16.2%

17.0%

-84bps
20.5

Raw materials cost (% of net sales)

EBITDA margin
Depreciation

335

317

276

5.6

21.6

960

797

1,243

1,284

1,189

(3.2)

4.5

3,679

3,411

7.8

231

226

193

2.5

19.6

661

518

27.6

1,011

1,058

995

(4.4)

1.6

3,017

2,893

4.3

38

55

80

(30.2)

(52.6)

154

265

(41.7)

PBT

1,050

1,113

1,076

(5.7)

(2.4)

3,172

3,158

0.4

Tax

215

243

269

(11.5)

(20.1)

678

822

(17.5)

PAT

834

870

806

(4.1)

3.5

2,494

2,336

6.7

Adj PAT

834

870

806

(4.1)

3.5

2,494

2,318

7.6

8.4%

8.9%

9.4%

-52bps

-102bps

8.7%

9.4%

-68bps

139

139

139

139

139

6.0

6.3

5.8

(4.1)

3.5

17.9

16.7

7.6

EBIT
Interest and finance charges
Operating PBT
Other income

Adj PAT margin

No. of equity shares (mn)
Adj EPS ()
Source: Company, CRISIL Research

PAT grew marginally by 3.5% y-o-y

( mn)

Source: Company, CRISIL Research

EBITDA Margin (RHS)

PAT

Source: Company, CRISIL Research

PAT Margin (RHS)

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

Q3FY12

Q2FY12

Q1FY12

Net Sales

Q3FY13

10%

Q2FY13

11%

Q1FY13

9,933

9,751

8,950

8,483

8,558

8,363

7,774

7,446

7,148

6,998

6,410

12%

Q4FY12

13%

4,000

Q3FY12

14%

1,000
12%
9.7%
8.9% 8.4%
900
9.4%
9.0%
9.0%
8.8%
10%
800 8.0% 8.4%
8.0%
8.4%
700
8%
600
500
6%
400
4%
300
200
2%
100 513 590 647 593 697 814 806 710 789 870 834
0
0%

Q2FY12

15%

6,000

17%
16%

8,000

2,000

18%

Q1FY12

15.9%

16.4%

16.3%

17.1%

17.2%

16.8%

15.7%

10,000

16.1%

16.6%

17.1%

( mn)
12,000

16.5%

Revenue growth healthy; EBITDA margin declined

Apollo Hospitals Enterprise Ltd

RESEARCH

Share price movement

Fair value movement since initiation

( mn)
500
450

()

('000)

1,200

18,000

400

1,000

350

800

300

16,000
14,000
12,000
10,000

600

250
200

8,000
6,000

400

150
100

4,000

200

2,000

Apollo

CNX 500

Total Traded Quantity (RHS)

CRISIL Fair Value

Feb-14

Oct-13

Jun-13

Feb-13

Oct-12

Jun-12

0
Feb-12

Sep-11

May-11

Jan-11

Jun-10

Sep-10

Feb-14

Aug-13

Mar-13

Sep-12

Apr-12

Oct-11

May-11

Nov-10

May-10

Dec-09

Jun-09

Jan-09

Jul-08

Feb-08

Jan-10

Sep-09

50

Apollo

-Indexed to 100
Source: NSE, CRISIL Research

Source: NSE, BSE, CRISIL Research

CRISIL IER Independent Equity Research

Annexure: Financials (Consolidated)

Income statement

Balance Sheet

( mn)
Operating income

FY11

FY12

FY13

( mn)

26,054

31,475

37,697

EBITDA

4,216

5,168

6,121

Equity share capital

EBITDA margin

16.2%

16.4%

16.2%

Reserves

Depreciation

942

1,239

1,423

Minorities

EBIT

3,275

3,929

4,698

Net worth

Interest
Operating PBT

772
2,502

885
3,044

1,033
3,666

111

216

326

14
2,627

3,260

Tax provision

887

1,150

Minority interest

(69)

Other income
Exceptional inc/(exp)
PBT

(59)

FY11

FY12

FY13

Liabilities
672

696

24,009

26,772

249

126

173

18,553

24,807

27,641

Other debt
Total debt

10,270
10,270

8,554
8,554

12,132
12,132

(1)
3,991

Deferred tax liability (net)

Total liabilities

845
29,668

1,551
34,911

2,294
42,068

1,050

Assets
Net fixed assets

14,576

18,566

21,767

Capital WIP
Total fixed assets

3,796
18,372

2,360
20,926

4,580
26,346

4,137

4,713

1,886

Inventory

1,584

1,915

2,187

Sundry debtors

3,003

3,933

4,862

Loans and advances

5,544

6,078

4,488

(70)

PAT (Reported)

1,809

2,169

3,010

Less: Exceptionals
Adjusted PAT

14
1,795

2,169

(1)
3,011

Convertible debt

624
17,681

Investments
Current assets

Ratios
FY11

FY12

FY13

Grow th
Operating income (%)

28.6

20.8

19.8

Cash & bank balance

1,781

2,301

2,960

EBITDA (%)

39.1

22.6

18.4

Adj PAT (%)

37.1

20.8

38.8

Marketable securities
Total current assets

883
12,795

996
15,223

3,621
18,119

Adj EPS (%)

35.8

12.0

34.2

Total current liabilities

6,355

7,614

6,072

Net current assets

6,440

7,609

12,047

Profitability
EBITDA margin (%)
Adj PAT Margin (%)

Intangibles/Misc. expenditure
16.2

16.4

16.2

Total assets

6.9

6.9

8.0

RoE (%)

10.2

10.0

11.5

Cash flow

RoCE (%)

12.0

12.6

12.8

( mn)

RoIC (%)

12.6

13.0

14.0

Pre-tax profit

Valuations
Price-earnings (x)

65.7

58.6

43.7

Price-book (x)

6.4

5.1

4.8

EV/EBITDA (x)

29.8

25.6

22.4

4.8

4.2

3.6

25.9

24.8

26.1

0.4

0.4

0.6

EV/Sales (x)
Dividend payout ratio (%)
Dividend yield (%)

719

1,663

1,787

29,668

34,911

42,068

FY11
2,613

Total tax paid

(578)

Depreciation

942

FY12
3,260
(444)

FY13
3,991
(307)

1,239

1,423

(1,074)
1,903

(536)
3,520

(1,154)
3,953

Capital expenditure

(3,573)

(4,738)

(6,968)

Investments and others

Net cash from investments

(854)
(4,427)

(689)
(5,427)

202
(6,766)

Working capital changes

Net cash from operations
Cash from investments

Cash from financing

B/S ratios

Equity raised/(repaid)

Inventory days

31

31

30

Debt raised/(repaid)

Creditors days

60

56

55

Dividend (incl. tax)

Debtor days

42

46

47

Others (incl extraordinaries)

Net cash from financing

Working capital days

296
1,138
(544)
297
1,188

53

50

53

Gross asset turnover (x)

1.4

1.4

1.4

Change in cash position

Net asset turnover (x)

1.9

1.9

1.9

Closing cash

Sales/operating assets (x)

1.5

1.6

1.6

Current ratio (x)

2.0

2.0

3.0

Quarterly financials*

Debt-equity (x)

0.6

0.3

0.4

( mn)

Q3FY13

Net debt/equity (x)

0.4

0.2

0.2

Net Sales

8,558

Interest coverage

4.2

4.4

4.6

Change (q-o-q)
EBITDA

FY11

FY12

FY13

Change (q-o-q)
EBITDA margin

Adj EPS ()

14.4

16.1

21.6

CEPS

21.9

25.3

31.9

148.8

184.5

198.7

3.8

4.0

5.7

124.7

134.5

139.1

Per share

Book value
Dividend ()
Actual o/s shares (mn)

*Standalone
Source: CRISIL Research

PAT
Adj PAT
Change (q-o-q)
Adj PAT margin
Adj EPS

(1,336)

4,433

1,990

(1,716)

3,579

(625)
336
2,427

(917)
(1,179)
3,472

520

659

1,781

2,301

2,960

Q4FY13

Q1FY14

Q2FY14

Q3FY14

8,483

8,950

9,751

9,933

2%
1,464

-1%
1,328

6%
1,459

9%
1,601

2%
1,578

2%
17.1%

-9%
15.7%

10%
16.3%

10%
16.4%

-1%
15.9%

806
806

755
710

789
789

870
870

834
834

-1%

-12%

11%

10%

-4%

9.4%

8.4%

8.8%

8.9%

8.4%

5.8

5.1

5.7

6.3

6.0

RESEARCH

This page is intentionally left blank

CRISIL IER Independent Equity Research

CRISIL Research Team

President
Mukesh Agarwal

CRISIL Research

+91 22 3342 3035

mukesh.agarwal@crisil.com

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Senior Director, Capital Markets

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Director, Customised Research

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Director, Customised Research

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Director, Customised Research

+91 22 3342 3526

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Director, Equity Research

+91 22 4254 2860

mohit.modi@crisil.com

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Director, Funds & Fixed Income Research

+91 22 3342 8091

jiju.vidyadharan@crisil.com

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Director, Industry Research

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ajay.dsouza@crisil.com

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Director, Industry Research

+91 22 3342 3530

ajay.srinivasan@crisil.com

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Director, Industry Research

+91 22 3342 3574

rahul.prithiani@crisil.com

Business Development
Hani Jalan

Director, Capital Markets

+91 22 3342 3077

hani.jalan@crisil.com

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Director, Industry & Customised Research

+91 22 3342 8008

prosenjit.ghosh@crisil.com

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22, Ulsoor Road,
Bengaluru - 560 042, India
Phone: +91 80 2558 0899
+91 80 2559 4802
Fax: +91 80 2559 4801

Kolkata
Horizon, Block 'B', 4th Floor
57 Chowringhee Road
Kolkata - 700 071, India
Phone: +91 33 2289 1949/50
Fax: +91 33 2283 0597

Chennai
Thapar House,
43/44, Montieth Road, Egmore,
Chennai - 600 008, India
Phone: +91 44 2854 6205/06
+91 44 2854 6093
Fax: +91 44 2854 7531

Pune
1187/17, Ghole Road,
Shivaji Nagar,
Pune - 411 005, India
Phone: +91 20 2553 9064/67
Fax: +91 20 4018 1930

Gurgaon
Plot No. 46
Sector 44
Opp. PF Office
Gurgaon - 122 003, India
Phone: +91 124 6722 000

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CRISIL Limited
CRISIL House, Central Avenue,
Hiranandani Business Park, Powai, Mumbai 400076. India
Phone: +91 22 3342 3000 | Fax: +91 22 3342 8088
www.crisil.com
CRISIL Ltd is a Standard & Poor's company