APOLLO HOSPITALS : Touching Lives !!!

Scrip Code: 508869 / APOLLOHOSP

CMP:  Rs. 522.15; Buy at Rs.518-520 levels.

Short term Target: Rs. 560, 6 month Target – Rs. 850; STOP LOSS – Rs. 478.00; Market Cap: Rs. 6,859.86 cr; 52 Week High/Low: Rs. 599.70 / Rs. 408.00

Total Shares: 13,13,77,376 shares; Promoters : 4,14,51,438 shares –31.55 %; Total Public holding : 8,99,25,938 shares – 68.44 %; Book Value: Rs. 129.93; Face Value: Rs. 5.00; EPS: Rs. 14.74; Div: 75 % ; P/E: 35.42 times; Ind. P/E: 35.68; EV/EBITDA: 18.97

Total Debt: Rs. 1575.60 cr; Enterprise Value: Rs. 16,070.34 cr.

APOLLO HOSPITALS ENTERPRISE LTD:  The Company was formed on 5^th December 1979, at Chennai, India, Promoted by Dr. Prathap C. Reddy (executive chairman), it belongs to the Apollo Hospitals group that pioneered the concept of corporate healthcare delivery in India. Apollo Hospitals Enterprise has over 54 hospitals of which 14 are client hospitals managed by professionals deputed from Apollo. The company has a network of 922 pharmacy outlets & approximately 8,717 beds capacity. The company’s services include cardiology, cardiothoracic surgery, orthopedics, joint replacement surgery, complex neurosurgery with critical care units. It also offers a range of diagnostic modalities, including CT scanner, X-ray, diagnostic cardiology, endoscopy systems, lab services, and blood bank. Its subsidiaries include Unique Home Health Care, AB Medical Centers and Apollo Hospitals International. Lanka Hospitals is an associated company with a 350-bed capacity in Sri Lanka. In 2006, the company acquired 51% of Imperial Cancer Hospital and Research Center & Samudra Healthcare Enterprise. It entered into a JV with British American Investment (Mauritius) for setting up a multi-specialty hospital (MSH) in Mauritius and launched India’s first exclusive healthcare center for women in Chennai. It is to get into medical tourism with Taj Hotels Resorts and Palaces and will set up Tele-medicine centers in about 300 villages in Kutch. Apollo Hospitals has seven Joint Commission International (JCI) accredited hospitals within the Group located in Chennai, Hyderabad, Delhi, Kolkata, Bangalore, Ludhiana and Dhaka. Unique Home Health Care Limited (UHHCL) is a wholly owned subsidiary of the Company which provides medical and pharmaceutical services including doctor's consultation, physiotherapy services directly at patients places and also offers paramedical service in hospitals to critically ill patients. As of March 31, 2011, Apollo Hospitals had 12 subsidiary companies.

Investment Rationale: 

Apollo Hospital operates with 54 hospitals with total bed capacity of 8,717 beds as on Mar 31, 2011. Apollo Hospitals Group is the only healthcare provider to be featured in the top 10 business super brands of 2011. The Indian healthcare market is one of the prominent contributors to the country’s gross domestic product (GDP) having attracted large number of players- domestic as well as international – during the past few years. Highly qualified doctors and scientists, state-of-the-art technology and low costs have helped India become an attractive global destination for medical tourism, clinical studies, and research and development (R&D) programs. This sector offers massive growth potential and a chance to capitalise on its expansion, especially as the country sees a rise in the incidence of lifestyle-related diseases. A growing elderly population paired with a rise in income levels also emphasise the need for better medical facilities in the country. The market size of health sector is about US$ 5,000 Cr-a-year & is growing rapidly and is now the second-largest service- sector employer in the country, providing jobs to about 45 lakhs people directly or indirectly. According to Fitch ratings agency, the Indian healthcare sectors will double its size to US$ 10,000 Cr by 2015 and by 2020 - the Indian healthcare industry is estimated to be worth US$ 27,560 Cr. Currently, only 8.00 % of India’s GDP is spent on healthcare. India needs to spend at least US$ 80 billion more in the next five years to meet targets. Apollo Hospitals Enterprise Ltd and University College London (UCL) have signed a memorandum of understanding (MoU) to collaborate their efforts in training and clinical research. The strategic partnership would aim to promote and conduct educational and research initiatives in health sciences. As per the data released by the Department of Industrial Policy and Promotion (DIPP), the drugs and pharmaceuticals sector has attracted 12 foreign direct investments (FDI) worth US$ 2.4 billion between April 2000 and April 2011, while hospitals and diagnostic centre have received FDI worth US$ 1.03 billion in the same period. The Indian medical tourism industry is presently at a nascent stage, but has an enormous potential for future growth and development on the back of low cost range of treatments provided by the country. According to a global report India’s share in the global medical tourism industry will reach around 3 % by the end of 2013. The report states that medical tourism is expected to generate revenue around US$ 3 billion by 2013, growing at a CAGR of around 26 % during 2011–2013. The number of medical tourists is anticipated to grow at a CAGR of over 19 % during the forecast period to reach 1.3 million by 2013. And so Apollo Hospitals is to get into medical tourism with Taj Hotels Resorts and Palaces to capture this space and carries ability to do so.

Outlook and Valuation:

A growing economy, lifestyle related health issues, improving healthcare insurance penetration, government initiatives and increasing disposable income are the key drivers that will create a robust future for this industry. The industry has witnessed the establishment of world class pharmaceutical manufacturing and emergence of a vibrant biotechnology industry. Medical tourism too has been rising in recent years. To conclude, the Indian healthcare sector is on a fast growth track and Indian health care & medical sectors are on prime focus of the world investment regime. At the current market price of Rs. 522.15, the stock is trading at 29.82 x FY12E and 25.52 x FY13E respectively. Earnings per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs. 17.51 and Rs. 20.45 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 19 % - 20 % over the period of time. Price to Book Value of the stock is expected to be at 3.43 x and 3.02 x respectively for FY12E and FY13E. It is expected that the company will keep its growth story intact in the coming quarters also. I would ‘BUY’ APOLLO HOSPITALS with a target price of Rs. 560.00 for short term and for the Long term investment it will be Rs. 850.00. 

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	18,257.80	23,319.60	27,517.13	31,644.70
NET PROFIT (Rs. Crs)	1,519.70	1,817.20	2,183.53	2,550.66
EPS (Rs.)	24.60	14.57	17.51	20.45
PE (x)	21.46	36.24	30.16	25.82
P/BV (x)	2.12	3.87	3.43	3.02
EV/EBITDA (x)	10.38	16.53	14.24	12.43
ROCE (%)	9.86	10.67	11.36	11.72
RONW (%)	16.51	19.17	20.06	20.61

I would buy APOLLO HOSPITALS with a price target of Rs. 560 for the short term for long term Rs. 850.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 478.00 on every purchase.

HINDALCO INDUSTRIES : An industry leader in Aluminium and Copper !!

Scrip Code: 500440 / HINDALCO

CMP:  Rs. 142.90; Buy at Rs.135- 138 levels. 6 month Target – Rs. 200; STOP LOSS – Rs. 124.50; Market Cap: Rs. 27,357.05 cr; 52 Week High/Low: Rs. 252.85 / Rs. 128.20; Total Shares: 191,44,19,297 shares; Promoters : 61,37,97,188 shares –32.06 %; Total Public holding : 130,06,22,109 shares – 67.93 %; Book Value: Rs. 155.12; Face Value: Rs. 1.00; EPS: Rs. 11.73; Div: 150 % ; P/E: 12.20 times; Ind. P/E: 14.89; EV/EBITDA: 10.50

Total Debt: Rs. 6359.70 cr; Enterprise Value: Rs. 33,770.35 cr.

HINDALCO INDUSTRIES: The Company was formed in 1958, and based in India. Hindalco Industries Limited engages in the production & sale of aluminium and copper in India and internationally. The company operates in two segments: Aluminium & Copper. The Aluminium segment engages in the production of alumina, aluminium metal, and aluminium metal products, such as aluminium ingots, billets, wire rods, flat rolled products, foils, and extrusions. The company's aluminium units across India encompass various operations, from bauxite mining, alumina refining, aluminium smelting to downstream rolling, extrusions, foils, alloy wheels, and recycling. The Copper segment engages in the smelting of copper and the production of continuous cast copper rods, copper cathodes, sulphuric acid, dap and complexes, gold, and silver. The integrated facility at Renukoot is for an alumina refinery and an aluminum smelter, along with facilities for the production of semi-fabricated products, such as rods, flat rolled products and extrusions. The others segment engages in the production of caustic soda and provides cellular services. The company has a joint venture agreement with Mahanadi Coalfields Limited (MCL, a subsidiary company of Coal India Limited) and Neyveli Lignite Corporation Limited (NLCL) and has formed MNH Shakti Limited for mining of coal. In addition, the company along with its partners, Dubai and Hydromine, is developing an alumina project through a joint venture company, Hydromine Global Minerals GMBH Limited. The Company's subsidiaries include Novelis Belgique SA, Novelis Benelux NV, Albrasilis-Aluminio do Brasil Industria e Comercia Ltda, Novelis do Brasil Ltda, Novelis Cast House Technology Ltd., Novelis Foil France SAS, Novelis PAE SAS, Novelis Deutschland GmbH, Novelis Aluminum Holding Company, Novelis Italia SpA and Novelis (India) Infotech Ltd.

Investment Rationale: In next 4 years company expects Aluminium capacity to increase by three folds.  A Part of the phase 1 at Hirakund has been completed in which the capacity will increase to 161 ktpa. Further, in phase 2 capacities will be increased to 213 ktpa. Capacities at Utkal Alumina & Aditya Aluminium are expected to come on line by 2 half of CY2012 & early by 2013 respectively. It is expected that production & sales volume will show significant growth over FY2011 – 2014. Most of these new capacities will be backed by captive bauxite & coal mines & hence, Hindalco will have a lower cost compared to non – integrated players. NOVELIS will also to expand its capacity by 20 % by FY2014. Novelis capacity at Pinda operations in Brazil is being increased by 220ktpa by 2012 and rest will be through debottlenecking (a 3-4 % increase in capacity every year), Novelis plans to invest up to US$400 million in expansion of its South Korean aluminum rolling & recycling plant by 1mtpa. Given its stable conversion business a steady EBITDA of US$1 billion/annum from Novelis is expected. The Pinda (Brazil) expansion is on process and is expected to complete by December 2012. This will increase the flat rolled product capacity to 600 KTPA. The expansion in South Korea and North America is expected to complete by mid 2013.  The Forest Advisory Committee has rejected the forest diversion proposal for the Mahan Coal block during the quarter. The issue has been recommended to the Group of Ministers (GoM) which has been constituted for giving forest clearance. The issue will be discussed in the next meeting of GoM. The first metal from the Mahan smelter is expected to come on by the end of DEC 2011.  The forest stage II clearance for the Aditya Aluminium has been received; hence the production is expected to start by early 2013. The majority land has been acquired for the Aditya Refinery & is expected to be operational by 2014. The land acquisition has started for the Jharkhand Aluminium.  The timely completion of the projects will be the key focus for Hindalco as the new capacities coming on stream will drive the additional growth in revenue and profitability from FY13E. However, the projects have infrastructure and administrative challenges which can lead to delay in commencement of the new projects.

Outlook and Valuation:

HINDALCO posted a 16.5 % net revenue of Rs. 6031 cr in Q1 FY12 vs. Rs. 5178 cr YoY and EBITDA was up 4.2 % to Rs. 867 cr vs. Rs. 832 cr. PAT was up by 20.5 % YoY to Rs.644 cr; other income at Rs. 178 cr. Novelis posted increase in net revenue to $3,113 million in Q1 FY12 vs. $2,533 million YoY and $2,960 million QoQ due to higher LME prices. Adjusted EBITDA was up 16.3% YoY to $306 million in Q1 FY12 from $263 million in Q1 FY11 (up 9.3% QoQ). Total shipments of the aluminium rolled products were up 3% YoY to 767 KT in Q1 FY12 vs 746 KT in Q1 FY11. Demand from the auto and beverage can segments have remained strong. The total beverage can volume increased 9% YoY (2% QoQ) and accounted for 60% of the total rolled product volumes. However the non-can segment declined 5% YoY and 4% QoQ. In the electronics segment the company is facing intense competition in the foil business from the unorganised players. The segment is not performing well due to weakness majorly in Asia in the flat panel TV segments. Novelis has a capex of $67 million against the full year guidance of $550-600 million. Hindalco is well placed to benefit from its aluminium expansion plans (capacity increasing by nearly 3 folds in the next 4 years); low production cost at its new capacities and steady capacity expansion at Novelis. Due to delay in its Utkal & Aditya projects there could be lows in production and sales volume estimates for FY12 and FY13. Higher other income was due to treasury operation, return of capital from Novelis and dividend from Aditya Birla Minerals.
HINDALCO to hold its AGM on 23rd September 2011; Book closure for dividend of Rs. 1.50/sh or 150 % from 16th September 2011 to 23rd September 2011. The valuation of HINDALCO stock on SOTP (sum‐of‐the‐parts) basis, with the standalone business comes at Rs. 196 / share for FY13E. In my view HINDALCO could report EPS in FY12E & FY13E of Rs. 12.90 / sh and Rs. 18.70 / sh, respectively. I would buy HINDALCO IND LTD for the long term with a price target of Rs. 200 with the strict stop loss of Rs. 124.50  

Business Subsidiary FY13E	Enterprise Value (in Rs.Cr)
HINDALCO (Standalone)	34,935
NOVELIS	23,946
TOTAL EV	58,882
Less : Net Debt (FY13)	23,523
Value of Investments@25% discount	2,224
Value per Share	196.00

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	60,708	72,078	75,368	83,023
NET PROFIT (Rs. Crs)	4,352	2,879	2,461	3,572
EPS (Rs.)	22.70	15.00	12.90	18.70
PE (x)	6.80	10.30	12.00	8.30
P/BV (x)	1.40	1.00	1.00	0.90
EV/EBITDA (x)	4.70	6.20	7.70	6.60
ROCE (%)	20.90	10.80	15.50	15.00
RONW (%)	14.00	9.90	10.00	10.00

I would buy HINDALCO INDUSTRIES with a price target of Rs. 200 for the 6 month. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 124.50 on your purchase.

MAHINDRA & MAHINDRA LTD : Showing Signs of strong growth !!

Scrip Code: 500520 / M&M

CMP:  Rs. 765.10; Buy  Rs. 730
Short term Target: Rs. 780, 6 month Target – Rs. 814; STOP LOSS – Rs. 670.00; Market Cap: Rs. 46,975.21 Cr; 52 Week High/Low: Rs. 826.70 / Rs. 585.00

Total Shares: 61,39,74,839 shares; Promoters : 15,26,37,105 shares –24.86 %; Total Public holding : 98,93,422 shares – 62.30 %; Book Value: Rs. 167.64; Face Value: Rs. 5.00; EPS: Rs. 44.05; Div: 230 % ; P/E: 17.39 times; Ind. P/E: 15.40; EV/EBITDA: 11.91.

Total Debt: Rs. 2552.90 cr; Enterprise Value: Rs. 50,619.76 cr.

MAHINDRA & MAHINDRA LTD: The Company was formed in 1945 as Mahindra & Mahindra and renamed as Mahindra & Mahindra Ltd in 1948, based in India. Mahindra & Mahindra Limited operates in the Motor vehicles and car bodies sector. The Company operates in nine segments: automotive segment comprises of sales of automobiles, spare parts and related services; farm equipment segment comprises of sales of tractors, spare parts and related services; information technology (IT) services comprises of services rendered for IT and telecom; financial services comprise of services relating to financing, leasing and hire purchase of automobiles and tractors; steel trading and processing comprises of trading and processing of steel; infrastructure comprise of operating of commercial complexes, project management and development; hospitality segment comprises of sale of timeshare; Systech segment comprises of automotive components and other related products and services, and its others segment comprise of logistics, after-market, two wheelers and investment. In November 2009, BAE Systems entered into a joint venture agreement with Mahindra & Mahindra Limited to create a land systems focused joint venture Defense Company, based in India. During the fiscal year ended March 31, 2011, the Company acquired a 70 % stake in Ssangyong Motor Company Limited - a manufacturer of sports utility vehicles in Korea. The company has a distribution network of over 130 dealers in Korea and exports to over 90 countries through 1,200 dealers. With the support of M&M, SMC is working on a revitalization plan with strong focus on cost reduction along with new product development and market expansion.

Investment Rationale: M&M gained market share by launching new models which drove volume & revenue growth in automotive sector, company’s market share in Utility Vehicles (UVs) rose by 4.50 % to 56.2 % and in tractors by 2.30 % to 43 %. Its domestic tractor numbers grew 14 % in Q1 to 1,33,103 units. New product launches in the pickup segment has helped M&M maintain its demand momentum. In the UV segment, the company expects to launch a new SUV by December 2011 end. SsangYong Motor Company a part of US$ 12.5 billion Mahindra Group unveiled the concept of crossover vehicle, which is targeted for the global market. The car will make its debut at the 64^th Frankfurt International Motor Show to be held in Germany this month. This SUV will be first launched in India & South Africa while several others countries around the world will be targeted later. M&M’s global SUV project codenamed W201 was christened as the XUV500. Consumer research for the Mahindra XUV500 was carried out in various western markets, South Africa & India, with testing of the product done across Europe, Australia & South Africa among others. The SUV will be manufactured at M&M’s plant in Chakan near Pune in Maharashtra. Mahindra is likely to price the SUV in Rs. 12 – Rs. 20 lakhs range. Demand for small commercial vehicles (SCV’s), the fastest growing commercial vehicles (CV) segment, remains strong and M&M has been successful in grabbing 20 % market share in the segment in less than 2 years of launch. M&M is working on turning around its recent acquisition of Ssangyong, Korea. In CY11, M&M targets revenue of US$3 billion from Ssangyong against US$ 2 billion in CY10. Two SUV’s from Ssangyong Motor’s portfolio (Rexton and Korando) would be assembled at M&M Chakan facility. Through its JV with Navistar, M&M continues to expand its sales network for commercial vehicles. M&M’s Tractors segment is expected to sustain its demand driven by higher rural penetration, good monsoons, onset of festival season & increasing usage in haulage applications. Current demand scenario is similar to what was witnessed in Punjab during the green revolution. The difference is it is visible in larger parts of the country & hence, a sharp jump in growth numbers. M&M’s low segment product (15HP) Yuvraj is gaining popularity among farmers. Company is selectively opening up in new markets with the latest addition being Maharashtra & Karnataka  

Outlook and Valuation:

Finance availability rather than interest rates, is the key parameter affecting demand. Not witnessing any constraints with finance availability M&M’s in-house financing arm - M&M Finance usually finances 35 % - 40 % of total vehicles sold. The company is prepared to handle any shift in demand for diesel/petrol vehicles with introduction of duty/price hike on diesel vehicles. MM expects share of Chakan in overall production to go up to 25 % in FY12. Currently, this plant produces Maximo, Genio and Navistar trucks. Management stated that all new products including W-201 and SMC products will come out from Chakan plant. Xylo and Scorpio are produced at Nashik plant, while Bolero is produced at both Nashik and Zaheerabad plants. The company is looking at new Auto plant in Chennai and new Tractor plant in Zaheerabad, as it operates at near full capacities at its existing units. Maharashtra government has withdrawn set-off of sales tax on sales outside the state from mid-March 2011. While it does not reduce the benefit, which is fixed as a % of total Capex, the benefit would now be realized over a much longer period. Impact of withdrawn of set-off of sales tax have contracted EBITDA margin by 0.6 % – 0.8 % in Q1 FY12. Management expects 25 % of auto sector volumes, as well as all new launches would be produced from Chakan plant. Due to higher volumes and revenues from Chakan plant, impact of withdrawn of set-off of sales tax would be higher in coming quarters. Capex could be some were about Rs 7,000 Cr over the next three years. M&M’s DEBT EQUITY RATIO AS ON JUNE 2011 stood at 0.22 X. In the automotive sector, M&M is expected to register a volume growth of around 17 % in FY12 and 13 % in FY13; in tractor sector at around 12 % in FY12 & 13 % in FY13 respectively. It is estimated that growth in M&M automotive sector would be lead by continued dominance of UV portfolio, launch of new SUVs and higher sales of Verito passenger car (earlier known Logan). Tractor sector to continue with its market share with expansion in capacity for Yuvraj tractor from 1,000 to 1,500 per month and normal monsoon this year. Any additional increase in excise duty on diesel vehicles would impact M&M as its UV portfolio is entirely diesel based (at around 97-98%). The valuation of M&M stock on SOTP (sum‐of‐the‐parts) basis, with the standalone business comes at Rs. 602 / share and subsidiary investments at Rs. 212 / share FY13E.  In my view M&M could report EPS in FY11 & FY12E of Rs. 43.70 / sh and Rs. 51.40 / sh, respectively. I would buy M & M LTD for the long term with a price target of Rs. 95o and for the SHORT TERM PLAYERS it would be Rs.814.00 

Business Subsidiary FY13E	Value Per Share (in Rs.)
M&M Financial Services	65.00
Mahindra Forgings	10.00
Mahindra Holidays & Resorts Ltd	34.00
Mahindra Lifespace Developers	13.00
Mahindra Ugine Steel Co	1.00
Tech Mahindra	65.00
Ssangyong Motor Company	24.00
Other Investment (at BV)	1.00
Total Subsidiaries	212.00
TOTAL	814.00

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	18,529.60	23,295.00	29,349.10	34,210.80
NET PROFIT (Rs. Crs)	2,018.10	2,519.80	3,019.70	3,492.40
EPS (Rs.)	36.30	43.70	51.40	59.50
PE (x)	18.40	15.30	13.00	11.20
P/BV (x)	4.70	3.70	3.20	2.60
EV/EBITDA (x)	13.60	12.50	10.20	8.70
ROCE (%)	30.90	27.80	26.50	25.50
RONW (%)	24.30	23.10	24.30	24.40

I would buy MAHINDRA & MAHINDRA LTD with a price target of Rs. 780 for the short term and Rs. 814 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 670.00 on your purchase.