Sec Pharma HospitalsHSBC 110712

Healthcare Hospitals
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Global Research
India is substantially underinvested in healthcare with 17% of the worlds population but only 6% of the beds Meagre public healthcare spending in India presents a big investment opportunity for private players
TP Price EV/EBITDA PE Potential (INR) (x)* (x)* return (%)* 796 650 115 107.5 13.9 32.6 12.9 50.1 22.9 6.5
India Hospitals
India's health gap
HSBC India Hospitals coverage

Ticker Company Rating OW N
APHS IN Apollo Hospitals FORH IN Fortis Healthcare
Initiate coverage on Apollo (OW) and Fortis (N)

Huge demand-supply mismatch: At 0.9 beds per 1,000 people, India ranks low among emerging nations in healthcare provision, even though it carries 20% of the global disease burden. Increasing affluence, changing demographics and shifting lifestyle-driven disease patterns support growth. The investment opportunity for private players is huge in our view, given public participation is low and out-of-pocket spend is as high at 80%. Significant capacity in pipeline: Leading players Apollo and Fortis plan to cumulatively add 5,000 beds by FY15 (51% of their current combined capacity). We expect industry margins to remain flat despite significant new capacity addition, thanks to improving returns from mature beds and a continued focus on improving occupancy, case mix and turnover. Existing challenges thriving new delivery models: Shortage of skilled medical personnel, increasing real estate costs and emergence of new entrants despite significant entry barriers have compelled Apollo and Fortis to diversify. Apollos low-cost REACH hospitals and Fortiss foray into overseas markets and new service segments are new, developing business models. Initiate OW on Apollo Hospitals, N on Fortis Healthcare. We initiate coverage on Apollo with an OW rating on the back of the strong growth in its hospital business, increasing contribution from pharmacy and adequate funding for expansion. Any potential strategic tie-up in pharmacy could act as a near-term share price catalyst. On the other hand, we expect near-term earnings for Fortis to remain under pressure given its high interest burden after its overseas expansion. While its growth in India is strong, its international prospects are uncertain.
Note: * EV/EBITDA and PE for FY13, PE and Potential return based on 5 Jul 2012 closing price. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield. Source: HSBC estimates, DataStream
9 July 2012
Girish Bakhru*, CFA Analyst HSBC Securities & Capital Markets (India) Private Limited +91 22 2268 1638 Damayanti Kerai* Associate Bangalore View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: HSBC Securities and Capital Markets (India) Private Limited girishbakhru@hsbc.co.in
Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
To vote for HSBC in Asiamoney 2012 www.asiamoney.com/survey/takesurvey/en/BP12/

Click here for more information on HSBC's India Research Team
Healthcare Hospitals 9 July 2012
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Apollo and Fortis at a glance Parameters Bloomberg ticker Shareholding pattern Market cap (USD m) 52 week high/low (INR) Rating Target price (INR) Price (INR) Potential return (%) ROE (FY13e) Net Debt/Equity (FY13e) 3-year sales CAGR (FY12-FY15e) 3-year PAT CAGR Sales mix Operational parameters Number of hospitals Employees Doctors network Beds operational Owned beds Beds in pipeline Total bed network CoE (%) Average Revenue per Operating Bed (ARPOB) (INR/day) Average Length of Stay (ALOS) (days) Occupancy (%) In-patient admissions Out-patient visits Revenue per adjusted patient admissions (INR) Key positives Apollo Hospitals APHS IN Promoter (33.10%), FII (40.04%), DII (2.40%), Others (24.46%) 1,623 716.9/452.2 OW 796 650 22.9 10.4% 0.2 21.8% 29.6% Standalone hospitals: 62%, Retail pharmacy: 27%, JV/subsidiaries: 11% 51 >16,000 >4,000 5,153 5,888 2,955 10,731 65% 20,455 (net of doctor fees) 4.78 71 281,020 2.31mn 77,745 Leadership position in private healthcare in India, strong brand equity Strong established presence in Chennai and Hyderabad with improving mix resulting in growth in ARPOBs Largest player in organized retail pharmacy in India, key beneficiary of FDI in retail Key negatives Concentration of revenue in Chennai and Hyderabad cluster (c55% of total healthcare service revenues), increasing competition and other operational issues can impact the overall company performance Pharmacy is a drag on overall margins Fortis Healthcare FORH IN Promoter (81.48%), FII (4.96%), DII (0.83%), Others (12.73%) 801 171.5/81 N 115 107.5 6.5 2.6% 1.5 33.0% 47.2% India: 50%, Australia & NZ: 31%, Hong Kong :15%, Vietnam: 3%, Dubai: 1% 75 (68 in India) >23,000 >3,900 3,985 (doesnt include international beds) 2,985 (doesnt include international beds) 3,165 12,325 (including 1,500 beds in international locations) 65-70% 25,479 4.00 73 276,983* NA NA Second largest private healthcare player in India after Apollo; strengthened its domestic position through aggressive acquisitions Escorts, Wockhardt, Malar, SRL Entry to diagnostic business and international markets provide good diversification
Leverage is high especially after acquisition of international assets and return ratios are lowest among peers in Asia Lack of experience in greenfield operations given large part of growth is driven by acquisitions Risk of execution given entry into international markets where Fortis has less experience
Key catalysts
Margin expansion in pharmacy business, Increasing Listing of clinical establishments REIT, commencement occupancy at Hyderabad cluster, quick ramp up in new of operations at Fortis colorectal hospital Singapore, beds esp. under Mumbai cluster recovery of margins in SRL diagnostic business
Note: Potential return based on 5 Jul 2012 closing price. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield. Source: Company data, HSBC estimates
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Contents
Investment summary
Structural deficiencies Healthcare: An emerging private affair What we look for in hospitals Initiating coverage
4
4 5 7 9
Fortis Healthcare (FORH)

Pan-Asia branding Financials & valuation: Pan-Asia focus India hospital business Diagnostic business
44
44 45 47 50 53 56 59 60 60 61 61
Valuation and performance India healthcare overview

Healthcare infrastructure inadequate in India Key drivers Key hurdles
10 13
13 15 19
International businesses Sales growth on consolidation Balance sheet is stretched Key downside risks Key upside risks Initiate as N, TP INR115
Company profiles Apollo Hospitals (APHS)

Leader in private healthcare Financials & valuation: Hospital business brings in 75% of revenue Apollo Hospitals: Operating metrics Retail pharmacy at inflection point Other ventures Earnings CAGR over 20% Balance sheet is healthy Key downside risks Initiate as OW, TP of INR796
23 Key metrics overview 24

24 25 27 32 34 36 37 37 38 39 Basic operating metrics
65
65
Appendix
Healthcare snapshot in India Differentiation among hospitals Budget 2012-13 highlights Healthcare in 12th Five-year Plan
68
68 69 70 70
History of private equity deals in Indias healthcare sector 72 India physician and nursing density well below world average Healthcare infrastructure in India
73 74
Disclosure appendix Disclaimer
77 79
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Investment summary
Structural healthcare deficiencies and rising healthcare spend
suggest growth among private players is sustainable

Significant capacity expansion over the next decade and new
business models also contribute to growth among private players

While there are number of challenges and risks, high entry
barriers favour incumbents such as Apollo and Fortis
Structural deficiencies
Low on supply
While the healthcare delivery market is huge (USD60bn in 2010) and has been growing at a c12% CAGR (over2007-2010), investment in the industry has lagged significantly behind. Public participation has been poor, with more than 75% of overall investment in healthcare coming from the private sector (one of the highest rates in the world). Despite a large share (c50%) of hospitals overall healthcare market, the infrastructure in terms of number of hospitals, beds and medical personnel is far below the world average. India only has 9 beds per 10,000 people, versus the US (31 beds) and the world average (29 beds). This is despite India carrying a higher share of the worlds total disease burden (at 20%). We estimate c60% of Indias c30,000 hospitals are private and c45% of hospital beds are private. We believe this ratio would be even higher if we look at beds only in tertiary care, given public healthcare infrastructure is currently oriented to primary and secondary needs.
India accounts for 20% of global disease burden while its share of health infrastructure is inadequate
25% 20% 15% 10% 5% 0%
20%
6%
8%
8%
9% 1%
Disease
Doctors
Source: Fortis Healthcare
Numbers of hospitals and hospital beds in India Attribute/Year 1981 1991 2001 2010*
No. of Hospitals No. of private hospitals % in private sector No. of beds No. of private beds % in private sector
6,805 11,571 15,622 29,760 2,926 6,595 11,404 17,000 43 57 73 57 504,538 806,409 903,952 1,048,715 141,271 258,051 343,501 471,922 28 32 38 45
Note: * 2010 numbers are extrapolated numbers Source: Directorate General of State Health Services, India
technicians
Beds
Nurses
workers
burden
Health
Lab
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In-patient and out-patient revenues in India are expected to grow significantly
among middle class, the in-patient revenues will be a key growth driver within healthcare services. Importantly, we believe the rise in demand will largely benefit private players given their stronger brands and focus on higher successful outcomes (which are benchmarked against developed world healthcare).
6,000 5,000 INR bn 4,000 3,000 2,000 1,000 0
2008-18 CAGR In-patient: 14% Out-patient:8% 1,745 1,175 787 903 2008 In-patient 3,205 1,802 2013e Out-patient 2018e
Healthcare: An emerging private affair

Indias national healthcare spending is 4.1% of GDP (source: World Bank 2010), which is among the lowest rates in the world. As a result, quality healthcare has increasingly fallen into the hands of private players. Over the last two decades, a large number of tertiary care hospitals within the public sector have faced a resource crunch resulting in an inability to maintain quality service. This along with increasing affordability, growing demand for complex diagnostic and therapeutic treatments and increasing awareness has increased the preference for private hospitals.
Source: CRISIL
High in demand
Some of the key factors driving growth in demand for healthcare services include: Rising income levels: increasing affordability and awareness for quality treatments Changing demographics: increasing proportion of elderly who have more healthcare needs Changing disease profile: higher incidence of cardiac ailments, diabetes and other lifestyle-related medical disorders that require more hospitalization Medical tourism: low cost quality treatment makes India a favoured destination Increase in health insurance: increasing insurance penetration increases affordability It is estimated that the overall healthcare market will reach cUSD80bn by 2015 (source: CRISIL), the majority of which will be in-patient revenues. Currently cINR250bn worth of spending is on inpatient services and the majority (c60%) of healthcare spending is out-patient; this which indicates healthcare affordability remains low and disease patterns are still dominated by acute infections. We believe with an increased share of lifestyle disorders and improving affordability
USD160bn investment opportunity and largely private

Given Indias current low global ranking in terms of the ratio of hospital beds to population, we believe there is a huge investment opportunity. Assuming the population continues to grow at the current rate, India needs to add c930,000 beds by 2020 to improve its bed to population ratio to just 15 beds per 10,000 people. This would require an additional investment of cUSD52bn assuming a bed costs USD50,000. We believe 30% of additions will be required for complex medical treatments in cardiac, oncology and transplant therapies. To reach the global average of 30 beds per 10,000 people, we calculate India would need to invest to cUSD160bn in hospital healthcare.
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Crucially, we believe the investment opportunity will continue to fall largely in the hands of private players given the low government participation.
Huge investment opportunity towards goal of meeting global average beds per population
Advantage to Apollo and Fortis

Given the high initial set-up costs, long gestation periods and continuing challenges in terms of the shortage of skilled medical personnel and continual change in medical technology, the barriers for entry to healthcare provision in India are high. Existing players including Apollo and Fortis have already achieved the following: Established a presence in hot-spots including metros across the country. Utilized their early-mover advantage to create sizeable capacity and reach and establish brand equity that defines quality healthcare Established an ability to attract and retain strong medical talent which we believe is critical to success of a hospital Reached a stage of reaping significant cash flows from mature beds We believe it will be difficult for new players to establish a significant presence in tertiary care in major Indian markets, like the large cities, in light of the above.
Current population Growth rate assumption

2020e population
1,200m 1.25-1.3%
1,325m
Per bed development cost Target no. of beds per 10,000 people Additional no. of beds required (000) Additional investment required (USDbn)
Source: HSBC estimates
INR2.5mn or cUSD50,000 15 932 52 20 1,594 89 25 2,256 125 30 2,918 162
Both Apollo and Fortis have been aggressive in expanding bed capacity. Apollo aims to add c40% of current bed capacity in the next three years which would take its owned beds to over 8,500. The Fortis model has been more acquisition driven and share of greenfield projects may slowly increase. The group has widened its network to 75 hospitals and over 12,000 beds including acquisition of assets under FHIL (Fortis Healthcare International).
Apollo and Fortis - Stock performance against HSBC Drug Index and Sensex
300 250 200 150 100 50 0 Oct-08 Oct -10 Oct-07 Oct-09 Oct-11 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Apr-12 Jul-07 Jul-09 Jul-10 Jul-11 Apr-10 Apr-08 Apr-09 Apr-11 Jul-12 Jul-08
Apollo
Source: DataStream
Fortis
HSBC Drug Index
Sensex
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What we look for in hospitals

Balanced capacity expansion and higher proportion of younger beds
The growth in the hospital industry hinges on new beds. We prefer operators with a planned gradual build-up of capacity and a portfolio of hospitals with a larger proportion of younger beds (under three years since development and acquisition), which provide margin enhancement opportunities.
Portfolio end-market characteristics

We prefer high exposure to local markets that operate with significantly higher ARPOBs (lesser competition), higher affordability (higher per capita disposable income) and have reasonably strong in-patient and out-patient volume. We believe characteristics of markets that hospitals operate in can greatly affect financial and operational performance of the overall business.
Net debt/EBITDA comparison Company FY12 FY13e FY14e FY15e
Improving or stable returns on capital

While most of the hospital industry suffers from low returns due to its capital intensive nature, we prefer organizations that have a history of generating higher returns on incremental investments and/or are exhibiting meaningful improvement in their ratios as most facilities mature in the portfolio. Typically a tertiary bed can generate over 25% operating margin from the fifth year of operation with the peak at c30%.
Apollo Fortis Bumrungrad Tenet Lifepoint Health South Universal health

Source: Datastream, Company data
1.0 11.4 1.3 4.0 2.7 2.6 4.0
0.7 6.6 0.8 3.6 2.6 2.5 2.6
0.8 5.9 0.7 3.3 2.3 2.1 2.1
0.6 5.2 3.0 2.3 2.1 1.9
ROE comparison for key hospitals
35 30 25 20 15 10 5 0 FY12 FY13e FY14e FY15e Fortis Raffles Apollo Lifepoint Univ ersal Health Tenet Bumrungrad
Lower gearing and exposure to bad debt

Given the capital intensive nature of the hospital business, companies with easier access to new capital have an advantage. We believe exposure to bad debt is an issue to consider when evaluating hospitals. Given the relatively high share of outof-pocket expenses in the country, the exposure to bad debt has so far been low.
Source: Datastream, Company data
Geographical distribution of facilities for Apollo and Fortis _________________________Fortis _________________________ Region Operating beds No. of Hospitals ________________________ Apollo _________________________ Region Operating beds No. of Hospitals
North India South India West India East India International
2,067 712 688 388 130
31 15 9 10 3
Chennai Hyderabad Kolkata Delhi Bangalore Ahmedabad Other India International
Total
Source: Company data
3,985
68
1,159 930 425 681 236 228 1,294 200 5,153
9 8 2 2 1 2 11 1 36
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Hospitals peer comparison Market Rating cap (USDm) Price Target Pot'l EPS CAGR price return FY13-15e ________ EPS (LC) _________ (LC) (LC) (%) FY12 FY13e FY14e FY15e _________ PE (x) __________ FY12 FY13e FY14e FY15e
Company
Apollo Fortis Raffles Bumrungrad Tenet Lifepoint Health South Universal health
1,622.8 800.5 1,003.0 1,744.7 2,106.3 1,943.9 2,265.3 4,145.7
OW N NR NR NR NR NR NR
650 107.5 2.3 75.3 5.1 39.9 23.7 42.8
796 22.9% 115 6.5% NA NA NA NA NA NA NA NA NA NA NA NA
31.0 63.1 12.8 16.0 12.8 11.4 8.4 10.1
16.2 1.8 0.1 1.8 0.4 3.2 1.4 4.0
20.0 2.1 0.1 2.7 0.6 3.3 1.5 4.4
27.2 3.9 0.1 3.2 0.6 3.7 1.6 4.9
34.3 5.7 0.1 3.7 0.7 4.1 1.8 5.3
40.4 60.3 24.8 41.1 13.8 12.4 16.7 10.6
32.6 50.1 21.2 27.7 9.3 12.0 15.9 9.8
23.9 27.2 19.4 23.7 8.1 10.7 14.7 8.8
19.0 18.8 16.6 20.6 7.3 9.7 13.5 8.1
Note: LC=Local Currency, INR is LC for Apollo and Fortis, SGD for Raffles, Thai Baht for Bumrungrad and USD for Tenet, Lifepoint, Health South, Universal health; Price and potential return as of 5 Jul 2012 closing price. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield. Source: HSBC estimates, DataStream, Company data
Hospitals peer comparison (continued) Company ________EV/EBITDA (x) ________ FY12 FY13e FY14e FY15e _____ EBITDA margin (%) ______ __________ ROE (%) __________ FY12 FY13e FY14e FY15e FY12 FY13e FY14e FY15e
16.7 23.6 18.5 20.2 6.0 6.4 7.5 8.6
13.9 12.9 16.5 18.1 5.4 6.1 7.1 5.9
11 11.3 14.1 16.0 4.9 5.6 6.6 5.3
9.1 9.9 11.9 13.3 4.5 5.4 6.3 4.9
16.3 13.4 24.5 26.3 11.1 15.1 23.0 12.0
16.3 14.2 24.5 24.9 13.2 16.8 23.0 16.4
16.9 14.7 25.0 25.0 13.6 17.1 23.0 16.6
16.8 14.7 25.2 24.8 13.8 17.4 23.5 16.8
10.0 2.2 16.2 24.8 14.4 8.5 135.7 18.6
10.4 2.6 16.2 28.0 17.8 8.1 61.5 16.5
12.7 4.7 16.7 28.6 15.9 8.6 56.7 15.9
14.5 6.4 16.9 28.5 16.9 8.3 46.9 14.9
Note: LC=Local Currency, INR is LC for Apollo and Fortis, SGD for Raffles, Thai Baht for Bumrungrad and USD for Tenet, Lifepoint, Health South, Universal health Source HSBC estimates, DataStream, Company data
Apollo Hospitals: EV/EBITDA (x) range
Fortis Healthcare: EV/EBITDA (x) range
20 15 10 5 0 Mean: 10.4x
200 150 100 Mean: 11.7 50 0
Jul-08
Jul-07
Jul-09
Jul-10
Jul-12
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
EV/EBITDA
Source: DataStream, HSBC estimates
Mean
Min
Max
EV/EBITDA
Source: DataStream, HSBC estimates
Mean
Min
Max
Jul-12
Jul-11
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Initiating coverage
We initiate coverage on the two leading private hospital chains in the country Apollo Hospitals and Fortis Healthcare. We value both using sumof-the-parts primarily using EV/EBITDA methodology for the hospitals business. We also use DCF as an alternative valuation approach.
Fortis Healthcare (FORH IN, N, TP INR115)

We initiate on Fortis Healthcare with a Neutral rating. Fortis is the second largest hospital chain in India in terms of operational beds but has been most aggressive in terms of growth which in large part has been the result of acquisitions including Escorts, Malar and Wockhardt hospitals. The India hospital business now forms only 50% of total revenues after the consolidation of its international assets, which were previously held by its promoter company. These recent acquisitions have significantly increased leverage and worsened its return ratios. While a pan-Asia presence is a positive, the higher costs and debt will put pressure on near-term margins. Nonetheless the expansion plan is robust with close to a doubling of its bed capacity in India over the next three years. Additionally, as per company recent plans for splitting the companys assets and listing a REIT structure in Singapore may bring additional funds and lower debt. The diagnostic business under SRL recently made its third private equity investment and may see a turnaround in margins in the longer term. We value the India business at 14x FY14e EBITDA (similar to Apollo) and the international business at 12x FY14e EBITDA. Our 12-month target price is INR115.
Apollo Hospitals (APHS IN, OW, TP INR796)

We initiate on Apollo Hospitals with an Overweight rating. Apollo is the largest hospital chain in the country with 8,300 beds (5,888 owned and 2,388 managed) of which 5,153 beds were operational as of FY12. The company has an aggressive expansion plan with over 500 operational beds planned in FY13 alone. Over the next three years it has an expansion plan of c2,900 beds, funding for a large part of which is tied up. The retail pharmacy business is at an inflection point with margin expansion expected on the back of incremental contributions from new pharmacy stores as they reach maturity. We value the hospital business at 14x FY14e EBITDA and pharmacy at 0.5x sales. These two segments form over 95% of our target price. We value Apollos 22% stake in Indraprastha Medical (listed associate) at 1x market cap and Apollos 39.4% stake in Apollo Health Street at book value to arrive at a target price of INR796.
HSBC vs. Consensus estimates (INRm) HSBC Apollo Fortis Consensus Apollo Fortis HSBC vs. consensus Apollo Fortis
Source: HSBC estimates, Bloomberg
_________ Net sales __________ FY13e FY14e FY15e
_________ EBITDA ___________ _________ Net profit__________ FY13e FY14e FY15e FY13e FY14e FY15e
37,060 53,730 37,881 47,219 -0.7% 13.8%
44,669 61,824 45,514 59,820 -1.9% 3.4%
56,846 70,222 54,837 73,112 3.7% -4.0%
6,124 7,646 6,345 6,717 -3.5% 13.8%
7,869 9,085 7,710 8,399 2.1% 8.2%
9,555 10,324 9,371 10,405 2.0% -0.8%
2,782 865 3,050 977 -8.8% -11.5%
3,778 1,598 3,788 1,733 -0.3% -7.8%
4,769 2,304 4,457 2,212 7.0% 4.2%
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Valuation and performance

Indian hospitals trade at a premium to global peers High valuations are justified by significant market potential and
growth dynamics favouring incumbents, in our view

We use a sum-of-the-parts valuation methodology, with the
hospital business valued using relative EV/EBITDA
Indian hospitals trading at a premium

Both Apollo and Fortis are trading at premium valuations compared to hospitals in developed markets. However, we think this is justified by strong expansion plans and the sectors structural growth story, which favours private players. We note that the group is currently trading at 14.5x one-year forward EV/EBITDA, compared to a historical trading range of 10-25x and a fiveyear average of 16x. While Apollo has seen a stable EV/EBITDA of 14x in the past year, the EV/EBITDA multiple for Fortis has come off from high levels after its foray into overseas markets through Fortis International. On a PE basis, Apollo currently trades at 31.6x FY13e and 23.2x FY14e EPS. The stock has historically traded at an average one-year forward PE of 29.3x and three-year average of 26.1x. Fortis, on the other hand, is trading at a 49.6x oneyear forward PE with a one-year average of 54.1x owing to its low earnings.
EV/EBITDA over PE
EV/EBITDA is widely used to value hospitals largely because of substantial changes to financial structures over time. Each hospital has its unique capital structure and allocation strategy; the impact on depreciation, interest expenses and ultimately net profit varies depending upon whether the company acquires or divests facilities or utilizes cash to pay off debts. Additionally, different groups of hospitals at different ages and sizes affect expenses below operating level. Thus we prefer using EV/EBITDA over PE. A lack of a substantial history of positive earnings merits use of EBITDA multiples in certain cases (such as Fortis). Lastly the group tends to trade in a tighter band on EV/EBITDA than on PE.
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India Hospital Index: 12-month forward EV/EBITDA
Operating efficiency of key hospitals
30 25 20 15 10 5 0 Jan-08
35% 1 y r av g: 15.9 Op. margin 3-y r av g: 17.4 30% 25% 20% 15% 10% 5% 0% 0 12-month forw ard EV/EBITDA 25 50
Health South Raffle s Apollo Fortis Universal Health

75 100
Bumrungrad
Lifepoin t Tenet
Jan-09
Jan-10
Jul-08
Jul-10
Jul-11
Jan-12
Jan-11
Jul-12
Jul-09
125
150
Asset turnover
Source: DataStream (Bubble size = ROIC)
Source: DataStream
India Hospital Index: 12-month forward P/E
EV/Bed
1 y r av g: 22.1 3 y r av g: 24.6
40 30 20 10 0 Jul-09 Jan-10 Jan-11 Jul-11
EV/Bed is a frequently used tool to value hospitals. While it is easy to compute and use within one geographical set of hospitals, the number of beds is not a good indicator of the profitability of the business as the economic conditions in different geographies vary considerably. Hence it is of limited use when comparing hospitals across different markets.
Jan-12
Jul-10
12-month forw ard PE

Source: DataStream
P/E vs EPS CAGR comparison 55 50 45 40 35 30 25 20 15 10 5 5.0
Jul-12
Fortis
Apollo Bumrungrad Raffle s Medical HealthSouth Lifepoint Universal Health Serv ices
10.0 15.0 20.0
P/E
Tenet Healthcare
25.0 30.0 35.0 40.0 45.0 50.0
EPS CAGR (%)

Note: EPS CAGR for FY12-15e Source: DataStream
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EV/Bed matrix across hospitals Company

No. of shares outstanding

136 405 537 728 414 49 96 90
Share price (LC)

652 107 2 75 5 40 24 43
Market cap (m in LC)

88,573 43,476 1,252 54,812 2,106 1,944 2,265 3,832
Net debt (m in LC)

4,928 45,699 -28 3,694 4,247 1,471 1,225 3,613
EV (m in LC)
93,501 89,175 1,224 58,506 6,353 3,415 3,490 7,445
No. of beds
5,153 3,985 380 554 13,509 6,048 6,500 25,006
EV/bed (USD '000)

363 448 2,553 3,728 470 565 537 298
Note: LC=Local Currency, INR is LC for Apollo and Fortis, SGD for Raffles, Thai Baht for Bumrungrad and USD for Tenet, Lifepoint, Health South, Universal Health; calculations based on 5 Jul 2012 closing price Source: DataStream
DCF
We have used DCF as an alternative methodology for valuing Indian hospitals. We believe DCF is an apt tool to value hospitals given the capital intensive nature of the industry and large cash flows tied to the future. Current valuations, however, also reflect heightened M&A activity and private equity interest, which we believe are not accounted for in DCF. We believe hospital valuations react to such events favourably. See a list of PE and M&A deals in the hospital space in the appendix.
Historical price performance

Hospital stocks are considered very defensive given that healthcare demand tends to be resilient even during poor economic conditions. Apollo has been a strong performer in this space beating Fortis and the broader equity index by a large margin. Apollo has outperformed the BSE Sensex by a whopping 70% in the past two years. Even during the past year with the Sensex down 8%, Apollo appreciated by 30%. Fortis, on the other hand, has seen a sharp share price decline following its acquisition of Fortis International. The stock has underperformed BSE Sensex by 30% in the last 12 months.
Apollo has seen strong absolute stock performance in the last two years
80% 60% 40% 20% 0% -20% -40% -60% 2012 y td Apollo
Source: DataStream
Apollo has outperformed both Fortis and HSBC Drug Index

300 250 200 150 100 50 0 Jul-07 Jul-08 Jul-10 Jul-11
6 mth Sensex
1-y r
2-y r
Fortis
BSE Healthcare
Apollo
Source: DataStream
Fortis
HSBC Drug Index
12
Jul-12
Jul-09
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India healthcare overview

Sector growth prospects in India are compelling, as existing
healthcare infrastructure is inadequate for demand

Disposable income growth, rising healthcare awareness and
changing demographic and lifestyle trends to drive the growth

Players with an established base and strong record of execution
to emerge as winners
Healthcare infrastructure inadequate in India

Structural deficits present significant opportunities
According to the World Health Organization (WHO) Health Statistics 2011 report, India lags several developing nations like China, Brazil, Russia and Mexico, as well as smaller countries like Thailand, Sri Lanka and Vietnam in terms of healthcare provision. In terms of beds, India had just 9 per 10,000 population during 2000-09, well behind the global average of 29. India also lags behind in terms of its ratios of medical personnel to population, with just 6 physicians per 10,000 population versus a global median of 14, and 13 nurses and midwives per 10,000 compared to a global average of 29. This structural shortage represents a huge growth opportunity for healthcare companies in India. Assuming the average cost to develop a bed excluding land cost is INR2-2.5m, we estimate India would need to investment INR5,000-6,100bn just to reach the global average of 29 beds per 10,000 people. We believe private sector healthcare players will benefit the most from this investment
opportunity given the private sector accounted for 68% of spending on healthcare in 2008 in India (source: WHO). Private sector players consist mainly of corporate, diagnostic laboratories, pharmacies, trusts, charitable organizations.
India had lowest bed to population ratio in 2000-09 period No . of beds per 10,000 poupulation
120 100 80 60 40 20 0 India Vietnam Thailand Sri Lanka China Russia Malaysia Global Brazil Mexico 29 9 41 24 29 16 18 22 31 97
Source: World Health Organization Report
As seen from the exhibit, Indias healthcare expenditure as a percentage of GDP is one of the lowest in the world at just 4.2%. Indias government healthcare spending is particularly low because of the high proportion of private healthcare spending. As public health is a responsibility managed at the state level in India, the increased participation requires commitment from state governments.
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Density of doctors and nurses per 10,000 population in India is among lowest in the world
120 100 80 60 40 20 0 Singapore Indonesia Australia Thailand Vietnam Canada Russia Spain France S Korea China India Italy US Sri Lanka 25 20 15 10 5 0 -5 1996 2004 2006 2008 1998 2000 2002 2010 Brazil Germany M exico Malaysia Global UK
No. of doctors per 10,000 population

Source: World Health Organization Report
No. of nurses per 10,000 population
As per the 12th Five-Year Plan, the government plans to triple spending on healthcare, raising it from 0.9% to 2.5% of GDP over 2012-17. The increase in budgeted allocation is in accordance with the increasing focus on National Rural Health Mission (see appendix), introduction of district-wide pilots of Universal Health Coverage (UHC), planned establishment of new medical colleges like All India Institute of Medical Sciences, and the creation of a public health cadre (government appointed healthcare supervisors) and a central procurement agency to provide access to free medicines.
Healthcare expenditure as % of GDP in India is one of lowest across globe

20.0 15.0
India healthcare expenditure trend

60
USD
40 20 0
10.0 4.2 5.0 0.0 US German France Canada Australia UK Spain Brazil Russia Mexico Vietnam Thailand China India Malaysia Sri Global
Health ex penditure per capita (current USD)-LHS y oy grow th (%)-RHS Health ex penditure as % of GDP-RHS
Source: World Bank
HC as % of GDP, 2009
Source: World Bank
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Healthcare delivery forms the major component of overall healthcare expenditure

Medical dev ices & supplies, 8.2% Healthcare serv ices 59.5%
Hospital service expense has grown consistently

25% 20% 15% 10%
CAGR 2000-2007:12.1%
Pharmaceuticals 32. 3%
5% Healthcare deliv ery : 42.8% Diagnostics: 3.6% Retail pharmacy :13.1% 0% 1995 2000 2002 2004 2006 2007 2011
Hospital serv ices ex pense as % of total consumer ex penditure on healthcare

Source: ICRA report Source: Euromonitor, HSBC estimates
Key drivers
According to Frost & Sullivan, the Indian healthcare market was worth USD59.5bn in 2010, and is expected to grow at a CAGR of c15% over the next few years. Of the total healthcare market in India, 70-72% comprises healthcare delivery services, 20-22% pharmaceutical market and the remaining is medical technologies and other services. This growth will mainly be driven by: 1) rising income levels and health awareness; 2) changing disease profiles with a shift from acute to chronic diseases; 3) changing demographics; 4) booming medical tourism; and 5) increasing healthcare
This trend suggests a shift in demand towards private healthcare, which have gained market share from public hospitals. According to Indias Central Bureau of Health Intelligence, the majority of Indians prefer private healthcare despite a higher average cost of USD4.3 compared to USD2.7 in government-owned facilities. Only 23.5% urban residents and 30.6% rural residents prefer government facilities, which imply a widespread lack of confidence in the public healthcare system.
Rising trend of personal disposable income in India
50 40 '000 INR 30 20 10 0 FY05 FY06 FY07 FY08 FY09 FY10 Per capita personal disposable income-LHS % y oy change-RHS
Source: Press Information Bureau, Government of India
20% 15% 10% 5% 0%
insurance coverage.
Rising affluence
Rising income and education levels have raised the standard of health awareness, boosting demand for both standard and advanced healthcare services among the population. This can be observed in the rising trend of private healthcare expenditure as a proportion of GDP over the past decade. Growth of over 25% in private healthcare expenditure in 2010 was much higher than the average growth of 12% of the last decade.
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Medical and healthcare services increasing as % of total private consumption expenditure

100 80 60 (%) 40 20 0 5 FY05 Recreation & Education Clothing & footw ear Food, bev erages & tobacco
Source: CSO, D&B
4. 8 FY10 Medical care and health serv ices Gross rent, fuel & pow er Misc. goods and serv ices
5.6
6.5
FY15e FY20e Furnitures & appliances Transport & communication
In India, 67% of spending on healthcare is private, of which 75% is out-of-pocket expenditure (which is one of the highest levels in the world). Also, with rising disposable income and increasing awareness about healthcare, a relatively large proportion of discretionary income in India is being spent on healthcare services. As seen above, despite a fall from pre-2005 levels, healthcare and medical needs as a proportion of total private consumption are expected to increase from the current 4.8% to 6.5% by FY20. We believe rising disposable income of Indian households and increasing discretionary spending on healthcare will be the key growth drivers for healthcare service providers, mainly the private players as a majority of healthcare spend is outof-pocket private spending.
Changing disease profile

Rising affluence of Indian households has led to an epidemiological shift towards life-style-related chronic diseases like cardiovascular disorders (CVS), mental disorders and diabetes. The extent of chronic disease burden is clear: India is now the diabetes centre of the world with more than 50m diabetic patients and this number is further expected to increase. Increasing proportion of aging people in the overall population is another factor contributing to increasing chronic disease burden as aged people are more susceptible to chronic disease such as hypertension, diabetes and heart ailments. Considering the higher cost and longer duration involved in the near-term treatment of chronic diseases, there will be increasing demand for
Household annual disposable income trend in India No. of households ('000)

above US$500 above US$1,000 above US$5,000 above US$10,000 above US$25,000 above US$45,000 above US$75,000 above US$150,000
_______ ( calculated at constant 2009 value)_________ _____ Compounded annual growth rate (CAGR) _____ 2010 2015e 2020e 2010-2020e 2000-2007* 1995-2007*
222,980 213,802 73,722 18,357 3,663 1,760 931 392 241,746 236,111 123,948 42,211 6,579 2,936 1,558 660 258,855 255,295 171,261 77,050 12,926 4,590 2,440 1,035 1.5% 1.8% 8.8% 15.4% 13.4% 10.1% 10.1% 10.2% 2.5% 4.5% 20.3% 12.9% 11.5% 11.6% 11.7% 2.3% 4.0% 15.8% 10.1% 9.4% 9.6% 9.7%
Note:* 2000-2007 and 1995-2007 BAGR based on constant 2007 value Source: Euromonitor International
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Consumer expenditure on hospital services have grown more than other spend on healthcare* (INR bn)
Medicines, medical devices Out-patient services Hospital services Total
Note: expenses calculated at constant 2007 values Source: Euromonitor International
1995
285.8 211.2 82.9 579.9
2000
393.9 338.9 136.4 869.2
2002
483.9 436.4 183.3 1103.6
2004
578.2 519 221.8 1319
2006
732.4 665.6 286.6 1684.6
2007
756.6 700.3 303.2 1760.1
1995-2007 CAGR
9.3% 11.5% 12.5% 10.6%
2000-2007 CAGR
9.8% 10.9% 12.1% 10.6%
advanced, well-equipped diagnostics centres and hospitals. Increasing affluence help ensure that Indian households can afford the cost of chronic disease treatment. As per industry estimates, cardiovascular diseases, cancer and diabetes accounted for 13.8% of all hospitalized cases in India in 2008 (accounting for 38.6% of in-patient revenues in value terms). Chronic diseases are expected to account for approximately 17.5% and 19.9% of the hospitalized cases in 2012 and 2017 respectively. As per a WHO report (Mahal et al. 2010), between two study periods (1995-96 and 2004) the share of chronic disease in total out-of-pocket health expenditures in India increased from 31.6% to 47.3%, which shows the growing importance of chronic diseases in terms of their financial impact on households and a financial burden on affected individuals and households. Also, it was observed that hospitalization expenses due to chronic diseases were nearly 160% higher than hospitalization expenses due to communicable
diseases. Hence, increasing chronic disease burden underpins growth for hospitals and other healthcare service providers.
Increasing chronic disease burden in India (cases per 100,000 population)
1,200 1,000 800 600 400 200 0 962 641 380 598 460 310 1,000 800 650
835 596 405
Cardiac disease
Diabetes
Mental health
COPD and asthma
2005
2015e
2030e
Source: The National Commission of India, HSBC estimates
Changing demographics
The changing population dynamic is another factor to fuel demand for healthcare infrastructure and services in India. As per the exhibit below, the aging population (+50 years/+60 years aged) is becoming a larger share of total population. The
Chronic diseases are increasingly the main cause of deaths projected in India
12 Deaths (1 000 000) 10 8 6 4 2 0 2004 2008 2015 Other infectious diseases Cancers Other unintentional injuries 2020 2025 2030
HIV/AIDS, Tuberculosis and malaria Cardiov ascular disease Road traffic injuries
Source: World Health Organization
Maternal, perinatal, and nutritional disorders Other non-communicable diseases Intentional injuries
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United Nations Population Division projects that Indias population aged 50 or more will expand to 34% by 2050 from the current 12-13% level. As per various studies, c50% of older Indians have at least one chronic disease like diabetes, asthma, cardiac and mental disorders. The aging population will lead to an increase in these diseases which in turn increases demand for healthcare services.
Indias aging population is becoming a large share of total population
As % of total population 20%
The cost of advanced surgeries like heart-valve replacement in India is about one-tenth of the price of comparable treatments in the US or the UK (see below). We believe Indias cost advantage and quality medical services leave Indian healthcare service providers well placed to benefit from the growth in medial tourism.
Medical tourists increased by c20% over 2008-10
200 150 100 156 50 82 93 108 111 114 100 2005 2006 2007 2008 Medical Tourists ('000s) - left axis 2009 2010 200 500 400 300
15% 10% 5% 0%
Medical Tourists Receipts (USD mn) - right ax is Source: Bureau of Immigration
1950
1960
1970
1980
1990
2000
2010
Aged 60+
Source: United Nations Population Division
Aged 50+
Medical tourism
Due to ballooning healthcare costs in developed nations (US, UK, Western Europe), more patients from these countries are viewing India as a preferred destination for affordable, quality medical care. According to a report by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Indias medical tourism sector is expected to grow to INR95m by 2015 from INR15m in 2008.
Apollo has the largest market share among the private hospitals in the country and received about 50,000 medical tourists in 2010, followed by Max, Fortis, Care and Sterling. Growing specialty services with a focus on highly skilled technology driven surgeries including robotics is expected to drive medical tourism in the future.
Medical tourists by nationality, 2010 (in %)
24% 37% Maldiv es Bangladesh Nigeria Oman Afghanistan Sri Lanka 23% UAE Others 3% 4% 4%
In 2010, 730,000 foreigners visited the country, of which 156,000 were medical tourists. The ASSOCHAM report estimates this number will grow at a CAGR of 40% over 2011-15. That said, while India faces stiff competition from Singapore and Malaysia which are also emerging as healthcare destinations, increasing medical tourism demand is emerging from parts of Middle East and Western Asia.
2% 3%
Source: HSBC, ASSOCHAM
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India has a cost advantage over other countries for performing same surgeries (USD)
Heart Surgery Heart Valve Replacement Bone Marrow Transplant Liver Transplant Knee Replacement Hip Replacement
Source: Fortis Healthcare
US
100,000 1,60,000 250,000 300,000 48,000 38,000
UK
41,726 30,000 292,470 200,000 50,109 18,000
Thailand
14,250 10,500 62,500 75,000 8,000 10,000
Singapore
15,312 13,000 150,000 140,000 25,000 12,000
India
6,000 6,000 30,000 45,000 6,000 6,000
JCI accredited hospitals distribution in Asia

Others Saudi Arabia 20. 3% South Korea 6.3% Qatar 2.6% Phillipines 2.1% Israel 3.6% UAE 20.3% 5% China 7. 3% India 8.3% Indonesia 2.6% Jordan 5. 2% Singapore 7.3% Thailand 9.4%
Key hurdles
Trained personnel shortage
Finding and retaining qualified doctors and nurses is challenging especially when the country has a low ratio of medical personnel to the population. India suffers on these parameters essentially due to a lack of adequate training and the high incidence of migration of talent to developed markets. According to data released by the government of India in 2008, India had a shortfall of 0.6m doctors, 1m nurses and 0.2m dental surgeons. This is particularly problematic for the public healthcare system, which is at risk of losing experienced and qualified staff to the private sector. As per the Medical Council of India, around 34,700 doctors graduated from 335 medical colleges in India in 2010. Assuming a similar level of growth in the number of graduating doctors and medical colleges, we believe the number of doctors per 10,000 people can increase from the current level of 6 to 8.3. Although this level wont completely ease the shortage of qualified doctors in India, this will bring the doctor to people ratio closer to the WHO recommended level of 10. The retention of talented medical pool is a critical issue given most patients are tied to a doctor and there have been instances in the past where the departure senior talented personnel has resulted in lower occupancy that has impacted profitability.
Source: Joint Commission International
Increase in health insurance

Given that there is a large proportion of out-ofpocket spend on healthcare in India, healthcare insurance has yet to become material in terms of affordability and reach. As the penetration of healthcare insurance increases, quality healthcare will become more affordable to a larger percentage of the population. Currently less than 5% of the population has some form of health insurance and this is expected to increase to 20% by 2015.
Gross Written Premium (GWP) for new health insurance has consistently grown in India over the last few years
150 100 50 0 FY07 FY08 FY09 FY10 FY11 FY12
High cost burden

Setting up a facility in a large town/metro is costly with an average cost of INR8-10m per bed. About
Gross Written Premium (INR bn)

Source: IRDA
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50-55% of this cost is attributed to the acquisition of land and construction related expenses. Many leading companies are opting for an asset-light model by leasing their assets over a long period of time (typically 30 years) and paying lease rate with certain escalation every year to the lessor. In certain cases, the lessee shares the percentage of EBITDA. Such a model helps ease the need for upfront investments and also leads to lower depreciation and interest expenses going forward, thus reflecting better on return ratios. Additionally the purchase and replacement of advanced medical equipment involve significant costs, and expose hospitals to currency fluctuation risk, given most equipment needs to be imported from overseas.
Technological advancement
Constant upgrading of facilities and incorporation of new technologies are essential to sustain patient volumes and reduce average length of stay. Additionally, the lack of modern medical equipment and operating theatres could lead to market share losses. Many large hospitals are benchmarking their medical equipment against western hospitals to attract foreign patients. In our view, this is critical factor to sustaining long-term growth in medical tourism in India. While surgical treatment costs are low in India, equipment costs and other investments in technology incur similar pricing and can put pressure on margins.
Access to capital and land

Given the high capital intensity, access to capital is a constant risk and could be critical to a successful business strategy. Additionally, the acquisition of new land and expansion into existing areas can be costly and challenging and is subject to market movements. Many firms are opting for a lease on a long-term basis over owning direct land. Most hospitals look for favourable lease arrangements when accessing new territories which are unexplored in terms of market potential. In certain cases, negotiations and rearrangements might lead to certain disputes and may incur additional costs.
Increasing competition in local markets

The penetration of medical services is uneven across India. In Gurgaon and Hyderabad, for example, the supply of beds outstrips demand, impacting occupancy and pricing power. This can make building a brand and market presence in some metro areas a significant challenge for nationwide players. As per the latest data available, Chennai, Bangalore and Hyderabad rank high among metros with over 2 beds per 1,000 population vs Delhi (1.4), Mumbai (0.8) and Kolkata (0.8). Additionally, some hospitals are establishing a competitive advantage by specializing in a particular field, such as Asian Heart Institute in cardiology and Aditya Jyot Hospital in
Private players dominate the healthcare facilities in Indian metros Metro

Delhi Mumbai Kolkata Bangalore Hyderabad Chennai
No. of hospitals
523 539 200 320 523 350
No. of private hospitals

380 151 72 212 300 210
No. of beds
35,200 37,370 20,938 18,000 14,000 20,508
No. of private beds

21,000 21,500 14,657 10,800 8,400 10,254
Source: Company data (Data as of 2010. Number of hospitals is estimate for Chennai, private beds are estimated for Kolkata, Hyderabad and Chennai)
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ophthalmology. These hospitals tend to present tough competition to hospitals that offer a wider range of services, as they have built up a strong brand within their own field, offering proven expertise in handling complicated cases. They operate on lower costs and hence have better profitability. The potential entry of overseas healthcare chains in India is another threat.
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Company profiles
Apollo Hospitals (APHS IN): Leader in private healthcare Fortis Healthcare (FORH IN): Pan-Asia branding
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Apollo Hospitals (APHS)

Strong brand and broad reach enables Apollo to maintain
leadership in both hospital and pharmacy businesses

Increasing occupancy in Hyderabad and other clusters, coupled
with aggressive expansion plans, suggests ample room for growth

Initiate with OW and TP of INR796; unlocking value in non-core
businesses is a material catalyst
Leader in private healthcare

Apollo is the established leader among private healthcare providers in India, with the widest footprint in the southeast and an increasing presence in the northwest. With coverage expansion to over 50 self-owned hospitals and 8,500 self-owned beds, we believe the company is well positioned to benefit from the potential growth in the countrys currently weak healthcare infrastructure base. We expect timely additions of beds, ramp-up in occupancy levels in Hyderabad and other clusters and further improvement in average revenue per operating bed (ARPOB) at key clusters including Chennai and Hyderabad to be material drivers of growth in the near term. The standalone pharmacy business, while still a drag on overall margins, is likely to show gradual improvement; value in this business could be unlocked through a potential divestment. Core hospital business outlook strong Mumbai cluster newest entry: Apollo Group currently has 5,888 beds and aims to add about 3,000 new beds through FY15, which includes setting up a new cluster in Mumbai which should bring higher ARPOB given the industry statistics in metros. At the same time, occupancy is increasing in Hyderabad and ARPOB at flagship
hospitals is expanding through an improving case mix and focus on centres of excellence. The REACH model (targeting non-metro and nonurban) is expected to scale up patient volumes in bigger hospitals. We expect hospitals to remain the key driver of earnings, contributing over 95% of the total in the next three years. We estimate sales to grow at a CAGR of 22% over FY12-15 in the core business and operating margins to expand 50bp during this period. Unlocking value in retail pharmacy and other non core businesses: The retail pharmacy business which broke even last year is at an inflection point, with profitability expected to continue improving. A potential stake sale to a strategic partner and likely divestment of outsourcing business under Apollo Health Street (as guided by the company) could unlock significant value, in our view. Initiate with OW: We initiate coverage of Apollo Hospitals with an OW rating, valuing it using a sum-of-the-parts methodology (14x EV/EBITDA for hospitals, 0.5x EV/sales for pharmacy business and additional INR23 per share for associates). Key risks include delay in execution of key projects and slower margin build up in pharmacy business.
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Financials & valuation: Apollo Hospitals

Financial statements Year to 03/2012a 03/2013e 03/2014e 03/2015e Valuation data Year to
EV/sales EV/EBITDA EV/IC PE* P/Book value FCF yield (%) Dividend yield (%)
Overweight
03/2012a
2.7 16.7 2.9 39.7 3.5 -3.7 0.6
03/2013e
2.3 13.9 2.6 32.1 3.1 -0.9 0.8
03/2014e
1.9 11.0 2.3 23.5 2.9 -1.2 1.1
03/2015e
1.5 9.1 2.1 18.7 2.6 1.5 1.3
Profit & loss summary (INRm)

Revenue EBITDA Depreciation & amortisation Operating profit/EBIT Net interest PBT HSBC PBT Taxation Net profit HSBC net profit 31,475 5,131 -1,239 3,892 -891 3,260 3,260 -1,150 2,193 2,193 37,602 6,124 -1,464 4,660 -920 4,020 4,020 -1,339 2,782 2,782 46,669 7,869 -1,678 6,192 -950 5,522 5,522 -1,839 3,788 3,788 56,846 9,555 -1,878 7,677 -1,000 6,977 6,977 -2,323 4,769 4,769
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (INR)640.95 APLH.BO 1,582 67 India Girish Bakhru Target price (INR)796.00
2 4 . 2
Cash flow summary (INRm)

Cash flow from operations Capex Cash flow from investment Dividends Change in net debt FCF equity 1,835 -4,539 -4,065 -648 -1,717 -2,963 3,521 -4,000 -3,900 -822 -424 -759 2,845 -3,500 -3,395 -1,119 1,669 -935 5,050 -3,500 -3,385 -1,409 -256 1,250
Reuters (Equity) Market cap (USDm) Free float (%) Country Analyst
Bloomberg (Equity) APHS IN Market cap (INRm) 86,186 Enterprise value (INRm) 85175 Sector HEALTH CARE PROVIDERS Contact +91 22 22681638
Balance sheet summary (INRm)

Intangible fixed assets Tangible fixed assets Current assets Cash & others Total assets Operating liabilities Gross debt Net debt Shareholders funds Invested capital 1,351 20,855 14,679 2,368 42,771 4,733 8,517 4,928 25,068 29,783 1,351 23,391 17,033 3,903 47,661 4,927 9,707 4,504 28,573 32,944 1,351 25,213 19,795 3,140 52,245 5,936 10,614 6,174 31,242 37,282 1,351 26,836 22,378 3,855 56,450 6,323 11,073 5,917 34,602 40,386
Price relative
770 670 570 470 370 270 2010
Apollo Hospitals
770 670 570 470 370 270 2011 2012 2013

Rel to BOMBAY SE SENSITIVE INDEX
Ratio, growth and per share analysis Year to Y-o-y % change

Revenue EBITDA Operating profit PBT HSBC EPS 20.8 22.7 20.1 24.7 8.4 19.5 19.4 19.7 23.3 23.8 24.1 28.5 32.9 37.3 36.2 21.8 21.4 24.0 26.4 25.9
Source: HSBC
03/2012a
03/2013e
03/2014e
03/2015e
Note: price at close of 05 Jul 2012
Ratios (%)
Revenue/IC (x) ROIC ROE ROA EBITDA margin Operating profit margin EBITDA/net interest (x) Net debt/equity Net debt/EBITDA (x) CF from operations/net debt 1.1 10.3 10.0 6.8 16.3 12.4 5.8 19.7 1.0 37.2 1.2 10.9 10.4 7.3 16.3 12.4 6.7 15.8 0.7 78.2 1.3 12.7 12.7 8.6 16.9 13.3 8.3 19.8 0.8 46.1 1.5 14.1 14.5 9.8 16.8 13.5 9.6 17.1 0.6 85.3
Per share data (INR)

EPS Rep (fully diluted) HSBC EPS (fully diluted) DPS Book value 16.15 16.15 4.00 184.53 19.99 19.99 4.95 205.39 27.23 27.23 6.74 224.57 34.28 34.28 8.48 248.72
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Apollos hospital network across India
Ludhiana
Gurgaon
Noida Delhi Bacheli Agra
Ahmedabad Indore Nasik Mumbai, Byculla Thane Belapur Pune Lavasa Bhilai Karimnagar Hyderabad Kurnool Bilaspur
Bhagalpur Kolkata Ranchi Bhubaneswar
Taranaka Bellary
Vizag
Kakinada Hospital owned by AHEL Hospital owned by Subsidiary/ Associates/JVs of AHEL AHEL Affiliated Hospitals Clinics / Diagnostic Centres Under Construction
Margoa
Raichur
Nellore Argonda Chitoor Tirupathi Bangalore Ayanambakkam Belandur Chennai Ranipet Tiruvannamalai Mysore Trichy Thirukadaiyur Calicut Karaikudi Karur Madurai
Source: Company data, HSBC
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Hospital business brings in 75% of revenue

Largest hospital network in India
Apollo obtains revenues from two main segments: healthcare services and retail pharmacy. Healthcare services comprising hospital-based revenues, hospital-based pharmacies and consultancy generated 75% of revenues in FY12 while retail pharmacy accounted for 25%. With over 51 hospitals and 8,000 beds, Apollo has the widest reach in the country with a significant presence in major metro areas, including Chennai, Hyderabad, Ahmedabad, Bangalore, Kolkata and New Delhi. Founded in 1979, the group owns about 5,890 beds through its own hospitals and JV partnerships, and manages another 2,600 beds. The company started its operations in Chennai and had just 150 beds in 1983. In 1988, it expanded to Hyderabad. It was in early 2000 that it made its entry in New Delhi and Kolkata (until then it had no presence in northern India). The company opened the 425-bed Gleneagles Hospital in Kolkata through a 50:50 JV with Parkway Group of Singapore and another in Ahmedabad in JV with Cadila Pharma. In 2008, the company launched its REACH initiative to make quality healthcare accessible to people in rural areas.
cardiac procedures, 50 neuro-surgeries, and conducts 400 dialysis and 40,000 laboratory tests every day. Apollo has many firsts to its name (see exhibit below). The well-known ACE@25 programme implemented in 32 of the groups centres focuses on centres of excellence and aids in improving clinical outcomes at its hospitals (benchmarking against globally renowned healthcare institutions with 25 parameters). During FY12, the Apollo Transplant Institute completed 929 transplants in a single year making it one of the busiest programs of its kind in the world. The company has adopted the latest technology the daVinci Si Surgical robotic system to obtain the best clinical outcomes in various procedures. The Apollo Institute of Robotic Surgery, launched six months ago, has already completed 55 robotic surgeries.
ACE@25 cornerstone of superior clinical outcome Few parameters
Mortality Rate ALOS Complication rates Healthcare associated infection rates Patient satisfaction with pain management Medication errors Transplant survival rates
Source: Company, HSBC
Institutes benchmarked against

Cleveland Clinic Mayo Clinic National Healthcare Safety Network Massachusetts General Hospital US Census Bureau Singapore General Hospital National Kidney Foundation (NKF)
Apollo brand
Apollo records close to 750 admissions, 6,500 out-patients, 200 critical care cases, 120 key
Apollo expansion timeline
1983-88 Apollo Hospital, Chennai Apollo Hospital, Hyderabad 1989-2000 Indraprastha Apollo Hospitals, Delhi Apollo Specialty Hospital, Chennai 2001-04 Apollo Gleneagles, Kolkata Hospitals in Mysore, Ahmedabad, Bilaspur Apollo Standalone pharmacy 2005-10 Imperial Hospital, Bangalore 2 REACH Hospitals, and hospitals in Bhubaneshwar, Secunderabad, Mauritius, Lavasa, Dhaka, Kakinada Apollo Muncih Health Insurance Apollo Health Street 2011-14 Plans to add 2,418 beds by FY14
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A few firsts at Apollo First in critical surgeries

929 solid organ transplants in a single calendar year, the transplant programme of the Apollo hospitals is the first program in the world to cross the 900 barrier in transplants First donor incompatible kidney transplant performed at Apollo Hospitals Chennai using technique of column adsorption of blood group antibodies World's 1st iPod Navigation Hip Resurfacing Surgery was successfully performed at Apollo Speciality Hospitals, Chennai Pioneered open heart surgeries and cardiac catheterization, in the early 1980s By 1992, Apollo Hospitals introduced Artery Stenting for the first time in India
First transplants
Paediatric liver transplant in India
First in technology
First to install the most modern diagnostic and surgical infrastructure like the 320-Slice CT Scan and many others First hospital group to bring the 320 Slice CTAngio scan system and the 64 Slice CT-Angio scan system to India First hospital group in Southeast Asia to introduce the 16 Slice PET-CT Scan
Adult liver transplant in India
Cadaver liver transplant in India
Transplant in acute liver failure in India
Conducted over 90,000 cardiac surgeries - one of only 10 hospitals in the world to achieve these volumes. Achieved a 99.6% success rate in cardiac bypass surgeries, over 91% of which were beating heart surgeries Pioneer of the preventive health check programmes in India and performed 3m checks to date
Equipped with the largest and most sophisticated sleep laboratory in the world Liver-kidney transplant in India were all Introduced the most advanced CyberKnife performed by Apollo Hospitals Robotic Radio Surgery System in Asia Pacific, the worlds first and only robotic radiosurgery system designed to treat tumours anywhere in the body with sub-millimetre accuracy Apollo Hospitals was the first Indian hospital Indraprastha Apollo Hospitals launched Novalis group to introduce Stereotactic Radiotherapy Tx - an advanced form of radiotherapy and and Radiosurgery for cancer treatment radiosurgery that offers a versatile combination of advanced technologies for treatment of tumours and lesions Pioneered orthopaedic procedures like hip and Full Field Digital Mammography with knee replacements, the Illizarov procedure and Tomosynthesis (3D) system, First-of-it's-kind in the Birmingham hip re-surfacing technique South Asia was launched at Apollo Speciality Hospital, Chennai
Apollo has highest number of JCI accredited hospitals in India including one in Dhaka, Bangladesh Hospital
Apollo Hospital Apollo Hospital Indraprastha Apollo Hospital Apollo Gleneagles Hospital Apollo Hospital Apollo Dhaka Hospital Apollo Ludhiana
City
Chennai Hyderabad New Delhi Kolkata Bangalore Dhaka, Bangladesh Ludhiana
angioplasties) and over 7,603 cardiac surgeries in FY11. Its six Centres of Excellence contributed c65% of revenue as of FY12 and are targeted to reach c80%. This will be boosted by the addition of new super specialities and growth of existing specialities. Typically, oncology and transplantation units are added to a hospital after 2-3 years of operation. According to CRISIL (Credit Rating and Information Services of India Ltd), cardiac and cancer cases accounted for 22.3% and 13.1%, respectively, of in-patient hospital revenues in India in 2008 and this is expected to increase to 32.1% and 16.2%, respectively, by end 2018. We expect the focus on Centres of Excellence to benefit private players, including Apollo, on the back of changing lifestyles leading to new disease patterns in the overall population.
Centres of Excellence
CONCORT (cardiology, oncology, neurology, critical care, orthopaedics, radiology and transplants) represents Apollos focus areas when it comes to improving case mix. Case mix is an important driver of revenue growth and profitability given that lifestyle disorders are growing faster and attracting better pricing. Apollo has dedicated centres of excellence for the above key specialities and super specialities. Apollo performed over 9,095 PTCAs (percutaneous transluminal coronary
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Apollo: Key owned and managed hospitals S.No. Name and location Year of Land-owned/ Leased commencement/ incorporation
1983 Owned 1994 Partly owned 1988 Owned 1997 Leased 2001 Leased 2001 Leased 2005 Owned 2009 Leased 2009 Leased 1999 Leased 2008 Owned 2007 1996 2003 2002 Owned Leased Leased Leased
Building-owned/ Leased
Type
No. of beds
1 2 3 4 5 6 7 8 9 10 11 1 2 3 4
Directly owned Apollo Hospital, Chennai Apollo Specialty Hospital, Nandanam Apollo Hospital, Hyderabad Apollo Specialty, Madurai Apollo Hospital, Bilaspur Apollo BGS Hospital, Mysore Apollo Hospital, Kakinada Apollo Hospital, Bhubaneswar Apollo Loga Hospital, Karur Apollo Heart & Kidney Hospital, Vizag Apollo Hospital, Karimnagar Indirectly owned through subsidiaries, JVs or associates Apollo Hospital, Bangalore (Apollo's stake: 51%) Apollo Hospital, New Delhi (Apollo's stake: 21.06%) Apollo Hospital, Ahmedabad (Apollo's stake: 50%) Apollo Gleneagles Hospitals, Kolkata (Apollo's stake: 50%)
Owned Partly owned Owned Leased Leased Leased Owned Owned Leased Leased Owned Owned Owned Owned Owned
SS SS SS SS SS SS MS SS MS SS MS SS SS SS SS
583 279 514 205 300 200 120 290 62 120 125 297 648 300 460
Source: Company data (SS=super-specialty, MS=multi-specialty)
Flagship hospitals improve ARPOB in tough environment

Flagship operations in Chennai and Hyderabad accounted for little over half of the revenues in FY12. ARPOB increased in both clusters at a double-digit (c15%) pace despite challenging times.
Chennai and Hyderabad key contributors Parameter
% of owned beds located % contribution to healthcare services revenue
Source: HSBC, Company data
expect incremental growth to come from an increase in ARPOB essentially. The Hyderabad cluster, however, has room for improvement; occupancy dipped from 65% in FY11 to 62% on the back of empanelment delays from certain institutional clients owing to disputes with insurance companies and the addition of new beds. As these issues have now been resolved, we expect occupancy to improve materially. Both inpatient and out-patient volume growth in this cluster remained strong at 16% and 25%, respectively, in FY12 which will drive occupancy. We expect occupancy to increase to c67% by FY15 despite the addition of beds. We expect all of the 1,300 commissioned beds are operational by FY15.
Chennai
20% 39%
Hyderabad
16% 16%
While out-patient volume growth was robust at c16% in the Chennai cluster in FY12, in-patient volumes remained flat. The company has guided for stronger growth going forward as visible in early trends in April-May. Chennai however improved its occupancy from 73% in FY11 to 75% in FY12 essentially on the back of a decrease bed capacity due to the removal of 30 beds in the main hospital to accommodate an operating theatre for liver transplantation and robotic surgery. The EBITDA margin in Chennai was c32-34% in FY12, one of the highest in the group. With a marginal expansion plan in Chennai in the near term and already high occupancy levels, we
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Average Revenue per Operating Bed (ARPOB) for Chennai and Hyderabad cluster (INR/day)
30,000 25,000 20,000 15,000 10,000 5,000 FY10 11Q2 11Q4 12Q1 12Q3 FY12
Chennai
Hy derabad
Despite a challenging environment, we expect a healthy improvement in ARPOB on back of an improving case mix, reducing ALOS (Average Length of Stay) and better pricing.
and one JV) there. Of the two self-owned hospitals, Navi Mumbai is expected to come on line by 4QFY14 or early FY15. In addition to this, it plans to expand its Chennai main facility, which is already operating at c75-80% occupancy rate. The capex plan includes cINR17.5bn (Apollos share of total estimated project cost) over the next three years of which INR2.6bn is already invested. The company added 368 beds to its operation in FY12 and about 800 beds over the past 18 months. Of these, 85% were added to existing hospitals and mature clusters, with the rest added under REACH. Around 700 beds were added in Hyderabad, Bhubaneshwar, Karaikudi, Lavasa and Secunderabad. The company has guided capex of INR4bn in FY13, the majority of which is already tied up. The company has transitioned its growth trajectory and experimented with new delivery formats including the addition of beds under REACH. REACH hospitals are essentially no-frills secondary care centres that provide quality care in semi-urban and rural areas. These are equipped to become higher secondary/tertiary centres (Madurai, for example, started as REACH but is now a tertiary set up) but typically benefit from lower operating costs and act as source of referrals for superspecialty hospitals in the metros. For instance, a REACH hospital may or may not have CTVS
Aggressive expansion plan

Apollos expansion plan over FY12-15 includes the addition of 2,955 beds across 14 hospitals and increasing its hospital network from 37 to 51. This will raise the number of self-owned beds from 5,888 to over 8,800 by FY15. The company expects to have more than 7,000 beds operational by FY15. The company plans to add about 555 beds this year. As Mumbai is the only big metro where Apollo does not have a significant presence, it plans to establish three hospitals (two self-owned
Apollo: Key operating highlights
Parameter
No. of operating beds In-patient volume Out-patient volume In-patient ALOS (days) Bed occupancy rate (%) In-patient revenues (INR mn) Out-patient revenues (INR mn) AROPB (INR/day) Total net revenue
_____________________________AHEL standalone hospitals ______________________________ _____ Chennai cluster ______ ____ Hyderabad cluster_____ _________Others __________ Significant subs/JVs/associates FY11 FY12 % yoy FY11 FY12 % yoy FY11 FY12 % yoy FY11 FY12 % yoy change change change change
1,194 70,628 282,223 4.52 73% 6,013 1,917 24,858 7,930 1,159 70,520 327,668 4.5 75% 6,703 2,141 27,853 8,844 -0.2% 16.1% 809 39,298 113,413 4.88 65% 2,402 498 15,114 2,900 930 45,575 141,204 4.64 62% 3,027 629 17,307 3,656 16.0% 24.5% 1,127 53,451 151,011 5.63 73% 2,402 416 9,367 2,818 1,246 59,314 158,937 5.43 71% 2,942 528 10,784 3,470 11.0% 5.2% 1,637 102,048 324,750 4.51 77% 7,751 1,505 20,091 9,256 1,818 105,611 347,181 4.66 74% 9,176 1,776 22,275 10,952 3.5% 6.9%
11.5% 11.7% 12.0% 11.5%
26.0% 26.3% 14.5% 26.1%
22.5% 26.9% 15.1% 23.1%
18.4% 18.0% 10.9% 18.3%
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(cardiothoracic vascular surgeries) and certainly not transplant or oncology units.

No. of owned beds is consistently increasing over the years
10,000 8,000 6,000 4,000 2,000 0 FY90 FY95 FY00 FY05 FY10 FY11 F Y12 Ow ned
2,608 1,000 300 750 1,500 3,000
2,875 2,388
Besides REACH, the company has been experimenting with other new formats, including day care centers and specialty clinics. Apollos sole day care center in Kolkata has had a successful pilot run and the company plans to roll out similar projects in other parts of the country. Specialty clinics too are at a pilot stage and being explored on a separate business unit basis. Currently most clinics are part of the hospital business. Apollo has around 100 clinics (across dialysis, cosmetic, wellness and sugar clinics), of which c50% is 100%-owned. Most clinics do not attract huge investments (less than INR10m) and are helpful in attracting out-patient volume.
Indias future metros are areas of expansion for hospitals Tier I cities
New Delhi Mumbai Kolkata Chennai Bangalore Hyderabad
5,376 5,842 5,888
Managed
Typically a REACH hospital will costs INR5-6m per bed, as against INR8-10m for a conventional tertiary care centre set up in a metro and will thrive on higher volume growth given less competition in rural townships. A REACH hospital is typically constructed on a land area of c1-2 acres. The Apollo REACH hospital in Karimnagar was the first such hospital in the country established on this model. The hospital performed open heart surgery with cardiopulmonary bypass and valve replacement surgeries within three months of its inauguration. Moreover, the hospital broke even in the second year of operation. Other REACH hospitals in the pipeline include those at Ayanambakkam (Chennai), Nashik, Nellore and Trichy. The company plans to expand this model to most semi-urban/rural areas in the country and has identified a number of second and third tier cities which currently lack penetration but have sizeable markets. Apollo has guided that it plans to establish about 100 more REACH hospitals over the next 10-15 years. In the ongoing first phase of the REACH program, it plans to open 25 hospitals over two years. A cookie-cutter model with a timeline of 18-24 months from land procurement to start of operations has been adopted for a speedy roll out.
Tier II cities
Pune Ahmedabad Lucknow Chandigarh Mangalore Vizag Cochin Trivandrum Coimbatore Surat Bhubaneshwar Jaipur Ludhiana Bhopal Gwalior Amritsar Nagpur Indore
Tier III cities

Trichy Madurai Nasik Baroda Allahabad Udaipur Agra Ajmer Kota Meerut Kanpur Shillong Dhanbad Hoshiarpur Ambala Vijayawada Jalandhar Raipur
Source: ASSOCHAM, India
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Apollo Hospitals: Operating metrics

Apollo: In-patient admissions volume
300 250 200 ('000) 150 100 50 0 FY08 FY09 FY10 FY11 FY12 190 211 235 265 281
Apollo: Operating beds and bed utilization trend

5,000 4,000 3,000 2,000 1,000 0 FY08 FY09 FY10 FY11 FY12 3,613 4, 257 4,786 5, 153 78% 76% 74% 72% 70% 68%
3,930
No. of In-patient admissions

Source: Company data Source: Company data
No. of operating beds (LHS) Bed Utilization rate % (RHS)
Apollo: Average length of stay (ALOS) in days

5.4 5.2 5 4.8 4.6 4.4 FY08 FY09 FY10 FY11 FY12 5.18 5. 15 4.84 4. 79 4.78
Apollo: Average revenue per occupied bed, ARPOB (INR/day)

25,000 20,000 15,000 10,000 5,000 0 FY08 FY09 FY10 FY11 FY12 CAGR FY09-12: 10.4%
Av erage length of stay (day s)

Av erage rev enue per occupied (INR/day )

Apollo: In-patient revenue by specialty areas FY11

Cardiology 27% Others 38%
Apollo: Revenue CAGR (FY09-11) for specialty areas
Cardiology Oncology Neurosciences
17% 27%
19% 18% 28%
General Surgery 4% Transplants Orthopaedic 11% 2%
Oncology 8% Neuro 10%
Orthopaedics Transplants
Source Company data
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Apollo Hospitals expansion plan and update on execution Location Mumbai Cluster Navi Mumbai Byculla, Mumbai Thane* Sub Total Chennai Cluster Chennai Chennai-Main (Expansion) Ayanambakkam MLCP Women & Child Chennai (OMR) South Chennai Sub Total REACH Nashik Nellore Trichy Sub Total Others Patna Phase I Vizag Bangalore Ortho & Spine North Bangalore Bilaspur Oncology Block Sub Total Total
Note: * held through JV Source: Company data
Expected completion date

FY14 FY14 FY14
Type of hospitals
No. of beds
Total estimated AHEL's share of cost project cost (INRm) (INRm)

3,500 1,400 2,200 7,100 3,500 1,400 550 5,450
Super Specialty Super Specialty Super Specialty
350 300 250 900
FY13 FY13 FY14 FY14 FY14 FY15
Super Specialty REACH Super Specialty Super Specialty Super Specialty
30 200 0 60 45 350 685
100 700 337 740 310 2,940 5,127
100 700 83 740 310 2,940 4,873
FY14 FY14 FY13
REACH REACH REACH
125 200 200 525
520 667 655 1,842
520 667 655 1,842
FY15 FY14 FY13 FY14 FY13
Super Specialty Super Specialty Super Specialty Super Specialty Super Specialty
240 300 125 180 845 2,860
2,760 1,150 558 770 80 5,318 18,611
2,760 1,150 558 770 80 5,318 16,463
Apollo Hospitals: Bed capacities and no. of hospitals Category wise

Owned Managed Grand Total Cluster wise (owned) Chennai Hyderabad Kolkata Delhi Bangalore Ahmedabad Other India International* Grand Total
Total beds
5,888 2,388 8,276 1,161 1,130 468 801 297 320 1,511 200 5,888
Operational beds
5,153 NA NA 1,159 930 425 681 236 228 1,294 200 5,153
No. of Hospitals
36 14 50 9 8 2 2 1 2 11 1 36
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Retail pharmacy at inflection point

Largest player in organized pharmacy
Apollo is the largest player in the organized pharmacy retail market with 1,364 stores as of 4QFY12. Total revenues from retail pharmacy grew 31% in FY12 to INR8.6bn with the operating margin improving by 150bp to 1.9%. Organized pharmacy in India is a miniscule 3% of the total pharmacy industry. Major players include Apollo, Medplus, Guardian, Medicine Shoppe, Dial for Health and Fortis Healthworld. There are over 650,000 pharmacies in the country, of which only 20,000 form part of organized retail. Even though the absolute number of dispensing outlets is high, we think the company has the opportunity to increase its share of organized pharmacy outlets within the industry in line with its increased share in transaction volume. Additionally, the distribution network and footfall attracted by stores can be leveraged to market and sell non-pharmaceutical products. Apollos typical store size is c300-350 sq ft and carries a range of products from medicines and surgical products to personal care and wellness offerings. Personal care and wellness products include cosmetics, skin care, fragrances, vitamins and hair care products. Typically a retail pharmacy store takes about 4-5 years to mature and around 12 months to break even at the EBITDA level. As of FY12, the company had 298 stores that would be classified as mature, having been opened prior to 2008. The mature stores have an operating margin of 5.7% in FY12, with revenue per store growing 14.3% to INR9.6m.
Apollo added 81 stores and closed seven for a net addition of 74 stores in 4QFY12. Total net stores added in FY12 were 165. We expect margin improvement to be gradual in this business given the company is in expansion mode and expects to maintain the current trend of adding 35-40 stores per quarter. We believe as the proportion of mature stores increase, margins will improve in this business. In the near term, the focus will be on improving the mix of consumables with an increasing proportion of private label and wellness products.
Apollo: No. of pharmacy stores has gone up consistently while store revenues are stabilizing
1,500 1,300 1,049 1,100 900 700 500 FY08 FY09 FY10 FY11 FY12 642 20% 0% 883 1,199 60% 40% 1,364 80%
No .of stores-LHS % y oy rev enue grow th-RHS

Apollo standalone pharmacies performance FY08 FY09 FY10 FY11 FY12
Revenue (INR m) 2,021 3,343 4,850 6,614 8,606 % yoy growth 65.5% 45.1% 36.4% 30.1% Revenue/store (INR m) 3.1 3.8 4.6 5.5 6.3 EBITDA margins of stores by maturity Upto FY07 batch 5.2% 5.7% FY08 batch 0.3% 2.5% Total stores 0.5% 1.9%
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Apollo standalone pharmacies: Maturity-wise details Batch Upto FY2007 batch FY2008 batch Attribute
No. of stores Revenues/store EBITDA/store EBITDA margins % No. of stores Revenues/store EBITDA/store EBITDA margins % No. of stores Revenues/store EBITDA/store EBITDA margins %
Q1FY11 Q2FY11 Q3FY11 Q4FY11

317 1.89 0.09 4.6% 315 2.12 0.11 5.3% 205 1.54 0.02 1.3% 1,110 1.48 0.03 1.8% 315 2.18 0.11 5.2% 205 1.62 0.01 0.7% 1,143 1.52 0.01 0.7% 314 2.2 0.1 5.4% 203 1.6 0 0.7% 1,199 1.52 0.01 1.0%
FY11
314 8.4 0.43 5.2% 203 6.2 0.02 0.3% 1,199 5.49 0.03 0.5%

311 2.2 0.11 5.1% 300 2.37 0.14 5.9% 186 1.87 0.04 2.3% 1,257 1.66 0.03 1.8% 299 2.45 0.14 5.8% 185 1.98 0.06 3.2% 1,290 1.74 0.04 2.3% 298 2.5 0.1 5.8% 183 2 0.1 3.4% 1,364 1.74 0.04 2.2%
FY12
298 9.6 0.54 5.7% 183 7.74 0.2 2.5% 1,364 6.3 0.12 1.9%
Total
1,066 1.31 -0.03 -2.0%
1,220 1.55 0.02 1.2%
Note: Revenue/Store and EBITDA/store in INR mn Source: Company data
Increase in share of private label products to drive margins

Apollo plans to increase proportion of private label product revenue from 4% to over 12-15% in the next 1-2 years (with an ideal target of c20%). This will raise operating margins to 8-10% from the current 5% in mature stores. The company has plans to sell a stake in the business and has been on the lookout for a strategic partner. We believe the potential unlocking of value will be beneficial in terms of providing funds to the core hospital business. Rollout of GST (Goods and Services Tax) and easing of FDI norms in retail could give this segment a sharp boost.
Apollos EPS sensitivity to EBITDA margin in pharmacy EBITDA margin
Base+50 bps Base+100 bps Base+200 bps Base EBITDA margin Base EPS (INR)
Recent deals in pharmacy have been at attractive valuations Pharmacy Partner Entity
Med Plus Mount Kellet Pharmacy Capital Management Metropolis Warburg Labs Pincus
_Deal Amount _ Remarks (USDm) (INRm)

90 4,100 Deal values Med Plus at USD260m (INR12bn) - at c2.5x sales 3,920 As of June 2010, Metropolis had 45 state of art labs with over 350 collection centers in India and processed over 12mn tests a year 1,630 16% stake bought
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TA Associates
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Source: Press Releases, HSBC
FY13e FY14e FY15e _____ Incremental EPS (INR) ______

0.27 0.55 1.09 2.1% 20.0 0.33 0.66 1.32 2.4% 27.2 0.39 0.77 1.54 2.8% 34.3
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Apollo Health Street key financials (INRm)

Total income EBITDA EBITDA margin PAT
Q1FY11
1,084 147 13.5% 27
Q2FY11
1,331 176 13.2% 9
Q3FY11
861 139 16.2% -35
Q4FY11
1,200 58 4.8% 47
FY11
4,476 520 11.6% 48
Q1FY12
1,220 192 15.7% -44
Q2FY12
1,220 184 15.1% -40
Q3FY12
1,251 186 14.9% -18
Q4FY12
1,218 280 23.0% 103
FY12
4909 842 17.2% 1
Other ventures
Apollo Munich Re Insurance Apollo has a tieup with Munich Health in the health insurance space. During FY12, the company achieved gross written premium (GWP) of INR4.7bn against INR2.8bn in FY11. The JV achieved breakeven at the EBITDA level in 4QFY12. The company expects it to move into positive net profits in the next 15-18 months. Apollo has a 10.4% stake in the JV. Apollo Health Street Apollo provides outsourcing services through Apollo Health Street. The business grew 10% in FY12 to INR4.9bn with operating margin improving significantly to 17.2% vs. 11.6% in FY11. The business process outsourcing (BPO) arm provides services including IT solutions to hospitals and physicians besides coding, billing, transcription, claims generation support and patient follow-ups. Apollo has a 39.3% stake in Apollo Health Street. The company has previously discussed plans to divest this business as it is a non-core asset. In FY12m, the company reported lower profits due to one-off litigation costs and interest reset. Consulting The consulting business is essentially a brand building exercise where
Apollo Munich Health Insurance: Key Financials (INR mn)
Total income EBITDA PAT Gross Written Premium (GWP) Earned premium Incurred claim ratio Assets under Management
Apollo Global Projects provides hospital consultancy to other hospitals. It operates on two levels: Project management This comprises overseeing facility development, feasibility studies, infrastructure planning and advisory, staff management and recruitment assistance. Operations consulting These are essentially post commissioning consultancy services as per management contracts, including day-to-day operations support and training of manpower. The segment has been generating revenues of INR200-250m per year and has essentially remained flat over the last few years though margins are high at c45-50%. The company has been voluntarily focusing on signing few management contracts. Apollo Clinics Primary healthcare clinics were set up under Apollo Health and Lifestyle across India. The company initially set up these clinics through a franchise model for one-time fixed payment and regular royalty payments. As per the current model, Apollo is setting up clinics through its own investment. Currently, Apollo has 62

421 -191 -181 421 66% 454 -232 -217 454 67% 192 -240 -226 528 68% 580 -42 -170 1432 62%
FY11
1,647 -705 -794 2,835 1,487 62%

718 -143 -95 718 59% 832 -118 -71 774 -142 -97 2,621 61% 3,346 988 21 -211 1,550 60% 2,801
FY12
3,312 -382 -474 4,759 3,008 58% 4,192
60%
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clinics with an additional 35 under implementation. These clinics provide basic and advanced consultation and diagnostic tests. All clinics have a 24-hour pharmacy as well.
Balance sheet is healthy

Working capital cycle has been low given the high proportion of out-of-pocket expenditure. Because a large part of its business is conducted in cash with immediate payment, average account receivables are low. Inventories are essentially on account of standalone pharmacies. Debt to equity at the end of FY12 was 0.34x and is expected to remain at this level or go lower on the back of an equity infusion through warrant conversion. The company recently did a QIP (Qualified Institutional Placement) through which it raised cINR3.3bn. Additionally, conversion of 3.08m warrants in FY12 brought in required funds to meet near-term capital requirements. The company has an additional 3.27m warrants with conversion price of INR472.46. We have assumed conversion of these warrants in our model in FY13 (given they expire on 4 August 2012) and accounted for equity dilution (c2.4%).
Earnings CAGR over 20%

We expect c22% sales CAGR over FY12-15e driven by c25% growth in hospital revenues and c20% growth in pharmacy. EBITDA CAGR over the same period is projected at c23%. We expect near-term margins to improve, albeit only slightly (c50bp over FY12-14e) on the back of an improving case mix in mature hospitals resulting in higher ARPOBs, improving ALOS and the addition of new beds with over three years of maturity. We expect mature beds to show better operating performance through improved asset utilization. Additionally, we expect the pharmacy business to show gradual improvement in margins with increasing share of mature stores.
Apollo Hospitals presence as per maturity Maturity wise (owned)
> 5 years 3 - 5 years 1 - 3 years < 1 year Grand Total > 5 years hospital contribution
Total beds Operational No. of beds Hospitals

4,239 381 1,100 168 5,888 72.0% 4,044 316 713 80 5,153 78.5% 24 3 7 3 37 66.7%
Apollo segment sales split (INR m)

Standalone Hospitals Standalone Pharmacy JV/subsidiaries revenue Consolidated revenue
FY10
13,412 4,850 2,003 20,265 66% 24% 10%
FY11
16,712 6,614 2,728 26,054 64% 25% 10%
FY12
19,402 8,606 3,468 31,475 62% 27% 11%
FY13e
23,085 10,507 4,009 37,601 61% 28% 11%
FY14e
28,960 12,703 5,007 46,670 62% 27% 11%
FY15e
35,979 14,833 6,034 56,846 63% 26% 11%
FY12-15e CAGR
22.9% 19.9% 20.3% 21.8%
% of consolidated revenue Standalone Hospitals Standalone Pharmacy JV/subsidiaries revenue

Source: Company data, HSBC estimates
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Apollo EBITDA margin trend

11,000 9,000 7,000 5,000 3,000 1,000 FY12 FY13e FY14e FY15e 25% 20% 15% 10% 5% 0%
Key downside risks

Increased competition in key clusters Chennai and Hyderabad constitute 19% and 16% of total self-owned beds and are markets with higher share of revenues. Higher supply of beds in these regions is a concern and could impact occupancy and pricing in these markets. Execution delays Delays in planned additions of beds can impact growth forecasts and could be significant in regions that attract higher ARPOBs. Higher costs Acquisition of new land, even if leased, can turn costlier with multiple brands looking for new locations. Additionally, rising property prices can increase overall costs including development and construction. Recruitment and retention of trained skilled personnel Given the scarcity of quality resources this is a potential risk in healthcare delivery with the competition hunting for similar talent. Changes in taxation laws Hospitals currently enjoy 150% depreciation under section 35D and section 11b of 80I. Changes in certain benefits could have an adverse impact on cash flows.
Apollo EBITDA (INR mn) Total EBITDA margin-RHS Hospital margin-RHS Pharmacy margin-RHS
Source: HSBC estimates, Company data
While aggressive bed additions and investments in the pharmacy business have resulted in muted return ratios with ROE at c10%, we expect ROE to improve to 13% by FY14e driven by higher contribution from mature hospitals and scale-up in pharmacy margins.
Apollo: ROE and ROCE trend
20 15 10 5 0 FY11 FY12 ROE % FY13e FY14e FY15e
ROCE % (HSBC)
Apollo has stable working capital cycle

50 40 30
Apollos net debt/EBITDA ratio is consistently improving

2.0 1.5 1.0
20 10 0 FY10 FY11 FY12 F Y13 FY14 FY15 0.5 0.0 FY10 FY11 FY12 FY13 FY14 FY15
Debtor Day s
Inv entory Day s
Creditor Day s
Net debt/EBITDA
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Indexed performance of Apollo vs. Sensex
300 250 200 150 100 50 0 Jul-07 Jul-10 Jul-12 Jul-11 Jul-08 Jul-09
Over the last five years, the stock has traded at a 1year forward EV/EBITDA of 10.5x. On a PE basis the stock is trading at 31.6x FY13e and 23.2x FY14e EPS estimates. This is a significant premium over the last five-year average PE of 20.8x. We use DCF as an alternative valuation yardstick. Assuming cost of equity of 10.5%, interim growth between FY15e and FY20e of 15% and a FCF exit multiple of 15x, we arrive at a target price of INR740. We believe the current share price largely reflects the valuation of its hospital business and announced pipeline of beds. A potential tie-up or divestment in the pharmacy business and continued momentum in bed addition could drive significant upside.
Apollo Hospitals: 12-mth fwd rolling PE band (x)
Apollo
Source: DataStream
Sensex
Initiate as OW, TP of INR796

We initiate with OW on Apollo Hospitals and value it on a SOTP basis. We value the hospital business at 14x FY14 EBITDA (in line with current valuations and sector average for past one year) and pharmacy at 0.5x sales to arrive at an implied equity value of INR796. Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and below the hurdle rate for Indian stocks of 11%. Our target price implies a potential return of 23% (including forecast dividend), above the Neutral band; therefore, we are initiating with an OW rating. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated.
SOTP valuation (INRm)
Hospital Business FY14 EBITDA EV/EBITDA Hospitals EV Pharmacy Business Sales EV/Sales Pharmacy EV Total EV Net debt / cash Minority Interest Indraprastha Medical (22% stake) Apollo Health Street (39.4% stake) Implied Equity Value No of shares Equity value / share
700 500 300 100 Jul-08 Jul-09 Jan-08 Jan-09 Jan-10 Jan-11 Jul-11 Jul-07 Jul-10 Jan-12 20 Jul-12 434 548 662 776 890
Price (INR) 25
Source: HSBC estimates, DataStream
15 33
DCF sensitivity to WACC and FCF multiple 8.2%

Remarks 7,564 14 In-line with current and 1yr average 105,891 12,703 0.5 at discount to retail chains like Pantaloon, Shoppers Stop 6,352 112,243 4,504 126 731 valued at market price 2,458 valued at book 110,802 139 796
8.7%
9.2%
9.7%
10.2%
5 10 15 20 25
550 708 867 1025 1184
518 663 809 955 1101
488 622 756 890 1025
460 584 707 831 954
Source: HSBC (WACC on top row, FCF multiple on left column)
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Apollo Hospitals: 12-mth fwd rolling EV/EBITDA band (x)
800 700 600 500 400 300 200 100 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-07 Jul-09 Jul-10 Jul-11 Jul-12 Jul-08
Price (INR)
10
12
15
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Apollo Hospitals: Profit and loss statement (INRm) Net revenue Materials consumed Staff expense Advertising & marketing Other Total expenses EBITDA Depreciation EBIT Interest expense Interest income Other Income Pre-tax profit Total tax Tax rate Profit before minorities and associates share Minority interest Share in associates Net profit EPS (INR) DPS (INR) % yoy change Net revenue Materials consumed Staff expense Advertising and marketing Others EBITDA Depreciation EBIT Interest expense Pre-tax profit Net profit
FY10 20,265 10,136 3,308 274 3,542 17,259 3,006 750 2,256 602 96 227 1,976 676 34.2% 1,300 36 39 1,376 22.3 7.0
FY11 26,054 13,225 4,151 436 4,059 21,871 4,183 942 3,242 814 110 76 2,614 873 33.4% 1,741 15 84 1,840 14.9 3.8
FY12 31,475 15,623 5,029 668 5,025 26,344 5,131 1,239 3,892 891 0 259 3,260 1,150 35.3% 2,110 12 71 2,193 16.1 4.0
FY13e 37,602 18,613 6,034 801 6,029 31,478 6,124 1,464 4,660 920 0 280 4,020 1,339 33.3% 2,682 15 85 2,782 20.0 4.9
FY14e 46,669 23,241 7,362 961 7,235 38,800 7,869 1,678 6,192 950 0 280 5,522 1,839 33.3% 3,683 15 90 3,788 27.2 6.7
FY15e 56,846 28,309 8,981 1,173 8,827 47,291 9,555 1,878 7,677 1,000 0 300 6,977 2,323 33.3% 4,654 15 100 4,769 34.3 8.5
25.5 23.4 27.5 9.0 25.8 32.6 18.6 38.0 31.2 42.8 34.2
28.6 30.5 25.5 59.4 14.6 39.2 25.6 43.7 35.3 32.2 33.7
20.8 18.1 21.1 53.1 23.8 22.7 31.6 20.1 9.5 24.7 19.2
19.5 19.1 20.0 20.0 20.0 19.4 18.1 19.7 3.2 23.3 26.8
24.1 24.9 22.0 20.0 20.0 28.5 14.6 32.9 3.3 37.3 36.2
21.8 21.8 22.0 22.0 22.0 21.4 11.9 24.0 5.3 26.4 25.9
Apollo Hospitals: Margin analysis (as % of total sales) FY10 FY11 FY12 FY13e FY14e FY15e
Materials consumed Staff expense Advertising and marketing Others expenses EBITDA EBIT Pre-tax profit Net profit
50.0 16.3 1.4 17.5 14.8 11.1 9.8 6.8
50.8 15.9 1.7 15.6 16.1 12.4 10.0 7.1
49.6 16.0 2.1 16.0 16.3 12.4 10.4 7.0
49.5 16.0 2.1 16.0 16.3 12.4 10.7 7.4
49.8 15.8 2.1 15.5 16.9 13.3 11.8 8.1
49.8 15.8 2.1 15.5 16.8 13.5 12.3 8.4
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Apollo: Balance sheet (INRm) FY10 FY11 FY12 FY13e FY14e FY15e
Gross Intangible Assets Gross Fixed Assets Accum. amortisation & depreciation CWIP Total Long-Term Assets Investments Deferred tax assets Total non-current assets Inventories Cash & Bank Balance Debtors Loans & Advances Total Current Assets Total assets Creditors Provisions Others Total Current Liabilities Share Capital Reserves & others Shareholders' Funds Minorities//Preference Long-Term Debts Deferred Taxation Total Liabilities + shareholders fund
500 16,950 4,231 3,037 16,257 4,166 240 20,663 1,412 3,117 2,228 5,238 11,995 32,658 1,967 2,067 1,939 5,973 618 15,917 16,535 241 9,132 776 32,658
677 19,767 5,148 3,610 18,905 5,020 256 24,181 1,584 1,781 3,003 5,730 12,098 36,279 1,927 2,102 2,326 6,355 624 18,366 18,989 249 9,585 1,101 36,279
1,351 23,632 6,387 3,610 22,205 5,642 245 28,092 1,915 2,368 3,867 6,528 14,679 42,771 2,490 2,532 2,243 7,264 672 24,396 25,068 126 8,517 1,796 42,771
1,351 27,632 7,851 3,610 24,742 5,642 245 30,628 2,224 3,903 3,859 7,046 17,033 47,661 2,685 2,532 2,243 7,459 689 27,884 28,573 126 9,707 1,796 47,661
1,351 31,132 9,529 3,610 26,564 5,642 245 32,450 2,878 3,140 5,731 8,046 19,795 52,245 3,694 2,532 2,243 8,468 689 30,553 31,242 126 10,614 1,796 52,245
1,351 34,632 11,407 3,610 28,186 5,642 245 34,073 3,341 3,855 5,950 9,232 22,378 56,450 4,080 2,532 2,243 8,855 689 33,913 34,602 126 11,073 1,796 56,450
Apollo Hospitals: Cash flow statement (INRm) FY10 FY11 FY12 FY13e FY14e FY15e
Cash flow from Operating Activities EBIT Adjustments for: Other Income Depreciation and amortisation Operating profit before working capital changes Change in Working Capital Interest expense Tax paid Cash flow from operations Cash Flow from Investing Activities Capital Expenditure Interest received Investments Cash flow from investing Retained Free Cash Flow Cash flow from financing activities Dividends Paid Shares Movements Others Debt Raised (repaid) Cash used in financing activities
2,256 227 750 3,232 -1,059 -602 -676 895 -4,122 96 1,749 -2,278 -1,383 -504 975 727 2,426 3,624
3,242 76 942 4,259 -1,092 -814 -873 1,480 -3,590 110 -854 -4,334 -2,854 -544 1,158 450 453 1,518
3,892 259 1,239 5,390 -1,514 -891 -1,150 1,835 -4,539 0 -621 -5,161 -3,325 -648 4,533 1,096 -1,068 3,913
4,660 280 1,464 6,404 -625 -920 -1,339 3,521 -4,000 0 0 -4,000 -479 -822 1,545 100 1,191 2,014
6,192 280 1,678 8,149 -2,516 -950 -1,839 2,845 -3,500 0 0 -3,500 -655 -1,119 0 105 907 -107
7,677 300 1,878 9,855 -1,481 -1,000 -2,323 5,050 -3,500 0 0 -3,500 1,550 -1,409 0 115 459 -835
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Apollo Hospitals: Basis of consolidation AHEL Standalone Location Description
Chennai Main ASH - Chennai Tondiarpet - Chennai FirstMed - Chennai Apollo Children's Hospital Madurai Karur Karaikudi Hyderabad Bilaspur Mysore Vizag Pune Karim Nagar Bhubaneswar
Subsidiaries Samudra Healthcare Enterprises Ltd. Imperial Hospital and Research Centre Ltd. Unique Home Healthcare Limited Apollo Health and Lifestyle Ltd. AB Medical Centres Limited Apollo Cosmetic Surgical Centre Pvt Ltd JVs Apollo Hospitals International Ltd. Apollo Gleneagles Hospitals Ltd. Apollo Gleneagles PET-CT Pvt. Ltd. Apollo Munich Health Insurance Company Ltd Quintiles Phase One Clinical Trials India Pvt Ltd Apollo Lavasa Health Corporation Ltd Associates Indraprastha Medical Corporation Ltd. Family Health Plan Ltd. Apollo Health Street Ltd. Stemcyte India Therapeutics Pvt Ltd
Chennai Chennai Chennai Chennai Chennai Madurai Karur Karaikudi Hyderabad Bilaspur Mysore Vizag Pune Karim Nagar Bhubaneswar
Location Kakinada Bangalore Chennai Hyderabad Chennai Chennai
Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital Hospital
Description Hospital Hospital Paramedical Services Apollo Clinics Infrastructure Cosmetic Surgery AHEL Ownership 100.0% 51.0% 100.0% 100.0% 100.0% 61.0%
Ahmedabad Kolkota Kolkota Maharashtra Delhi, Noida Ahmedabad
Hospital Hospital Hospital Health Insurance Clinical Trial Hospital Hospital TPA, Health Insurance Healthcare BPO Stemcell Banking
50.0% 50.0% 50.0% 11.0% 40.0% 34.7% 22.0% 49.0% 39.4% 13.1%
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Fortis Healthcare (FORH)

Second largest healthcare chain and largest diagnostic player,
with significant footprint outside India as well Inorganic growth spurt, but accompanied by high leverage and lower return ratios Initiate coverage with N and a TP of INR115; margin recovery in diagnostic business, listing of REIT would be key catalysts
Pan-Asia branding
Over the last decade Fortis has emerged as a serious contender in Indias healthcare services market, pursuing strong organic as well as inorganic growth models. The companys acquisition of Escorts, Malar and Wockhardt hospitals and more recently assets under Fortis Healthcare International has created a significant pan-Asia presence. With a total of over 12,000 beds (including 4,000 under construction) across 75 hospitals, Fortis is on the brink of a growth spurt. International business is a new challenge and has come at the cost of increasing leverage. India business remains a key driver: FY12 India hospital business growth of 30% was driven by improving operating metrics at mature hospitals and improving integration of hospitals acquired from Wockhardt. The company has a plan to add 3,000 beds (most of which on an asset-light model) by the end of FY15. We expect an improving specialty mix and patient referral support from the diagnostic business under Super Religare Laboratories (SRL) to improve profitability and volume in long run. We forecast a 15% CAGR in sales for FY12-15e in the India hospital business. Overseas business - a new frontier: Given its business outside India is new and has few
comparables, we assume modest growth assumptions in the near term. We expect the revenue contribution from international business to remain at 50% over FY13-15 driven by double-digit growth in Dental Corp and Hoan My. Additionally, the commencement of a specialty colorectal hospital in Singapore is a near-term trigger. Balance sheet health coupled with muted margin expansion a concern: From a net cash position following the sale of Parkway to 1.5x leverage after the acquisition of international assets, the balance sheet has seen significant change. Although the acquisition was priced at book, the sharp growth in intangible assets is a worry. Additionally, margin expansion under SRL has been slower than expected. Initiate with N, TP: We initiate with a Neutral rating and a SOTP-based target price of INR115 (valuing the India business at 14x EV/EBITDA for the international business at 12x EV/EBITDA). Key downside risks include a delay in the execution of key projects and risks associated with the integration of acquired facilities. Upside risks would be sooner than expected recovery of margins in SRL diagnostic business and inflow of target capital through planned listing of clinical establishment of REIT.
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Financials & valuation: Fortis Healthcare

Financial statements Year to 03/2012a 03/2013e 03/2014e 03/2015e Valuation data Year to 03/2012a 03/2013e 03/2014e
Neutral
03/2015e
Profit & loss summary (INRm)
Revenue EBITDA Depreciation & amortisation Operating profit/EBIT Net interest PBT HSBC PBT Taxation Net profit HSBC net profit
Cash flow summary (INRm)
29,828 4,000 -1,823 2,177 -2,196 1,080 1,080 -410 722 722
53,730 7,646 -2,557 5,089 -4,758 1,331 1,331 -452 865 865
61,824 9,085 -2,760 6,325 -4,878 2,447 2,447 -832 1,598 1,598
70,222 10,324 -2,995 7,329 -4,998 3,531 3,531 -1,201 2,304 2,304
EV/sales EV/EBITDA EV/IC PE* P/Book value FCF yield (%) Dividend yield (%)
3.2 23.6 1.1 59.3 1.3 -88.7 0.0
1.8 12.9 1.1 49.5 1.3 -11.1 0.0
1.7 11.3 1.1 26.8 1.2 -9.3 0.0
1.5 9.9 1.1 18.6 1.1 -2.2 0.0
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price 32,711 -74,886 -67,449 0 37,077 -43,274 -1,429 -3,000 -3,013 0 4,405 -5,429 -37 -3,500 -3,517 0 3,554 -4,537 4,142 -4,000 -4,026 0 -116 -1,058
(INR)105.70 FOHE.BO 786 19 India Girish Bakhru
Target price
(INR)115.00
5 . 0
Cash flow from operations Capex Cash flow from investment Dividends Change in net debt FCF equity
Reuters (Equity) Market cap (USDm) Free float (%) Country Analyst
Bloomberg (Equity) FORH IN Market cap (INRm) 42,827 Enterprise value (INRm) 98892 Sector Health Care Providers Contact +91 22 22681638
Balance sheet summary (INRm)
Price relative
Intangible fixed assets Tangible fixed assets Current assets Cash & others Total assets Operating liabilities Gross debt Net debt Shareholders funds Invested capital
64,823 36,186 20,684 4,156 124,543 32,918 49,919 45,699 32,563 84,619
64,823 36,629 25,405 1,714 129,707 35,217 51,919 50,105 33,428 89,926
64,823 37,369 27,605 161 132,647 34,559 53,919 53,658 35,026 95,077
64,823 38,374 33,328 2,277 139,375 36,982 55,919 53,542 37,331 97,266
189 169 149 129 109 89 69 2010

Fortis Healthcare
189 169 149 129 109 89 69 2011 2012 2013

Rel to BOMBAY SE SENSITIVE INDEX
Ratio, growth and per share analysis Year to Y-o-y % change 03/2012a 03/2013e 03/2014e 03/2015e
Source: HSBC
Note: price at close of 05 Jul 2012
Revenue EBITDA Operating profit PBT HSBC EPS

Ratios (%)
101.1 728.1 -28.8 -41.9
80.1 91.2 133.8 23.3 19.8
15.1 18.8 24.3 83.8 84.6
13.6 13.6 15.9 44.3 44.2
Revenue/IC (x) ROIC ROE ROA EBITDA margin Operating profit margin EBITDA/net interest (x) Net debt/equity Net debt/EBITDA (x) CF from operations/net debt
Per share data (INR)
0.5 3.7 2.2 2.9 13.4 7.3 1.8 140.3 11.4 71.6
0.6 5.7 2.6 3.2 14.2 9.5 1.6 149.9 6.6
0.7 6.3 4.7 3.7 14.7 10.2 1.9 153.2 5.9
0.7 6.8 6.4 4.1 14.7 10.4 2.1 143.4 5.2 7.7
EPS Rep (fully diluted) HSBC EPS (fully diluted) DPS Book value
1.78 1.78 0.00 80.37
2.14 2.14 0.00 82.50
3.94 3.94 0.00 86.45
5.69 5.69 0.00 92.13
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Fortiss current stronghold is in Northern India, focus towards Central and Southern India to deepen its pan-India presence
Presence across 17 States 35 Cities
Focus area Owned facility Managed facility Heart command centers (HCCs) Projects
Source: Company data, HSBC
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Pan-Asia focus
Fortis Healthcare was incorporated in 1996 and started its operations in 2001 with the commencement of Fortis Mohali. Fortis is now the second largest healthcare chain in India with a two-pronged organic and inorganic growth strategy. The company has 68 hospitals in India of which 23 are 100%-owned, 30 managed and 15 under development with a total of 12,000 beds (including self-owned, managed and project beds). The group had 2,982 operational selfowned beds as at end FY12. Additionally, the company is working on 15 green or brown field projects with a total of more than 3,100 beds. The group has seen significant growth driven by acquisitions in the past. The recent acquisition of international assets has elevated the Fortis brand to a pan-Asia level.
Fortis Healthcare geographical presence Facility Description Location
Fortis Hospitals Religare SRL India Lanka Hospitals Fortis Hospitals for Colorectal surgery Radlink
Leading hospital operators in India with >10,000 beds under management Key diagnostic service provider One of the largest hospitals in Sri Lanka South East Asia's first specialty hospital for colorectal treatment, expected completion in mid 2012 The largest private diagnostic and imaging Company in Singapore
India India Sri Lanka Singapore
Singapore Mauritius Dubai Australia/ New Zealand Vietnam
Fortis Clinique Darne SRL Diagnostics, The largest private pathology Dubai laboratory in Emirates Dental Corporation Australia's largest operator of Dental practices which operates in top 30% of the Australian dental market Hoan My Medical Leading private healthcare Corporation provider in Vietnam with 5 hospitals and 3 clinics across the country Quality Healthcare Largest integrated primary healthcare service provider in Hong Kong with c590 primary care centres
Hong Kong
Inorganic expansion of bed capacity

Over the last 10 years, Fortis has increased bed capacity by 50% through acquisitions. The idea behind these acquisitions was to ramp up capacity by acquiring mature assets rather than wait for greenfield set ups, which tend to have a long gestation period, to mature. For more details regarding acquisitions, refer to the exhibit below.
Fortis Hospitals expansion history

Started first hospital at Mohali, Punjab with a capacity of 300 beds Acquired Escorts chain of hospitals Acquired Malar Hospitals, Chennai Took a significant step in establishing Fortis as a Global Healthcare Brand by its attempt to acquire Parkway Holdings Ltd Asias finest healthcare provider, but exited considering high valuations of the asset Acquired Strategic stake in Super Religare Laboratories (SRL)
2001
2003 & 2004
2005
2007
2008
2009
2010
2011
Enters Delhi Commences operations at Noida
Listed on BSE and NSE with a market cap of USD543mn Starts hospital at Jaipur
Rights Issue Acquired 10 hospitals from Wockhardt
Within first decade of operations, Fortis touched a mark of 10,000 beds across 66 hospitals across India and overseas market Commenced two Greenfield facilities at Shalimar Bagh, Delhi and Anandpur, Kolkata; Launched an Oncology block at Mulund, Mumbai
Revenues grow 4x with strong presence in NCR

Company achieves profitability on consolidated basis
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Fortiss acquisitions were relatively cheaper to other international hospital acquisitions Acquirer Entity acquired Year of acquisition Deal size (INRm) Bed strength EV/Bed Remarks (INRm)
Fortis Healthcare Escorts chain of Hospitals, NCR Hiranandani Hospitals, Mumbai Malar Hospitals, Chennai Wockhardt Hospitals Parkway Holdings Super Religare Laboratories (SRL) Fortis Healthcare International
Acquirer Entity acquired
2005 5,850 for firs 90% and 1,300 for another 10% 2007 250
881 152 178
8.1 Acquired 90% stake first and then additional 10% stake later in Escorts Heart Institute and Research Center 4 key locations Delhi, Amritsar, Jaipur and Faridabad 1.6 First entry in Mumbai for Fortis 3.1 Strong turnaround achieved in Malar hospitals
2008 346.8 (48% stake first for 257.6mn then additional for total c63%) 2009 9,090 2010 2010 2011 31,181 8,030 32,700
1368 -
6.6 Acquired 10 hospitals from Wockhardt including 2 in construction gave access to Mumbai, Bengaluru and Kolkata - Fortis acquired 23.9% stake in Parkway Holdings, Singapore. This was later sold in July 2010 with a gross profit exceeding INR3.4bn Acquired international assets held under FHIL at 1x book for USD665mn. Provides assets in international markets Australia, Vietnam, Hong Kong, Sri Lanka, Dubai and Singapore
Year of acquisition
Deal size (USDm)
Bed EV/EBITDA strength (x)
Universal Health Ascend Health Corp. Services Community Health Triad Hospitals Systems Lifepoint Province Healthcare Highmark West Penn Allegheny Health System MPIC Asian Hospital
2012 2007 2005 2011 2012
517 6,800 (5,700 cash) 1,700 475 34
800 9.0 Community became largest publicly traded hospital in US after this acquisition with over 18,700 beds 11.0 At 2.04x sales
5,285 2,000 1,800
Fortis Hospital expansion plan No. Location Beds Area & Land Ownership Date of commencement Estimated capex (INR mn)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Kangra Dehradun Gurgaon Cochin Richmond Road, Bangalore Ludhiana 1 Arcot Road, Chennai Ludhiana 2 Peenya, Bangalore Kharadi, Pune Gwalior Ahmedabad AB Road, Indore Marathalli, Bangalore Hyderabad Total
100 50 450 45 100 200 200 75 120 350 200 200 250 375 450 3,165
37,000 sq. ft., B. Lease 27,000 sq.ft., Public Private Partnership 11 Acres, Owned 43,000 sq.ft., B Lease 52,000 sq.ft., B Lease 1,55,000 sq. ft., B. Lease 138,000 sq.ft., B Lease 60,000 sq ft. B. Lease ~70,000 Sq ft; B. Lease 252,000 sq.ft., B Lease 2.5 Acres, L. Lease 1,55,000 sq. ft., B. Lease 175,000 sq.ft., B Lease 270,000 sq.ft., B Lease 300,000 sq.ft., Owned
FY13 FY13 FY13 FY13 FY13 FY13 FY13 FY13 FY13 FY13 FY14 FY14 FY14 FY14 FY15
240 150 3,250 180 350 500 920 200 180 630 720 500 500 2,000 2,100 12,420
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Asset light model (for 200 beds facility)
500 400
Revenues
Land Other Equip Medical Equip Building & Utilities 13% 12% 25% 50%
Book Breakeven Cash Breakeven EBITDA Breakeven

X 18%
38% 38% 40% (16%) 11% 31% 33% 36% 8% 16% 23% 30% 31% 6% 23% 20% 28% 29%
[1.3x 1.5x of CAPEX] 4X

5% 28% 17% 28% 27% Besides elongated book breakeven period, Fortis to witness higher returns on its Investmen ROCE = 51% ROE = 39% Fortis to invest only on Medical and Other equipment (~37% of project cost).
300 200 100 0 -100
CAPEX
Cost of set up is Rs. 60-90 lacs/bed Debt: Equity 1:1 ROCE = 26% ROE = 20%
30% Year 1 Variable Year 2 Personnel
Occupancy Year 3 SG&A Cost Year 4 EBIDTAR*
85% Year 5 Rent
*EBITDAR is Earning s before Interest, Tax, Depreciation, Amortisation a nd Rent/lease
The company has planned capacity additions of 3,165 beds by FY15. Of this increase, Fortis plans to add 1,700 beds by FY14 through greenfield projects. A large part of the pipeline (c75%) is being developed under an asset-light model. This assetlight model is more prudent in view of rising real costs mainly in metros and Tier I cities. In a traditional hospital model, which is asset heavy, a company purchases land and builds hospital building, which together usually account for 6570% of total project cost. In the asset light model, a company identifies a property, refurbishes it and invests in medical and other equipments for it and
manages it as its own hospital. The original landowners develop the infrastructure and hospital pays fixed lease rent to the owner for use of the property. In this way, land and building cost is removed from the companys balance sheet which automatically improves return ratios. Note that the peak ROE for a typical 200 bed facility is 39% in an asset light model, versus 20% in a traditional model.
Traditional hospital operating model (for 200 bed facility)

500 400 Revenues
Land Other Equip Medical Equip Building & Utilities
Indicative Hospital Operating Model Book Breakeven Cash Breakeven [1.3x 1.5x of CAPEX] 4X
28% 23% 31% 33% 36% 16% 23% 30% 31% 20% 28% 29% 27% 17% 28%
300 200 100
13% 12% 25% 50%
EBITDA Breakeven X
38% 38% 40% (16%)
CAPEX
Cost of set up is Rs. 60-90 lacs/bed Debt: Equity 1:1 ROCE = 26% ROE = 20%
30% Year 1 Year 2 Variable
Occupancy Year 3 SG&A Cost Year 4 EBIDTA
85% Year 5
Personnel
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India hospital business

The companys India hospital business recorded revenue of INR19.1bn in FY12. 4QFY12 revenues grew 52% to INR6.42bn with occupancy at 74%. The ARPOB was cINR10m and ALOS at four days for the quarter for the entire hospital segment. Specialities include cardiac sciences, orthopaedics, neurosciences, renal sciences, pulmonology and gastroenterology are performing well with growth in excess of 25%. Fortis performed c60,000 cardiac and c100,000 dialysis procedures in FY12. Fortis, Mohali: This hospital began operations in 2001 and was the first to do so in the Fortis hospital network. It has 300 beds, of which 256 are operational. Fortis Mohali contributes 15% of the companys revenue and has a healthy operating margin of 23-25%. The hospital has significantly improved its operating performance with bed occupancy rate at 83%, ALOS below four days and ARPOB cINR8.45m. The company is creating an oncology block at this facility with 75 beds (third facility in network to have radiation facilities). Fortis Escorts, New Delhi: This hospital is the largest hospital in the Fortis network in terms of revenue contribution and number of operating beds (284). Accredited by Joint Commission International, it contributes c20% of total revenue and has seen high bed occupancy rates of over 85% in the last few years. Fortis Malar, Chennai: Fortis Malar was acquired in February 2008. The facilitys revenues surged from INR332m in FY09 to over INR900m in FY12.
Fortis, Jaipur: This greenfield hospital started its operations in 2008 and broke even on an EBITDA level within its fourth quarter of operation. Fortis, Jaipur is the one of the fastest growing hospitals with revenue growth above 30% in FY12.
Key Fortis hospitals in India Name & Location Operating Year of commencement/ beds incorporation
Fortis Mohali Escorts Delhi Fortis Noida Fortis Faridabad Fortis Amritsar Fortis Jaipur Fortis Malar, Chennai La Femme Fortis Vasant Kunj Fortis BG Road, Bangalore Fortis CG Road, Bangalore Fortis Mulund
256 284 177 210 142 177 170 38 126 239 95 210
2001 2006 2004 2006 2006 2008 2008 2007 2006 2006 2002
New hospitals - Fortis, Shalimar Bagh, Anandpur, Kolkata, Moradabad, Alwar: Fortis Shalimar Bagh was commissioned in September 2010 and began with 88 beds. The hospital has now scaled up operations and is on the way to joining the leagues of bigger hospitals with a greater focus on centres of excellence. Alwar is a 100-bed facility with a plan to expand to 150 beds. The hospital was added to the network as part of a reverse O&M (operations and maintenance) arrangement whereby large investments in the facility are made in partnership with an associate. Fortis, in turn, makes payment to the partner over the term of the agreement. This mode of engagement is a logical extension and key component of Fortis asset light model.
Hospitals performance in India by maturity-wise Q3FY12 Maturity of hospitals Operating beds Revenue contribution EBITDA contribution Average EDITDA margin* Average Occupancy Average ARPOB (INR mn)
5 years and above (five hospitals) 3-5 years (ten hospitals) 1-3 years (ten hospitals) Upto 1 year (four hospitals)
Note: * Average EBITDA margin on unit basis Source: Company data
14% 56% 23% 7%
24% 57% 18% 1%
29% 67% 5% -1%
23.5% 22.5% 5.2% -15.2%
76% 67% 64% 32%
11.7 8.2 6.9 1.9
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The new hospitals generated revenue of INR366m in 4QFY12.

Fortis India hospital revenue expectation
40,000 30,000 20,000 10,000 0 FY11 F Y12 F Y13e FY14e F Y15e % grow th 80% 60% 40% 20% 0%
Hospital R evenues (IN R m n)
Fortis key hospitals revenues and operating margins Q3FY12
1,000 800
(INR mn)
831 786 559595
600 400 200 0

Escort s
450 464 26% 17% 18% 23% 30% 21%

Noida Mohali Delhi
355
424 27%
359
432 304 21% 348 211 239 18% 15% 203 22%
Jaipur
282 27%
208242 13% 17%
19%
Bangalore BG Road,
14%
Mulund
26% 24%
Vasant Kunj
Malar
Q3FY11
Q3FY12
Faridabad
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Fortis Hospitals: Region-wise split for total no. of hospitals in India FY12
Fortis Healthcare: Revenue split FY12 by specialty areas
NCR 12.4%
South 19.6%
M ulti-specialties 23% Cardiac Gastro 2% Oncology 5% Pulmo 2% Renal 6% Neuro 6%

33%
East 10.9% North 40.3% West 16.9%

OPD and Others Ortho 8% 14%
Fortis EBITDA margins are stabilizing
Fortis operational parameters improving with increasing ARPOB and decreasing ALOS
3,000 2,500 2,000 1,500 1,000 500 0 FY09 FY10 FY11 FY12
16% 15% 14% 13% 12%
30,000 25,000 20,000 15,000 10,000 5,000 0 FY09 FY10 FY11 FY12
4.4 4.2 4 3.8 3.6 3.4
EBITDA (INR mn)-LHS % EBIT DA m argin-RHS

ARPOB (INR/day )-LHS

ALOS (day s)-RHS
Aggressive bed additions by Fortis through both organic and inorganic routes
1,500 1,000 500
Wockhardt Hospitals acquisition: 1,368 Malar Hospital acquistion:180 800 342 1,368
Shalimar Bagh:350 Anandpur: 414
1,000
775
0 FY08 FY09 FY10 FY11 FY12
Bed additions
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No. of key procedures done at Fortis Hospitals Procedures Cardiac CTVS & paediatrics PTCA CAG Others Ortho Knee replacement THR & others Neuro Dialysis
FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 39,651 6,924 8,214 20,851 3,662 9,543 2,530 7,013 2,709 44,096 12,225 2,622 2,314 6,380 909 2,659 1,029 1,630 1,152 15,636 12,700 2293 2568 6656 1183 2,618 860 1,758 1,284 18,346 12,332 2120 2634 6415 1163 2,455 890 1,565 1,284 15,887 14,609 2,742 3,261 7,379 1,227 3,035 975 2,060 1,208 12,446
FY11 51,866 9,777 10,777 26,830 4,482 10,767 3,754 7,013 4,928 62,315
Q1FY12 Q2FY12 Q3FY12 Q4FY12 13,988 2,625 2,937 7,049 1,377 3,421 1,374 2,047 1,340 23,055 15,017 2644 3178 7781 1414 3,483 1,205 2,278 1,411 22,834 13,903 2424 3057 7093 1329 3,109 1059 2050 1469 24822 14,876 2,827 5,109 6,724 216 3,272 1,223 2,049 1,712 26,173
FY12 57,784 10,520 14,281 28,647 4,336 13,285 4,861 8,424 5,932 96,884
Diagnostic business
The diagnostics service sector in India accounts for c2% of the healthcare services market with an estimated market size of cUSD2bn. This market is expected to grow to a USD5.6-6bn market by 2015 at a CAGR of 32%. Currently, the diagnostic market in India is highly unorganized; organized players have a market share of only 9%, while the top-three corporate diagnostic service providers account for an 80% market share.
Diagnostics industry is India is largely unorganized
but growing much faster owing to a large number of studies requiring medical imaging to promote immediate diagnosis and faster detection of chronic ailments such as cancer. The main competitors in radiology include Metropolis, Dr Lal Pathlab, Quest Diagnostics, Thyrocare and Medinova. Fortiss SRL is the leading player in organized diagnostic market with a market share of c48%. Pathology and radiology/imaging are the largest two segments of diagnostics market and both of these segments are expected at a CAGR of 2830% between 2012-15 periods. Pathology and radiology currently accounts for 82% and 18% of total diagnostics revenue for SRL. Fortis acquired 42.7m equity shares for an 82.2% stake in SRL in mid-2011 for INR8.0bn. The deal was valued at 2.2x sales and 12x EBITDA.
SRL is the largest player in Indian organized domestic market
Organized, 9.1% of w hich SRL commands c48% market share
Unorganized, 90.9%
Thyrocare
Source: ICRA Management Consulting Services Ltd
Metropolis 20%
7%
SRL+ PDSPL 48%
Overall diagnostic services can be divided into radiology, pathology and other services. The pathology market is c2% of the overall market with over 40,000 labs serving c1-1.25m patients per day. This includes special labs, facilities within hospitals and nursing homes and other multitude small standalone facilities. The leading players include SRL, Dr Lal Pathlab, Metropolis and Quest Diagnostics. Radiology is another 1% of the market
Dr Lal Pathlab 25%

Pathology: 82% Radiology :18%
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The rationale behind the acquisition was to become an integrated player with a presence in all major areas of medical services. With its pan-India geographical coverage, strong talent pool, well established brand and strong logistics, SRL has strong synergies with Fortiss hospital business. SRL currently offers 3,300 tests including 1,900 routine tests and 2,300 specialized and esoteric tests out of a range of 5,500 tests. SRL has wide pan-India presence as apparent from the exhibit below. SRL had earlier bought a diagnostic business from Piramal for INR6bn in August 2010. Through Piramal Diagnostics, SRL offers a range of pathology and radiology services including CAT (computerized tomography), X-ray, MRI (magnetic resonance imaging), ultrasound and PET (positron emission tomography). Piramal Diagnostics had sales of INR2.1bn in FY10. The deal was priced at c3x sales. Fortis recently announced that its SRL chain has signed agreements with high quality investment partners NYLIM Jacob Ballas India Fund III LLC (NJBIF) and International Finance Corporation (IFC). As per announcement, NJBIF and IFC will invest INR2.5bn and INR1.2bn, respectively, via compulsorily convertible preference shares (CCPS). The conversion of the CCPS will be in a price band of INR201-220, after which Fortis will continue to hold a 55-56% equity stake in SRL. This is the third round of private equity infusion in the company after Avigo Capital Partners and Sabre Partners. The
majority of these funds will go towards repayment of debt.

PE investment history in SRL Date PE Investment INR m Stake (%)
Jun-12 Jun-12 May-11 Apr-11

Source: HSBC
IFC NYLIM Jacob Ballas India Fund Sabre Partners Avigo Partners
1200 2500 500 1000
7-8 15-16 4 9.27
SRL has ramped up its testing capacities significantly FY07 FY08 FY09 FY10 FY11
# Labs # Collection Centres No. of test performed (mn)

18 550 2.2
27 741 2.8
37 972 4.0
45 1,044 5.6
189 888 12.4
Fortis (SRL) has wide network of diagnostic labs Type _____________________________ India_______________________________ North India South India East India West India International Total
Reference Labs Pathology Labs Radiology Labs Wellness Centres Collection Centres
1 27 1 4 339
1 69 3 5 114
1 18 0 1 218
3 50 13 5 194
2 0 0 0 23
8 164 17 15 888
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India diagnostic market 2009
India diagnostic market 2015e
2009 Market Size: USD 1.3bn
2015e Market Size: USD 5.6bn
Radiology 31%
Radiology 31%
CAGR 2009-15e: 27.5%
Pathology 69%
Pathology 69%
Source: Fortis
Source: Fortis
SRL revenue trend
SRL EBITDA and EBITDA margin trend
5,000 4,000
(I NR m)
800 600 400 200 0 FY07 FY08 FY09 FY10 FY11 F Y12* -200 FY07 FY08 FY09 FY10 FY11 FY12*
25% 20% 15% 10% 5% 0% -5%
3,000 2,000 1,000 0
Rev enue (INR m)

Source: Fortis Source: Fortis
EBITDA-LHS
EBITDA margin-RHS
SRL revenue contribution
SRL offers 3,300 tests out of spectrum of 5,000 tests
e-Pathology , 1% Routine tests, 38% Specialised & esoteric tests, 41%
4000 3000 2000 1000 0 Routine tests Specialized/esoteric tests Total 1900 1400 3300
Radiology , 20%
Source: Fortis Source: Fortis
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International businesses
International business now forms 50% of revenues after the acquisition of Fortis Healthcare International. The acquisition provides the following benefits: Creates a strong foothold in Asia Pacific Expands into new service areas such as primary care and day care specialty Adds 8 hospitals, 1,500 beds, 580 primary healthcare centres, 190 specialty day care centres and 1 diagnostic reference laboratory Expands geographic coverage to 9 additional countries (Australia, New Zealand, Hong Kong, Vietnam, Dubai, Mauritius, Canada, Singapore and Sri Lanka) with a network of 2,200 doctors.
growing practice operations, allowing dentists to focus on their core responsibilities. The largest provider of dental services in Australia, Dental Corp generated revenues of AUD310m, 172 operating practices and 176 principal dentists at the end of FY12. Fortis had acquired c25 practices. The company currently has a 5% market share and expects that to increase significantly. The company recently entered the Canadian market through a partnership model.
Dental Corp, Australia: Performance highlights
4,000 3,000 2,000 1,000 Q1FY12 Q2FY12 Q3FY12 Rev enue-LHS

18% 17%
(INR mn)
16% 15% 14% 13% Q4F Y12
Dental Corp, Australia

Dental Corp is one of the leading providers of dental services with operations in Australia and New Zealand. It is a partnership-based model aimed at providing high quality dental services. The partnership model allows Principal Dentists to focus on dentistry and retain clinical autonomy while removing complexities associated with independent practice (like dentist writing revenue, managing staff, run IT requirements or a day surgery). Dental Corp provides a comprehensive range of support services and assistance in
EBITDA margin-RHS
Fortis International acquisitions Entity acquired Year of acquisition Stake acquired Rationale
Dental Corporation, Australia Quality Healthcare, Hong Kong Hoan My, Vietnam SRL Dubai* Fortis Hospital, Singapore Sri Lankan Hospital
2011 2010 2011 2011 2011 2011
58.1% 100.0% 65.0% 100%/82.5% 100.0% 28.6%
To enter high margin Australian dental market; Dental Corp operates in top 30% of the market One of the largest radiology network in Hong Kong; Fortis can potentially utilize HK as an base for expansion into China Association with the leading healthcare providers in Vietnam To enter lucrative diagnostic market in Middle-East The largest private diagnostic and imaging company in Singapore One of the largest hospitals in Sri Lanka
Note:* SRL Dubai compromises of tow entities; SRL LLC in which Fortis has 100% stake and MENA Healthcare in which it holds 82.5% stake Source: Company data
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Dental Corp is the leading player with largest number of operating sites in Australian dental market
Quality Healthcare, Hong Kong: Steady performance in FY12
2,500 200 150 100 50 0 Dental Corp Albano Primary Dental Number of sites
12% 10% 8% 6% 4% 2% 0% Q1FY12 Q2FY12 Q3FY12 Q4F Y12 Rev enue-LHS EBITDA margin-RHS
173 2,000
INR mn
92 27 25 20
1,500 1,000 500
Pacific Smiles
1300 Smiles
Dental Corp revenue has seen strong growth with CAGR of c44% between FY08-12
Hoan My, Vietnam

One of the leading healthcare providers in Vietnam, Hoan My has ownership interest in six full service hospitals and three clinics. Total bed capacity is 1,100. The company recently opened a fifth general hospital with 200 beds and capacity to serve 2000 patients a day. The company reported 4QFY12 revenues of INR430m and a 20% EBITDA margin. The average occupancy was 75%.
Hoan My, Vietnam: Performance highlights
300 250 200 150 100 50 0 FY08 FY09 FY10 FY11 FY12
Rev enue (USD mn)

440
25% 20% 15% 10% 5% 0% Q1FY12 Q2FY12 Q3FY12 Q4F Y12 Rev enue-LHS EBITDA margin-RHS
Quality Healthcare, Hong Kong

(INR mn)
420 400 380 360 340
Quality Healthcare is a physician led provider group offering an integrated range of healthcare services including facilities management, thirdparty plan administration and paramedical support. The group has wide network of more than 580 orthodox western and Chinese medical centers and 47 dental and physiotherapy centers. The group is the largest primary integrated healthcare services provider in Hong Kong and had annual revenues of HKD1.2bn (INR7.55bn) in FY12. The company also has a nursing agency that has been providing private professional nursing care for 35 years and has network of 4,000 nurses to serve customers at home and in the hospital.
Fortis acquired a 65% stake in the company for USD64m.
RadLink, Singapore
RadLink-Asia is Singapores largest out-patient and molecular imaging and radiopharmaceuticals group. The diagnostic firm has four main business
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segments diagnostic imaging, molecular imaging, cyclotron (radio isotopes manufacturing) and general practitioner (GP) clinics. The company offers range of services including CT coronary angiogram, CAT scanning, MRI, mammography, bone mineral densitometry, fluoroscopy and ultrasound. Fortis Singapore acquired 85% stake in RadLinkAsia for purchase consideration of USD62.9m. 4QFY12 revenues were INR290m with a 23.6% EBITDA margin.
RadLink, Singapore has seen consistent growth in FY12
The hospital is expected to commence operations shortly with ambulatory and day surgeries initially. This will soon extend to full clinical services including in-patients and major surgeries. The hospital will have out-patient support through Novena Specialist Centre.
Super Religare Laboratories, Dubai

SRL Dubai had a small share of revenues in FY12 at AED11.8m, up 72% y-o-y. The entity operates on a hub-spoke-spike model with one reference lab in UAE and seven collection agents in GCC. SRL has strengthened its agent and sales team in Qatar, Tanzania, Bahrain and KSA. 3QFY12 revenues were at INR40m. The operation made a loss of INR30m at the EBITDA level. It added 28 new clients in the last quarter.
300 280
(INR mn)
25% 20% 15% 10% 5% 0% Q1FY12 Q2FY12 Rev enue-LHS Q3FY12 Q4F Y12 EBITDA margin-RHS
260 240 220
Lanka Hospitals, Sri Lanka

Fortis acquired a 28.6% stake in this hospital in March 2011. It is a leading tertiary care multispecialty hospital. The hospital has a premium market positioning and is one of the largest hospitals groups in the region with a strong brand.
Fortis Colorectal Hospital

Fortis is planning a specialist surgical hospital focusing on colorectal diseases. This would be the first hospital of its kind in South Asia. The planned investment is USD70m.
Fortis Healthcare: Geographical mix FY12
Fortis Healthcare: Product mix FY12
Dubai 1% Hong Kong 15%
Vietnam 3%
Day care specialty 32% India 50%
Primary care 15%
Auatralia & NZ 31% Diagnostics 11%

Secondary /tertiary / quarternary care, 43%
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Sales growth on consolidation

We forecast a c33% CAGR in sales over FY1215e. FY13e sales are expected to grow 80% on the back of the consolidation of international revenues. 4QFY12 was the first quarter when international revenues were consolidated and sales were up by 208% y-o-y. The India hospital business is expected to show continued momentum on the back of the addition of new beds in areas like Gurgaon, Ludhiana, and Pune. With improving case mix and increasing investment in technology, we expect Fortis to benefit in terms of improving ARPOBs and occupancy in key hospitals. We forecast c15% sales CAGR in hospital revenues in India over FY13-15e. This is on the back of modest growth assumptions in SRL given the slow scale-up and lower pricing differential. International business is a new area for Fortis but is already sizeable at 50% of total sales. We have forecast double-digit growth in most entities with
growing contributions from Dental Corporation and Hoan My. We have not yet factored Fortis Colorectal Singapore hospital into our model.
Margins to gradually scale up

We forecast overall margins to expand 130bp over FY12-15e on the back of improving ARPOBs in key hospitals and breakeven in newly added beds. We assume an over 250bp margin improvement at the EBITDA level in the India hospital business alone. Additionally, we have assumed diagnostic business under SRL to report double-digit margins over FY13-15e reaching 11.2% in FY15e. We have assumed a 50bp margin improvement annually in the international business as well driven by cost integration and operating synergies.
Fortis Healthcare sales split (INRm) India business Hospitals revenue Diagnostics revenue Total India revenue International business Dental Corporation, Australia Quality Healthcare, Hong Kong Hoan My, Vietnam RadLink, Singapore SRL Dubai Total international revenue Total consolidated revenue % of total sales FY10 FY11 FY12 FY13e FY14e FY15e FY13e-15e CAGR
9,379
9,379
14,830
14,830
19,120 4,340 23,460
21,883 4,774 26,657 15,445 8,305 1,896 1,242 185 27,073 53,730
25,778 5,251 31,029 17,761 9,136 2,275 1,428 195 30,795 61,824
29,388 5,777 35,165 20,425 10,049 2,730 1,643 210 35,057 70,222
15.9% 10.0% 14.9% 15.0% 10.0% 20.0% 15.0% 6.5% 13.8% 14.3%
9,379
14,830
6,370 29,830
India business Hospitals revenue Diagnostics revenue Total India revenue International business Dental Corporation, Australia Quality Healthcare, Hong Kong Hoan My, Vietnam RadLink, Singapore SRL Dubai Total international revenue
100.0% 100.0%
100.0% 100.0%
64.1% 14.5% 78.6%
40.7% 8.9% 49.6% 28.7% 15.5% 3.5% 2.3% 0.3% 50.4%
41.7% 8.5% 50.2% 28.7% 14.8% 3.7% 2.3% 0.3% 49.8%
41.9% 8.2% 50.1% 29.1% 14.3% 3.9% 2.3% 0.3% 49.9%
21.4%
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EBITDA margin improvement to be gradual

6,000 4,500 INR mn 3,000 13.5 1,500 0 FY12 India Hospital EBITDA International EBITDA FY13e FY14e FY15e 13.0 12.5 15.0 14.5 (%) 14.0
Indiabulls, which had Indiabulls Properties Investment Trust listed on the SGX in June 2008. Fortis has accumulated debt of INR50bn. This is essentially post the acquisition of Fortis Healthcare International for USD665m from its promoter group company. The debt position of the company has changed significantly post this event. Last year, the company raised USD100m through 5% foreign currency convertible bonds (FCCBs) and also called for the conversion of detachable warrants, which were issued to subscribers of rights issue in 2009. The warrant conversion resulted in infusion of cINR13bn. Additionally, the sale of a stake in Parkway Holdings also brought gross profit of INR3.45bn last year.
Capital raising history Nature Date Amount (INRm)
India Diagnostic EBITDA Overall EBITDA margin (RHS)
Source: HSBC (FY12 international business EBITDA is only reflected for part booked in year)
Balance sheet is stretched

REIT listing to reduce debt
Fortis is planning to raise funds via the listing of a REIT entity, called Fortis Religare Health Trust, in Singapore. The company obtained approval from the Singapore Stock Exchange (SGX) on 24 May 2012 to go ahead with the listing. Religare Health Trust spins off certain non-core areas such as out-patient departments, existing and upcoming hospital buildings and radiology divisions. It will be the first REIT of its kind. After the de-merger, Fortis Healthcare will be left with in-patient departments, intensive care units (ICUs), operating theatres and emergency services, which constitute its core operations. REITs operate under the principles of a closeended mutual fund and like mutual funds collect money from investors for deployment into defined areas of investments. Under this structure, Fortis will transfer ownership of 12 key existing hospital buildings and 2 new planned to the trust and pay lease to the trust. The rent collected from these properties is paid as a dividend to shareholders. Under normal circumstances, the entity is listed within 90 days of the approval. The company expects the infusion of USD362.5m (cINR20bn) from this listing; if successful, could reduce its debt burden by c45%.Outside healthcare, the other known Indian company to spin off a REIT is
IPO Rights Issue FCCB Warrants REIT Listing in SGX

Source: HSBC, Company data
May-07 Aug-09 May-10 Jun-10 planned
4,986 9,971 4,620 13,870 20,000
We haven't built REIT equity infusion yet

100,000 80,000 60,000 40,000 20,000 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E Net Debt/EBITDA 35 30 25 INR mn 20 15 10 5 -
Net Debt
Source: HSBC
Key downside risks

Higher component of inorganic growth: Given large contribution of acquisitions, we believe the company has less success with organic growth. Given low execution capabilities, future growth may miss expectations. Additionally, the larger the number and size of acquisitions, the higher are
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the challenges and complexities with integration of assets. International sales come with higher foreign currency costs: International footprint comes at higher costs and is currently at a low 12% at EBITDA margin level. While margins may improve a bit on the back of successful integration we believe synergies are limited given the different nature of businesses. Additionally, Fortis has relatively little experience with international markets and growth assumptions are based on limited knowledge of these businesses and markets. Resource availability remains a challenge: Fortis has more doctors on its payroll than Apollo, but is still constrained by the shortage of medical talent in India. Future resource availability is a key risk for private players and is tied to government policy decisions on human resource management in healthcare.
and is structurally different. We value the India business at 14x EBITDA (in line with the sector average) and the international business at a 12x EBITDA. Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and below the hurdle rate for Indian stocks of 11%. Our target price implies a potential return of 6.5% (including forecast dividend), above the Neutral band; therefore, we are initiating with a N rating. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated. The stock is currently trading at EV/EBITDA of 12.9x FY13e and 11.3x FY14e.
SOTP valuation India Business FY14 EBITDA EV/EBITDA (x) India EV International Business FY14 EBITDA EV/EBITDA (x) International EV Total EV Net debt / cash Minorities Implied Equity Value No of shares Equity value / share
5,199 14 72,783 3,886 12 46,635 119,418 64,705 8,308 44,986 405 115
Key upside risks

Faster recovery in margins in SRL diagnostic business: We have currently built 50bp margin improvement annually in the SRL business. Faster improvement in margins could be a potential catalyst. Capital infusion through REIT listing: We believe this is a material upside risk as it could bring in much needed cash for further expansion and reduce interest burden. Commencement of operations at Fortis colorectal hospital: We have not factored any upside from this entity in our model. This hospital is unique and is expected to generate significant ARPOBs.
We use DCF as an alternative valuation methodology, assuming a weighted average cost of capital of 9% (cost of equity of c13.8%, after tax cost of debt at 5.8%). We use a higher equity risk premium relative to Apollo given the managements relative lower experience in execution. We have assumed a terminal growth rate of 3.5%. Our DCF derived 12-month target price is INR107.
Initiate as N, TP INR115
We value Fortis on a sum-of-the-parts basis. While the India business has comparables (primarily Apollo), the international business comprises a relatively diverse range of businesses
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DCF summary (INRm)
PV of Cash Flow - Explicit Period PV of Cash Flow - Implicit Period Terminal Value PV of Terminal Value Enterprise Value Less: Debt Minority Interest Add: Cash Short Term Liquid Investment Value attributable to Equity Shareholders No of Equity Shares Value per Share (INR)
3,954 18,815 131,974 72,233 95,003 49,919 8,308 4,156 2,348 43,280 405 107
Sensitivity to WACC and terminal growth rate 8.0% 8.5% 9.0% 9.5% 10.0%
2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
103 119 139 163 194 233
83 97 113 132 156 185
67 78 91 107 126 149
52 62 73 86 101 119
40 48 57 68 80 95
Source: HSBC estimates (WACC on top axis, growth rate on left axis)
Fortis Healthcare: 12-mth fwd EV/EBITDA band (x)
250 200 150 100 50 0 Dec-08 Dec-10 Jun-08 Jun-09 Sep-09 Dec-09 Jun-10 Jun-11 Sep-11 Dec-11 Mar-10 Mar-12 Sep-08 Mar-09 Sep-10 Mar-11 Jun-12
Price (INR)
20
45
60
75
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Fortis Hospital: Profit and loss statement (INRm) Net Sales Material Consumed Staff expenses Professional charges and consultation fees to Doctors Power and fuel Other operating expenses SGA & other expense Total Expenditure EBITDA Depreciation EBIT Interest expense Interest income Other Income Pre-tax profit Total tax Profit before minorities & associates share Minority Interest Share in associates Net profit EPS (INR) % yoy change Net revenue Materials consumed Staff expense Professional charges and consultation fees to Doctors Power and fuel Other operating expenses SGA & other expense Total expenses EBITDA Depreciation EBIT Interest expense Pre-tax profit Total tax Net profit
FY10 9,381 2,627 1,950 1,074 258 1,081 977 7,966 1,414 599 815 573 121 371 734 34 700 21 16 695 1.7
FY11 14,830 3,930 2,731 2,388 414 1,683 3,201 14,347 483 1,045 -562 2,500 846 3,741 1,526 152 1,373 44 -75 1,244 3.1
FY12 29,828 6,666 7,383 2,908 497 1,936 6,440 25,828 4,000 1,823 2,177 2,946 750 1,099 1,080 410 669 -40 13 722 1.8
FY13e 53,730 10,209 15,503 3,781 596 2,323 13,672 46,084 7,646 2,557 5,089 4,758 0 1,000 1,331 452 878 45 32 865 2.1
FY14e 61,824 11,128 17,829 4,537 715 2,787 15,743 52,739 9,085 2,760 6,325 4,878 0 1,000 2,447 832 1,615 55 38 1,598 3.9
FY15e 70,222 12,640 20,146 5,172 858 3,345 17,737 59,898 10,324 2,995 7,329 4,998 0 1,200 3,531 1,201 2,330 68 42 2,304 5.7
48.8 38.6 32.3 104.9 19.3 56.1 51.4 46.3 64.6 23.0 119.3 31.2 235.9 -18.3 233.7
58.1 49.6 40.1 122.2 60.7 55.7 227.8 80.1 -65.9 74.3 -169.0 336.3 107.9 354.0 79.0
101.1 69.6 170.3 21.8 20.0 15.0 101.2 80.0 728.1 74.5 -487.4 17.8 -29.2 169.3 -41.9
80.1 53.2 110.0 30.0 20.0 20.0 112.3 78.4 91.2 40.3 133.8 61.5 23.3 10.3 19.8
15.1 9.0 15.0 20.0 20.0 20.0 15.1 14.4 18.8 7.9 24.3 2.5 83.8 83.8 84.6
13.6 13.6 13.0 14.0 20.0 20.0 12.7 13.6 13.6 8.5 15.9 2.5 44.3 44.3 44.2
Margin analysis (as % of sales) FY10 FY11 FY12 FY13e FY14e FY15e
Materials consumed Staff expense Professional charges and consultation fees to Doctors Power and fuel Other operating expenses SGA ad other expense EBITDA EBIT Pre-tax profit Profit before minorities & associates share Net profit
28.0 20.8 11.5 2.7 11.5 10.4 15.1 8.7 7.8 7.5 7.4
26.5 18.4 16.1 2.8 11.3 21.6 3.3 -3.8 10.3 9.3 8.4
22.3 24.8 9.8 1.7 6.5 21.6 13.4 7.3 3.6 2.2 2.4
19.0 28.9 7.0 1.1 4.3 25.4 14.2 9.5 2.5 1.6 1.6
18.0 28.8 7.3 1.2 4.5 25.5 14.7 10.2 4.0 2.6 2.6
18.0 28.7 7.4 1.2 4.8 25.3 14.7 10.4 5.0 3.3 3.3
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Fortis Healthcare: Balance sheet (INRm) FY10 FY11 FY12 FY13e FY14e FY15e
Gross intangible assets Gross fixed assets Accum. amortisation & depreciation CWIP Total long-term assets Investments Deferred tax assets Total Non-Current assets Inventories Cash & bank balance Debtors Loans & advances Other Total Current Assets Misc. expense & debit from P&L account Total assets Creditors Provisions Others Total Current Liabilities Share Capital Reserves & others Shareholders' funds Minorities Long-term Debts Deferred Taxation Total liabilities & shareholders fund
8,626 16,404 4,011 4,256 25,275 34,485 124 59,884 238 13,113 1,567 1,424 222 16,563 2,449 78,896 1,977 266 944 3,187 3,217 17,438 20,654 345 54,706 3 78,896
8,846 21,316 4,924 2,708 27,946 902 144 28,991 263 1,636 1,952 14,525 284 18,661 790 48,442 1,895 354 1,301 3,550 4,094 29,524 33,618 304 10,883 86 48,442
64,823 39,413 6,747 3,520 101,009 2,348 502 103,859 799 4,156 5,489 10,176 64 20,684 0 124,543 4,532 749 28,386 33,667 4,095 28,468 32,563 8,308 49,919 86 124,543
64,823 42,413 9,304 3,520 101,452 2,348 502 104,302 1,556 1,714 5,952 16,119 64 25,405 0 129,707 6,831 749 28,386 35,966 4,095 29,333 33,428 8,308 51,919 86 129,707
64,823 45,913 12,064 3,520 102,192 2,348 502 105,042 1,831 161 7,002 18,547 64 27,605 0 132,647 6,173 749 28,386 35,308 4,095 30,931 35,026 8,308 53,919 86 132,647
64,823 49,913 15,058 3,520 103,197 2,348 502 106,047 2,016 2,277 7,904 21,067 64 33,328 0 139,375 8,596 749 28,386 37,731 4,095 33,236 37,331 8,308 55,919 86 139,375
Fortis Healthcare: Cash flow statement (INRm) FY10 FY11 FY12 FY13e FY14e FY15e
Cash Flow from Operating activities EBIT Adjustments for: Other income Depreciation & amortisation Operating profit before working capital changes Change in working capital Interest expense Tax paid Cash flow from Operations Cash Flow From Investing Activities Capital Expenditure Interest Received Investments Cash Flow From Investing Retained Free Cash Flow Cash Flow From Financing Activities Dividends paid Shares movements Others Debt Raised (Repaid) Cash Used In Financing Activities
815 371 599 1,785 616 -573 -34 1,794 -11,870 121 -33,944 -45,692 -43,897 0 6,774 -259 49,916 56,431
-562 3,741 1,045 4,224 -13,300 -2,500 -152 -11,728 -3,715 846 33,583 30,714 18,986 0 11,721 1,639 -43,823 -30,463
2,177 1,099 1,823 5,098 30,219 -2,946 -410 31,961 -74,886 750 -1,446 -75,583 -43,622 0 -1,778 8,884 39,036 46,142
5,089 1,000 2,557 8,646 -4,864 -4,758 -452 -1,429 -3,000 0 0 -3,000 -4,429 0 0 -13 2,000 1,987
6,325 1,000 2,760 10,085 -4,412 -4,878 -832 -37 -3,500 0 0 -3,500 -3,537 0 0 -17 2,000 1,983
7,329 1,200 2,995 11,524 -1,183 -4,998 -1,201 4,142 -4,000 0 0 -4,000 142 0 0 -26 2,000 1,974
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Key metrics overview

Healthcare expenditure is a common macro tool that allows
comparison across countries

Operating parameters including in-patient admissions and out-
patient visits are a benchmark for volume growth

ARPOB, ALOS and occupancy are often determined by case
specialty mix and nature of treatment service rendered
Basic operating metrics

In-patient admissions (IPA) Admissions refer to the total number of patients admitted in the facility and is used as a measure of in-patient volume. Patient days is another volume metric that refers to total number of days of care provided to in-patients. Patient days can be adjusted (like admissions) to reflect out-patient visits. Out-patient visits (OPV) Out-patient visits refer to hospital visits by a patient who doesnt remain in the hospital for overnight care and includes emergency room visits, out-patient surgeries (day-care surgeries) and observation services. Recent surgical advances have led to more day-care surgeries at the expense of admissions. Equally important, there have been advances in anaesthesia, which have led to faster recovery post surgery. Profit per out-patient visit is calculated by deducting out-patient operating expenses from out-patient revenue and dividing resulting amount by total visits. Low values are essentially a factor of high costs. Most hospitals however focus on improving out-patient to in-patient conversion
ratio than improving profitability in out-patient visits alone.

Profit per out-patient visit formula Profit per out-patient visit
Source: HSBC
(Out-patient revenue outpatient operating expenses) / Total Visits
Adjusted admissions The adjusted admission is a commonly used statistic in the industry. It attempts to capture in-patient admissions and outpatient visits. It is calculated by multiplying admissions by sum of gross in-patient and outpatient revenues and then dividing the resulting amount by gross in-patient revenues. The equation assumes similar aggregate pricing trends among in-patient and out-patient procedures.
Patient adjusted admissions formula Adjusted admission
Source: HSBC
(In-patient revenue + out-patient revenue) X in-patient admissions In-patient revenue
Average daily census measures in-patient volume on basis of number of patients. In most situations, a higher average daily census would be better because fixed costs are spread over larger number
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of patients (operating leverage) which improves profitability.

Average Daily Census (Census) Average Daily Census
Source: HSBC
Length of stay (LOS) Length of Stay

Source: HSBC
Total annual patient days / Total discharges (admissions)
Total annual patient days / 365
Pricing Per patient revenue is calculated by dividing net revenue by adjusted admission and is a good indicator of pricing. It is not a pure indicator however, given per patient revenue can increase as a result of severe nature of admissions requiring costly procedures while the base pricing remains same. Average revenue per operating bed (ARPOB) is another good indicator of improving pricing which could be due to improvement in case mix, better technology resulting in charging premium over competitors and/or established monopoly in a region.
Average revenue per operating bed (ARPOB) Average Revenue Per Operating Bed
Source: HSBC
This metric is often adjusted for difference in case mix that a hospital receives. The adjustment is done by dividing the above result by case mix index. The hospital with a higher case mix index treats more cases with complex diagnoses which would be expected to have higher LOS. This adjustment removes biases thus created.
Adjusted length of stay (ALOS) Adjusted Length of Stay
Source: HSBC
Total annual patient days / (Total discharges X Case mix index)
Typical ALOS in certain surgeries/cases
In-patient revenue / total annual patient days
PTCA Bypass Transplant Neuro Gastro Knee replacement Oncology

Source: HSBC
3 days 8-9 days 12 days 7-8 days 3-4 days 7-8 days > 5 days
The above formula may be adjusted to include out-patient revenue as well. Apollo Hospitals include hospital-based pharmacy revenue as well in ARPOB calculation. Average Length of Stay (ALOS) This is simply the average number of days a patient is in a hospital and is a good indicator of utilization and clinical management. Most hospitals attempt to reduce ALOS and increase turnover per bed. Increasing ALOS is not necessarily bad either. Increasing ALOS could show the hospital is treating higher acuity patients who require a longer stay in hospital to recuperate.
Occupancy is calculated by dividing average daily number of patient days by weighted average of beds in service in the period. This is a purely inpatient only metric. Most hospitals mature hospitals operate at c80% occupancy. It would be ideal to have 100% occupancy, which would mean all beds will be occupied all the time over a period. To increase occupancy, hospital can: 1) increase admissions, which are a factor of in-patient volume or out-patient visits conversion; 2) increase average length of stay (not preferred, as this impacts profitability); or 3) reduce number of beds.
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Occupancy
=
Occupancy Rate
Total annual patient days X 100 Number of beds X 365
=
Source: HSBC
Average Daily Census X 100 Number of beds
Intensive care index It is the ratio of intensive care patient days to total patient days during a calendar period. Higher utilization of intensive care units leads to higher revenues given high value nature of services rendered in ICU.
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Appendix
Healthcare snapshot in India
Healthcare overview in India Attribute 1991 2001 2005 2010
Population (million) Urban to Total Population (%) Age Distribution (%) 014 1559 60+ Expectation: Life at Birth (years) Number of Medical Colleges Number of Dental Colleges Number of Government Allopathic Hospitals Number of beds in Government Allopathic Hospitals Number of Community Health Centres Number of Allopathic Doctors Registered with MCI ('00) Number of Doctors per 100,000 Population Number of Dentists Registered with Dental Council of India Number of Dentists per 100,000 Population Number of Registered General Nursing Midwife with Nursing Council of India
Source: Central Bureau of Health Intelligence, Govt. of India
846 25.7 37.8 55.5 6.7 58.6 146 57 6,804 569,495 2,070 3,936 47 10,751 1.3 340,208
1,027 27.8 35.4 57.2 7.5 61.3 189 149 4,292 422,000 3,043 5,756 56 39,105 2.9 776,355
1,096 29.0 32.4 60.4 7.2 63.3 242 205 7,008 469,672 3,222 7,675 70 77,421 4.5 865,135
1,193 31.2 31.9 60.9 7.2 68.45 314 289 12,760 576,793 4,510 8,000 142 104,603 10.0 1,073,638
National Health Accounts Indicator for India Health Indicators 2003 2004 2005 2006 2007 2008
Total Expenditure on Health as % GDP General Government expenditure on health as % of total expenditure on health Private Expenditure on Health as % of total expenditure on health General Govt Expenditure on Health as % of total government expenditure External Resources for Health as % of total expenditure on health Social Security Expenditure on Health as % of general government expenditure on health Out of Pocket expenditure as % of private expenditure on health Private Prepaid Plans as % of private expenditure on health
Source: World Health Statistics 2011
4.2 20.4 79.6 3.0 0.6 5.8 92.4 1.0
4.0 20.9 79.1 3.0 0.7 5.8 92.3 1.0
3.8 22.4 77.6 3.2 0.5 5.2 91.9 1.1
3.6 25.0 75.0 3.4 1.0 4.9 91.4 1.1
4.1 26.2 73.8 3.7 1.4 17.2 89.9 2.1
4.2 32.4 67.6 4.4 1.6 17.2 74.4 2.3
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Differentiation among hospitals

By complexity of care
Primary Care First point of consultation for most patients and most accessible. Primary care hospital offer basic point of contact medical services and healthcare prevention services in an out patient setting. They usually do not have operation theatres or ICUs (intensive care units). Secondary Care Range of services expands to complex procedures including surgical and diagnostic capabilities. It also includes services related to childbirth, intensive care and medical imaging. Typically a hospital will have one central laboratory, radiology and imaging center, emergency care and beds reserved for ICUs. Secondary hospitals may also cater to specialist needs and offer higher proportion of beds towards specialty care. Tertiary Care Specialized consultative healthcare usually a part of referral from primary or secondary source. A tertiary care hospital provides a full range of basic and sophisticated diagnostic treatment services including many specialized services. Examples include cancer management, neurosurgery, cardiac surgery, plastic surgery, burns care, and neonatal care. Quaternary Care Extension of tertiary care to highly specialized services that are not widely accessed. A quaternary hospital provides subspecialty services, such as advanced trauma and transplantation. The above distinctions however are often blurred, as many hospitals tend to expand their scope of services over time.
provide services free of charge and operate on a budget. They are also referred to as not for profit hospitals. The term however is misleading as it is not the case that public hospitals do not make profits. Private sector hospitals are run by trust, charity and religious organizations. Though they typically do not have objective to earn profits, the sub-class of specialized large-sized, single-multi specialty hospitals that offer high technology and superior quality often are for profit earning and are run by professional management.
By location
Urban hospitals are located in metro cities. The strategy in urban market is to occupying cluster of facilities in major towns/cities, rationalize the services and negotiate the provider arrangements with local payors to increase market share. The idea is to attract incremental volumes from weak local competitors. The majority of market share gains are driven by capital improvements, physician retention and recruiting and delivering quality care. Rural hospitals tend to be the sole providers of care in such areas. Typically a rural hospital will focus on providing low acuity primary and secondary care and refer patients to a large hospital in nearby town for higher tertiary care needs. Non urban hospitals are typically smaller, face limited competition, have a lower cost structure and much lower share of high income/insured patients. Currently the focus for most players is to attract large volumes from rural market and obtain new referrals for tertiary care hospitals in urban setting. Nonetheless, many rural hospitals are able to offer a breadth of services including common cardiac procedures including bypass surgeries.
By provider of care
Public sector hospitals include those which are government managed, city administered and community supported. These typically would
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Budget 2012-13 highlights

Deduction in respect of capital expenditure on specified business
As per the recent Union Budget, it is proposed that the following specified businesses commencing operations on or after the 1 April, 2012 shall be allowed a deduction of 150% of the capital expenditure under section 35AD of the Income-tax Act, namely: Setting up and operating a cold chain facility Setting up and operating a warehousing facility for storage of agricultural produce Building and operating, anywhere in India, a hospital with at least one hundred beds for patients; Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and Production of fertilizer in India. This amendment will take effect from 1 April 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.
Mantri Swasthya Suraksha Yojana (PMSSY) is aimed at setting up of AIIMS-like institutions and upgradation of existing government medical colleges to enhance the availability of affordable tertiary health care in the country.
Healthcare in 12th Five-year Plan

The Planning Commission recently approved a health ministry proposal to increase the allocation on public health to INR4.04trn in the 12th Plan starting 1 April 2012, from INR709bn in the preceding five-year period. Given that health is a state subject, the ministry has suggested that twothirds of the expenditure on public health be borne by the state governments. Some of the key proposals are as follows: The 11th Five-Year Plan (2007-2011) aimed to raise share of public expenditure on health from less than 1% of GDP in FY06 to 2-3% of GDP over the planned period. By the end of 11th Five-Year Plan, it is estimated that public health expenditure has reached 1.4% of GDP, falling behind the target. By the end of 12th Five-Year Plan, public health expenditure is expected to grow to 2.5% of total GDP. The National Rural Health Mission (NRHM) was launched in 2005 aimed at strengthening the healthcare expenditure in rural areas; NRHM was mainly focussed on child birth and pre-natal care. Under the 12th Five-Year Plan, NRHM is expanded to cover broader range of conditions, including both preventative and curative services. The 12th Five-Year Plan is prioritising convergence among all the existing National Health Programs under the NRHM umbrella, namely those for mental health, AIDS control, deafness control, cancer control, cardio
Increase in allocation under NRHM

Government of India has resolved to launch the National Rural Health Mission (NRHM) to carry out necessary architectural correction in the basic health care delivery system. It aims at mainstreaming the Indian systems of medicine to facilitate health care. The allocation towards this mission has been increased from INR181.2bn to INR208.2bn in 2012-13. Additionally, National Urban Health Mission is being launched to encompass the primary healthcare needs of people in the urban areas. The Pradhan
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vascular diseases, oral health, elderly care, tobacco control, human rabies control, leptopirosis and information, education and communication The 12th Five-Year Plan aims to increase teaching institutions for doctors, nurses and paramedics to fill the gap between existing and required human resources; it proposes to develop each of the district hospitals into knowledge centres, and community health centres (CHCs) into training institutions. To ameliorate shortage of healthcare professionals in rural areas, vacancies are filled through Plan schemes. Several experimental projects are in operations to allow private sector participation in public financing of healthcare. The Rashtriya Swasthya Bima Yojana (RSBY) is one such program, which provides health insurance scheme to poor groups for a nominal registration fees and the central government and the state governments share the insurance premium.
Allocation towards healthcare has increased over each fiveyear plans of India
25,000 20,000 15,000
8% 6% 4%
10,000 5,000 0 4th 5th 6th 7th 8th 9th 10th 11th 1st 2nd 3rd 2% 0%
Total plan inv estment outlay (INR bn)-LHS % Healthcare sector allocation-RHS
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History of private equity deals in Indias healthcare sector

Recent healthcare deals in India Date Target Acquirer Deal value (USDm)
Jun-12 May-12 Apr-12 Oct-11 Jun-11 Jun-11 May-11 May-11 Apr-11 Mar-11 Jan-11 Jan-11 Dec-10 Nov-10 Aug-10 Jun-10 May-11 Apr-10 Feb-10 Nov-09 Mar-09 Feb-09 Jun-08 Sep-07 Mar-07
Medica Synergie Pvt Ltd CARE Hospitals Vrindavan Hospitals Max Healthcare Angels Health Pvt Ltd Vaatsalya Healthcare Solutions Jeevanti Healthcare Super Religare Laboratories Super Religare Laboratories MedPlus Health Services Global Healthcare Integrated Health and Healthcare Services BSR Super Speciality Hospitals Medfort Hospitals Dr Lal PathLabs Metropolis Health Services Nova Medical Centres Manipal Health Systems HealthCare Global Enterprises Krishna Institute of Medical Sciences Vaatsalya Healthcare Solutions Kavery Medical Centre and Hospitals CARE Hospitals Apollo Hospitals Enterprise Fortis Healthcare India
I-ven India Pvt Ltd Advent India Pvt Ltd Shalby Hospitals Life Healthcare Housing Development Finance Corp Aquarius India & Seedfund Seedfund Sabre Partners Avigo Capital Partners Mount Kellett, TVS Capital, & Ajay Piramal Group's healthcare fund Sequoia Capital and Elevar Equity Halcyon Finance & Capital Advisors Aureos Capital TVS Shriram Capital & ePlanet Ventures TA Associates Warburg Pincus GTI Group and New Enterprise Associates Kotak PE Milestone Religare Advisors Milestone Religare Advisors Oasis Fund and Seedfund India Venture Advisors Ashmore Group Apax Partners Trinity Capital
110 110 10 2.2 11.2 22.5 88.4 3.3 44.4 10 13.1 34.8 84.9 5.3 33.5 10 12.9 3.7 17.8 23 104.3 19.7
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India physician and nursing density well below world average

Healthcare personnel per 10,000 population
United States UK Sw itzerland Spain Singapore Saudi Arabia Russia Rom ania Peru Pakistan Mongolia Malta Liby a Kuw ait Italy Iran India Ghana Germany France Egy pt China Brazil Australia Afghanistan 0
5.2
22
52.1
20
40
60
80
100
120
140
160
180
Phy sicians density per 10,000 population Pharmaceutical personnel per 10,000 population
Source: World Health Organization (*vertical lines denote average of 25 countries on left axis)
Nursing and midw ifery personnel density per 10,000 population
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Healthcare infrastructure in India

Government hospitals and beds status in India, 2010 State/Union Territory India Andhra Pradesh Arunachal Pradesh Assam Bihar Chattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal A&N Island Chandigarh D&N Haveli Daman & Diu Delhi Lakshadweep Puducherry _______ Rural hospitals________ No. Beds 6,795 143 146 108 NA 119 7 282 61 95 61 NA 468 281 333 735 27 29 21 23 1,629 72 347 30 533 14 515 666 14 7 1 1 0 21 5 1 149,690 3,725 1,356 3,240 NA 3,270 298 9,619 1,212 2,646 1,820 NA 8,010 13,756 10,040 13,376 744 870 801 705 10,172 2,180 11,850 730 25,078 950 15,450 3,746 2,399 385 50 50 0 972 160 30 _______Urban hospitals________ No. Beds 3,748 332 15 45 NA 99 13 91 93 47 31 NA 451 105 124 1,037 4 10 4 25 80 159 128 3 48 18 346 29 280 1 3 1 4 109 0 13 399,195 34,325 862 4,382 NA 6,158 2,388 19,339 6,667 5,315 2,125 NA 55,731 17,529 18,493 36,627 1,574 1,967 710 1,445 5,708 8,440 20,217 830 22,120 2,082 40,934 4,219 52,360 450 570 231 200 22,886 0 2,311 _______Total hospitals_________ No. Beds 12,760 475 161 153 1,717 218 20 373 154 142 92 500 919 386 457 1,772 31 39 25 48 1,709 231 475 33 581 32 861 695 294 8 4 2 4 130 5 14 576,793 38,050 2,218 7,622 22,494 9,428 2,686 28,958 7,879 7,961 3,945 5,414 63,741 31,285 28,533 50,003 2,318 2,837 1,511 2,150 15,880 10,620 32,067 1,560 47,198 3,032 56,384 7,965 54,759 835 620 281 200 23,858 160 2,341
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Number of allopathic doctors in India registered with recognized medical council by state State Medical Councils 2005 2006 2007 2008 2009 2010
Andhra Pradesh Arunachal Pradesh Assam Madhya Pradesh Bihar Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Travancore-Cochin Maharashtra Orissa Punjab Rajasthan Sikkim Tamilnadu Uttar Pradesh Uttaranchal West Bengal MCI Delhi Delhi Total
Source: Medical Council of India
49,932 0 16,581 22,309 33,579 470 2,296 38,776 1,806 1 8,683 599 69,710 33,025 118,814 15,216 34,355 22,861 0 73,881 48,810 404 54,134 26,164 2,969 675,375
51,973 0 16,980 23,094 34,235 657 2,391 40,366 2,087 134 9,349 802 72,531 33,947 122,729 15,570 35,585 24,192 0 76,085 50,468 668 55,009 28,153 3,694 700,699
55,566 143 17,436 24,004 35,081 1,252 2,501 41,877 3,272 269 9,908 1,000 75,841 35,109 126,989 16,008 36,550 25,301 277 78,574 51,978 1,240 56,029 30,840 7,550 731,439
58,314 205 17,904 24,958 35,943 2,083 2,605 43,419 3,811 432 10,314 1,691 79,456 36,344 130,977 16,339 37,391 26,457 461 81,533 53,389 2,750 57,022 32,581 8,206 761,429
62,349 272 18,494 25,662 36,559 2,746 2,716 45,058 4,132 705 10,906 2,933 83,177 37,835 134,859 16,734 38,434 27,654 558 84,525 55,355 3,085 58,059 34,655 8,999 793,305
62,349 325 19,116 26,589 37,233 3,156 2,818 46,439 4,132 847 11,240 3,081 87,320 39,180 137,824 16,786 38,434 28,513 603 86,822 57,944 3,334 58,872 36,999 9,829 816,629
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Registered nurses and pharmacists in India State/Union Territory ___________Total No. of Registered Nurses in India as on 12.31.2009 __________ Auxiliary Nurse Midwives General Nursing and Lady Health Visitors Midwives Total no of Pharmacists as on 12.31.2010
Andhra Pradesh Arunachal Pradesh Assam Bhopal Bihar Chhattisgarh Delhi Goa Gujarat Haryana Himachal Pradesh Jharkhand Karnataka Kerala Lakshadweep Madhya Pradesh Maharashtra Meghalaya Manipur Mizoram Nagaland Orissa Pondicherry Punjab Rajasthan Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal Total
Source: Indian Nursing Council, Pharmacy Council of India
112,269 NA 19,685 NA 7,501 1,900 2,160 NA 36,427 13,727 10,152 3,405 48,509 28,378 NA 27,566 33,158 783 217 1,680 NA 49,170 NA 18,152 22,239 54,124 1,010 27,328 700 56,302 576,542
136,477 NA NA NA NA NA NA NA 88,258 17,821 8,550 1,998 136,421 85,624 NA 96,574 93,032 1,938 635 1,956 NA 63,167 NA 45,801 37,667 186,972 1,143 21,042 92 48,470 1,073,638
2,480 NA 118 NA 511 1,352 NA NA NA 694 491 137 6,839 7,897 NA 1,542 566 105 NA NA NA 238 NA 2,584 850 11,111 148 2,763 11 11,938 52,375
43,958 347 2,429 1,381 4,163 NA 22,010 466 20,948 7,249 2,818 NA 79,508 17,634 3,082 NA 106,220 269 NA 398 1,553 14,312 1,716 35,290 18,214 151,973 257 30,276 NA 89,630 656,101
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Girish Bakhru
Important disclosures
Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities

Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.
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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities

As of 06 July 2012, the distribution of all ratings published is as follows: Overweight (Buy) 50% (26% of these provided with Investment Banking Services) Neutral (Hold) Underweight (Sell) 37% 13% (26% of these provided with Investment Banking Services) (17% of these provided with Investment Banking Services)
HSBC & Analyst disclosures

Disclosure checklist Company Ticker Recent price Price Date Disclosure
APOLLO HOSPITALS
Source: HSBC
APLH.BO
650.00
05-Jul-2012
1 2 3 4 5 6 7 8 9 10 11
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Additional disclosures
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India Research Team

India
Jitendra Sriram Head of Research, India +91 22 2268 1271 jitendrasriram@hsbc.co.in Banks Sachin Sheth Analyst +91 22 2268 1224 Tejas Mehta Analyst +91 22 2268 1243 Consumer & Retail Amit Sachdeva Analyst +91 22 2268 1240
Regional
Conglomerate and Transport Mark Webb Regional Head of Conglomerate and Transport Research +852 2996 6574 markwebb@hsbc.com.hk
Global
sachinsheth@hsbc.co.in Strategy Garry Evans Global Head of Equity Strategy +852 2996 6916 garryevans@hsbc.com.hk
tejasmehta@hsbc.co.in
amit1sachdeva@hsbc.co.in
Rajesh Kumar Singla Analyst +91 80 3001 3771 rajeshsingla@hsbc.co.in Healthcare Girish Bakhru Analyst +91 22 2268 1638 Industrials Suman Guliani Analyst +91 80 3001 3747 Tarun Bhatnagar Analyst +65 6658 0614 Rahul Garg Analyst +91 22 2268 1245
girishbakhru@hsbc.co.in
sumanguliani@hsbc.co.in
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Infrastructure, Real Estate Ashutosh Narkar Analyst +91 22 2268 1474 ashutoshnarkar@hsbc.co.in IT Services Yogesh Aggarwal Analyst +91 22 2268 1246 Metals & Mining Jigar Mistry Analyst +91 22 2268 1079 Oil & Gas Kumar Manish Analyst +91 22 2268 1238 Puneet Gulati Analyst +91 22 2268 1235 Telecom Rajiv Sharma Analyst +91 22 2268 1239 Utilities Arun Kumar Singh Analyst +91 22 2268 1778
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Sec Pharma HospitalsHSBC 110712

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Healthcare Hospitals

HSBC India Hospitals coverage

APHS IN Apollo Hospitals FORH IN Fortis Healthcare

Initiate coverage on Apollo (OW) and Fortis (N)

To vote for HSBC in Asiamoney 2012 www.asiamoney.com/survey/takesurvey/en/BP12/

Healthcare Hospitals 9 July 2012

Healthcare Hospitals 9 July 2012

Fortis Healthcare (FORH)

Valuation and performance India healthcare overview

Company profiles Apollo Hospitals (APHS)

23 Key metrics overview 24

Disclosure appendix Disclaimer

Healthcare Hospitals 9 July 2012

suggest growth among private players is sustainable

business models also contribute to growth among private players

barriers favour incumbents such as Apollo and Fortis

25% 20% 15% 10% 5% 0%

Source: Fortis Healthcare

Healthcare Hospitals 9 July 2012

In-patient and out-patient revenues in India are expected to grow significantly

6,000 5,000 INR bn 4,000 3,000 2,000 1,000 0

Healthcare: An emerging private affair

USD160bn investment opportunity and largely private

Healthcare Hospitals 9 July 2012

Advantage to Apollo and Fortis

Current population Growth rate assumption

INR2.5mn or cUSD50,000 15 932 52 20 1,594 89 25 2,256 125 30 2,918 162

HSBC Drug Index

Healthcare Hospitals 9 July 2012

What we look for in hospitals

Portfolio end-market characteristics

Improving or stable returns on capital

Apollo Fortis Bumrungrad Tenet Lifepoint Health South Universal health

1.0 11.4 1.3 4.0 2.7 2.6 4.0

0.7 6.6 0.8 3.6 2.6 2.5 2.6

0.8 5.9 0.7 3.3 2.3 2.1 2.1

0.6 5.2 3.0 2.3 2.1 1.9

ROE comparison for key hospitals

Lower gearing and exposure to bad debt

Source: Datastream, Company data

North India South India West India East India International

2,067 712 688 388 130

Chennai Hyderabad Kolkata Delhi Bangalore Ahmedabad Other India International

1,159 930 425 681 236 228 1,294 200 5,153

Healthcare Hospitals 9 July 2012

1,622.8 800.5 1,003.0 1,744.7 2,106.3 1,943.9 2,265.3 4,145.7

650 107.5 2.3 75.3 5.1 39.9 23.7 42.8

796 22.9% 115 6.5% NA NA NA NA NA NA NA NA NA NA NA NA

31.0 63.1 12.8 16.0 12.8 11.4 8.4 10.1

16.2 1.8 0.1 1.8 0.4 3.2 1.4 4.0

20.0 2.1 0.1 2.7 0.6 3.3 1.5 4.4

27.2 3.9 0.1 3.2 0.6 3.7 1.6 4.9

34.3 5.7 0.1 3.7 0.7 4.1 1.8 5.3

40.4 60.3 24.8 41.1 13.8 12.4 16.7 10.6

32.6 50.1 21.2 27.7 9.3 12.0 15.9 9.8

23.9 27.2 19.4 23.7 8.1 10.7 14.7 8.8

19.0 18.8 16.6 20.6 7.3 9.7 13.5 8.1

16.7 23.6 18.5 20.2 6.0 6.4 7.5 8.6

13.9 12.9 16.5 18.1 5.4 6.1 7.1 5.9

11 11.3 14.1 16.0 4.9 5.6 6.6 5.3

9.1 9.9 11.9 13.3 4.5 5.4 6.3 4.9

16.3 13.4 24.5 26.3 11.1 15.1 23.0 12.0

16.3 14.2 24.5 24.9 13.2 16.8 23.0 16.4

16.9 14.7 25.0 25.0 13.6 17.1 23.0 16.6

_ Net sales __ FY13e FY14e FY15e