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.