CRISIL Research - Ier Report Apollo Hospitals Enterprise LTD 2016

CRISIL IER
Independent Equity Research

Enhancing investment decisions
Apollo Hospitals Enterprise Ltd

Detailed Report
Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis
of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a
five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point
scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
CRISIL
Fundamental Grade
5/5
4/5
3/5
2/5
1/5
Assessment
Excellent fundamentals
Superior fundamentals
Good fundamentals
Moderate fundamentals
Poor fundamentals
Research Analysts
Bhaskar Bukrediwala
bhaskar.bukrediwala@crisil.com
Pratik Chheda
pratik.chheda@crisil.com
Arun Venkatesh
arun.venkatesh@crisil.com
Client servicing desk

+91 22 3342 3561
clientservicing@crisil.com
CRISIL
Valuation Grade
5/5
4/5
3/5
2/5
1/5
Assessment
Strong upside (>25% from CMP)
Upside (10-25% from CMP)
Align (+-10% from CMP)
Downside (negative 10-25% from CMP)
Strong downside (<-25% from CMP)
Apollo Hospitals Enterprise Ltd
November 01, 2016
Set to reap rewards of past investments

Fundamental Grade: 5/5 (Excellent fundamentals)
Valuation Grade: 4/5 (CMP has upside)
Industry: Healthcare Provider & Services
Fair Value: 1,510 CMP: 1,338
CFV MATRIX
Excellent
Fundamentals
Hospital business: Steady performance, occupancy to improve in FY17-18

Growth in the standalone hospital business moderated to 9% in FY16 owing to relatively slow
growth in inpatient and inpatient volumes in Chennai and Hyderabad clusters, after healthy rate
of 13% in FY15. Owing to low volume growth and gradual decline in average length of stay
(ALOS), occupancy dipped to 63% in FY16 from 68% in FY15. However, average revenue per
occupied bed (ARPOB) increased 10.5% across clusters owing to richer case mix and focus
on international patients. As beds mature, we expect occupancy to improve and drive
incremental revenue.
KEY FORECAST (CONSOLIDATED)

( mn)
Operating income
EBITDA
Adj net income
Adj EPS ()
EPS growth (%)
Dividend yield (%)
RoCE (%)
RoE (%)
PE (x)
P/BV (x)
EV/EBITDA (x)
FY14
FY15
FY16#
FY17E
FY18E
43,842
6,767
3,168
22.8
4.1
0.4
12.2
11.0
58.8
6.2
28.9
51,785
7,376
3,264
23.5
3.0
0.4
11.0
10.5
57.0
5.7
27.4
60,856
7,856
3,019
21.7
(7.5)
0.4
9.3
8.8
61.7
5.2
26.7
71,936
9,064
3,393
24.4
12.4
0.5
9.9
9.2
54.9
4.9
23.2
84,563
10,993
4,110
29.5
21.1
0.6
11.9
10.4
45.3
4.5
19.4
NM: Not meaningful; CMP: Current market price #Abridged financials

Note: Our projections are based on existing IGAAP and not IND-AS.
4
3
2
1
Poor
Fundamentals
Valuation Grade
Strong
Upside
Strong
Dow nside
Pharmacy business: Strong performance in FY16, margin to improve in the near term
The pharmacy business grew 31% in FY16 thanks to addition of new stores and integration of
pharmacy stores acquired from Hyderabad-based Hetero Pharmacy. EBITDA margin improved
to 3.6% in FY16 from 3.3% in FY15. With increased share of private labels and superior
performance of mature stores (opened before 2010), we expect the pharmacy business to grow
at 19% CAGR over FY16-18 owing to new store additions, maturing profile of existing stores
and improved EBITDA margin.
Consolidated revenue estimated to increase at a two-year CAGR of 18%
Revenue is estimated to grow at a two-year CAGR of 18% to 84.6 bn in FY18, driven by
hospitals and pharmacy businesses. We expect PAT to increase at a CAGR of 17% to 4.1 bn
in FY18 owing to consolidation of operations at mature and new facilities. As the company has
executed most of its expansion plans, we expect capital expenditure (capex) to be ~40% lower
in FY17-18 compared with capex in FY15-16.
Fair value maintained at 1,510
Our discounted cash flow (DCF)-based fair value is maintained at 1,510 per share. At this
value, the implied EV/EBITDA multiples are 25.6x FY17E and 21.4x FY18E EBITDA. At the
current market price of 1,338, our valuation grade is 4/5.
Fundam ental Grade
Private healthcare industry leader Apollo Hospitals Enterprise Ltd (Apollo) is in consolidation
and operationalisation mode across verticals hospitals, pharmacy and retail healthcare after
expansion-led consistent growth over the past four years. During this period, It commissioned
~2,000 beds and added more than 800 pharmacy stores. In FY15, the company acquired the
businesses of Nova Specialty Hospital Ltd and Sanofi India Ltd to enhance its presence in retail
healthcare. Given Apollos proven management capabilities, strong brand value and vast
experience in the healthcare industry, we remain positive about its future prospects and
maintain the fundamental grade of 5/5.
KEY STOCK STATISTICS

NIFTY/SENSEX
8626/27876
NSE/BSE ticker
APOLLOHOSP
Face value ( per share)
10
Shares outstanding (mn)
139.1
Market cap ( mn)/(US$ mn)
186,151/2,790
Enterprise value ( mn)/(US$ mn) 209,296/3,137
52-week range ()/(H/L)
1,545/1,213
Beta
0.9
Free float (%)
66%
Avg daily volumes (30-days)
177,436
Avg daily value (30-days) ( mn)
361.1
SHAREHOLDING PATTERN
(%)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
0.0%
65.6%
65.6%
65.6%
65.6%
34.4%
34.4%
34.4%
34.4%
Dec-15
Mar-16
June-16
Promoter
Sep-16
Public
Others
PERFORMANCE VIS--VIS MARKET

Returns
Apollo
CNX 500
Source: Company, CRISIL Research estimates
For detailed initiating coverage report please visit: www.crisil.com

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
1-m
3-m
6-m
12-m
2%
1%
-3%
2%
2%
14%
2%
11%
Table 1: Business environment

Parameter
Product / service
offering
Hospitals business
Healthcare services focusing on specialities such as
cardiology, neurosciences, orthopaedics, oncology and
transplants
Geographic
presence
Market position
Industry growth
expectations and
growth drivers
Hospital-based pharmacy (prescription drugs, surgical

instruments and consumables), consultancy and
diagnostics services
Dominant presence in South India (35% of 6,796
operational beds as of Q1FY17 are in Chennai and
Hyderabad). Chennai, Hyderabad clusters accounted for
51% of FY16 consolidated hospitals revenue
As of Q1FY17, 2,040 beds (30% of total operational beds)
are in tier II/III cities. E.g. Madurai, Karur, Karaikudi,
Nellore, Karimnagar, Bilaspur, etc.
35% of operational beds are under JVs in cities such as
Ahmedabad, Bengaluru, Delhi and Kolkata
A leading organised healthcare service provider in India
with a network of 7,840 owned beds (of which 6,796 beds
are operational)
There are 1,434 beds in the managed category
CRISIL Research expects the Indian healthcare services
delivery market to grow at 13% CAGR to ~7,800 bn by
FY21
Growth drivers
Rising lifestyle diseases (cancer, chronic liver, renal and
cardiovascular diseases) and growing awareness of
healthy lifestyle with preventive care are key demand
drivers
Low government spending, especially in tertiary and
quaternary care hospitals, has resulted in inadequate
healthcare infrastructure
Bed density per 10,000 population at 13 vis--vis
global median of 27
Sales growth
(FY14-16 3-yr
CAGR)
Average EBITDA
margin (FY14-16)
Sales forecast
(FY16-18 2-yr
CAGR)
Average EBITDA
margin (FY16-18)
Earnings growth
(FY16-18 2-yr
CAGR)
Standalone pharmacies business

Prescription drugs, surgical
instruments and consumables
Over-the-counter (OTC) and private
label are 6.7% of FY16 pharmacy sales
(brands: Doctors Choice, B Positive
and Apollo)
Pan-India network of 2,383 pharmacy

stores as of Q1FY17
Leading player in organised pharmacy

retail with 2,383 stores as of Q1FY17
Over 1,000 stores more than the
second largest organised player
CRISIL Research expects the domestic
pharmaceutical market to grow at 1213% CAGR until FY21, driving the
pharmacy retail market
Share of organised pharmacy retail has
increased in the past few years
Growth drivers
Changing lifestyles, stress levels and
eating habits lead to higher incidence
of lifestyle-related ailments. This is
expected to drive the demand for
lifestyle-related ailment drugs in
addition to others
With individual states focusing on the PPP healthcare Growing penetration of organised
pharmacies in India
model, private players role is expected to rise
12%
28%
22%
3.4%
17%
19%
20%
3.9%
15%
19%
Parameter
Key competitors
Key risks
Hospitals business
Northern India Fortis (5,500 beds), Metro Hospitals
(1,846 beds), Max Healthcare (2,016 beds)
Southern India Manipal Group (5,569 beds)
Western India Sterling Hospitals (819 beds)
Standalone pharmacies business

Optival Health Solutions and Guardian
Life Care are two large organised
pharmacy players; Optival Health
Solutions (Medplus brand) has over
~1,350 pharmacy stores
Other organised players include

Medicine Shoppe, Religare Wellness,
Wellness Forever, Thulasi Pharmacies;
these players have a network of 50200 stores
Delay in addition of new beds
Delay in ramp-up of new stores
Rise in real estate prices might impact the viability of

planned hospitals
Lower-than-expected improvement in
margins
Attracting and retaining skilled talent
Rise in real estate costs
Source: Company, CRISIL Research
Grading Rationale
Consolidation of operations to drive incremental growth
Apollos hospital and pharmacy businesses have grown consistently over the past four years.
Revenue from the hospital business
In the hospital business, it added 1,945 beds in the past three years and plans to add 545
expected to increase at 17% CAGR
beds in FY17 and 500 beds in FY19 to complete the current phase of expansion. The
over FY16-18
company is now focusing on operationalising the newly added facilities and consolidating its
market position. Revenue from new beds, majority of which are super speciality beds, and
higher occupancies across clusters are expected to trigger incremental growth in the near to
medium term.
The pharmacy business revenue increased at a CAGR of 30% over FY12-16, led by store
additions and ramp-up in maturing stores. Apollo added 602 stores organically between
FY13 and Q1FY17. In FY15, it acquired Hetero stores, of which 278 stores are operational
as of Q1FY17. In FY16, it inked a 20 mn deal with a leading European health and nutrition
firm Holland & Barrett to open 1,000 franchisees in India over the next five years. Over
the long term, this tie-up will help Apollo expand its product portfolio and strengthen its
market position in the pharmacy business.
Fig. 1: Healthy revenue growth in hospitals and
Fig. 2: Driven by expansion of operational beds and
pharmacies over FY12-16
pharmacy stores
( mn)
(x)
40,000
8,000
35,000
7,000
30,000
6,000
25,000
5,000
20,000
4,000
37,619
3,000
15,000
10,000
23,237
20,639
5,000
6,796
6,724
6,321
5,811
5,359
2,000
1,000
8,066
1,503
1,822
1,632
2,326
2,383
Healthcare
FY12
FY13
Pharmacy
FY14
FY15
Operational beds
FY16
Note: Above figures consolidated. Healthcare business includes
revenue from hospitals, Apollo Health and Lifestyle Ltd (AHLL) and
Apollo Munich
FY16
Pharmacy stores
Q1FY17
Hospital business: Relatively lower growth in FY16, occupancy

to improve in near term
Standalone healthcare revenue increased at a relatively lower rate of 9% in FY16 vis--vis
13% in FY15 owing to relatively low growth of 5.7% and 4.9% in inpatient (IP) and outpatient
(OP) volumes, respectively. Growth was driven largely by improvement in ARPOB and
decline in ALOS. A better case mix with focus on cardiology and neurosciences led to
ARPOB growth of 10.5% y-o-y to 28,036 in FY16. ALOS declined 5.9% in FY16 to 4.17
days vis--vis 4.43 days in FY15 owing to increased used of robotics and non-invasive
surgical procedures. Addition of beds, gradual decline in ALOS and relatively weak volume
growth of in-patients led to drop in occupancy to 63% in FY16 compared with 68% in FY15.
Going ahead, we expect revenue growth to be driven by a steady increase in ARPOB and
ramp-up in occupancy ratios across all clusters. However, successful ramp-up in operations
and augmentation of revenue will be key in the near term.
Fig. 3: Relatively lower growth in revenue in FY16
Fig. 4: Focus on better case mix to improve ARPOB
( mn)
35,000
(%)
14%
30,000
FY16 - No. of Inpatients
18%
16%
16%
13%
14%
13%
25,000
9%
20,000
Others
37%
12%
Cardiology
23%
10%
8%
15,000
Oncology
8%
6%
10,000
4%
5,000
19,402
22,167
24,968
28,202
30,854
FY12
FY13
FY14
FY15
FY16
Neurology
11%
2%
0%
Standalone healthcare revenue
Gastroenterology
7%
Growth y-o-y (RHS)
Orthopaedic
11%
Transplants
3%
Source: Companys investor presentation - March 2016, CRISIL

Research
Apollo to benefit from growth in health insurance

Of all the non-life insurance segments in India, health insurance (27% of total non-life
insurance business) has grown the fastest in the past five years. Gross direct premium
income for health insurance grew at 24% CAGR over FY11-151 compared with 19% for the
overall non-life insurance industry. Despite healthy growth rates, Insurance Regulatory and
Development Authority (IRDA) estimates the penetration2 level of non-life insurance industry
at a relatively weak 0.7% in 2014, which is well below global standards. Low penetration
levels and high growth rates, especially in the health segment, augur well for private
healthcare players in India. Increase in health insurance coverage can support demand for
quality healthcare in the country. This is expected to benefit Apollo (Indias leading private
FY11 data includes premium income of standalone health insurers and specialised insurance (ECGC and AIC).
Insurance penetration is measured as ratio of premium (in US dollars) to GDP (in US dollars)
healthcare player) as it can consistently see increase in ARPOB, broadly in line with growth
in the health insurance industry.
Fig. 6: Indias non-life insurance penetration** well below
Fig. 5: Growth in health insurance industry likely to

improve ARPOB
global standards
( mn)
()
25,000
(%)
5.0
30,000
25,381
4.5
23,684
20,000
20,455
25,000
21,724
4.0
3.5
18,474
20,000
3.0
15,000
2.5
15,000
2.0
10,000
4.3
1.5
10,000
2.7
2.6
1.0
5,000
5,000
11,031
13,070
15,453
17,495
20,096
FY11
FY12
FY13
FY14
FY15
1.5
1.2
0.7
Health Insurance^
1.9
0.5
US
ARPOB (RHS)
South
Aftrica
UK
Brazil
China
Russia
India*
Non Life Insurance penetration in 2014
^Health insurance excludes travel domestic/overseas and personal

accident)
*For India, data pertains to FY14 and for other countries it pertains to
2014
Source: IRDA, CRISIL Research
Source: IRDA, CRISIL Research
International patients also aid in improvement of ARPOB

India is one of the fastest emerging destinations for medical tourism. The number of people
visiting the country for medical treatments increased at a robust CAGR of 51%3 over FY1316. Apollo, being a leading player in the private healthcare industry, is well placed to benefit
from this opportunity. Over the medium term, management plans to double the international
business, which is currently at 15-18% of hospital revenue. Increase in share of international
patients is expected to help the company improve its ARPOB and profitability in the long
term. As of March 2016, Apollo has six Joint Commission International (JCI)4 accredited
hospitals and 14 National Accreditation Board for Hospitals & Healthcare (NABH)5
accredited hospitals, which will help it capitalise on international patients.
CAGR for FY13-16 has been calculated by annualising the number of medical visa in the half-year ended June 2016
JCI is the oldest and largest standards-setting and accrediting body in healthcare in the US
5
NABH is constituent board of quality council of India, set up to establish and operate accreditation programme for healthcare organisations
4
Fig. 7: Increase in international patients travelling to India
Fig. 8: ARPOB grew at 8% CAGR over FY12-16

()
(x)
250,000
(%)
30,000
11%
10%
9%
25,000
200,000
10%
7%
20,000
150,000
12%
8%
6%
15,000
6%
10,000
4%
100,000
134,344
50,000
193,712
75,671
56,129
5,000
2013
2014
2015
2%
20,455
21,724
23,684
25,381
28,036
FY12
FY13
FY14
FY15
FY16
2016
(Estimated)
0%
No. of Medical visas issued by India
ARPOB - Hospitals
Source: Ministry of Tourism, CRISIL Research
Growth y-o-y
Chennai cluster: Steady increase in volumes and ARPOB drive revenue

growth in FY16
The Chennai cluster reported stable performance in FY16 driven by volume growth and
increase in ARPOB. We expect revenue to grow at a CAGR of 15% over FY16-18 driven by
higher IP and OP volumes and a steady increase in ARPOB. We expect occupancy to
improve to 67% in FY18 as there are no further capacity expansions planned in the near
term at this cluster. The company increased operational beds to 1,526 in FY16 from 1,159
in FY12, causing occupancy at this cluster to dip to 63% in FY16 from 75% in FY12.
In FY16, revenue increased 10.8% against 12.1% in FY15. IP volumes increased 8.4%, but
OP increased at a relatively low rate of 2.7% owing to the impact of floods in December
2015. ARPOB improved at a healthy rate of 14.9% to 39,380 per day in FY16 owing to a
richer case mix and a marginal price increase of ~2%. ALOS continued to decline gradually,
to 3.95 days in FY16 from 4.43 days in FY15.
Fig. 9: Occupancy dipped in FY16 owing to bed additions
Fig. 10: Decline in ALOS in FY16
(x)
(days)
Inpatient volumes
FY13
FY14
FY15
Outpatient volumes
4.0
3.7
60%
3.6
58%
56%
FY12
4.0
3.8
FY16
ALOS
Occupancy (RHS)
Q4FY15
3.9
Q4FY16
3.9
3.9
Q3FY16
64%
4.2
Q2FY16
4.0
4.3
Q1FY16
4.1
66%
62%
392,069
381,931
81,920
351,195
75,931
365,166
72,608
327,668
50,000
70,520
100,000
88,776
63%
200,000
4.2
68%
4.2
Q3FY15
250,000
70%
4.4
Q2FY15
67%
4.3
4.4
Q1FY15
300,000
4.4
72%
4.4
Q4FY14
350,000
74%
4.4
4.4
Q3FY14
72%
400,000
150,000
4.5
76%
74%
Q2FY14
75%
Q1FY14
450,000
(%)
Hyderabad cluster: Volumes stable; ARPOB-led growth in FY16

The Hyderabad clusters revenue reported moderate growth of 7.7% in FY16 vis--vis 8.5%
in FY15, driven by increase in ARPOB. We expect ARPOB to continue to be the main growth
Occupancy at the Hyderabad
driver for the Hyderabad cluster in the near term as the share of high value cases and
cluster to improve gradually
international patients increase at this cluster, thereby improving its case mix. In FY16,
ARPOB increased 14.7% to 26,471 per day owing to reduction in subsidised scheme-based
cases and a richer case mix. Weak growth in IP volumes and reduction in ALOS to four days
in FY16 compared to 4.15 days in FY15 caused occupancy to drop to 60% in FY16 from
63% in FY15. Going forward, growth in IP and OP volumes is a key monitorable.
Fig. 11: Rise in ARPOB drove revenue growth in FY16
Fig. 12: IP volumes down; OP volumes relatively stable
( mn)
(x)
6,000
30,000
5,000
25,000
(x)
(%)
67%
180,000
66%
160,000
66%
26,471
140,000
20,000
23,081
20,002
15,000
80,000
10,000
60,000
5,354
FY12
FY13
FY14
FY15
FY16
20,000
0
Revenue
164,018
4,971
50,655
4,583
161,717
4,118
51,877
5,000
3,656
60%
152,495
40,000
1,000
60%
51,048
2,000
62%
62%
143,806
18,280
49,362
17,307
64%
100,000
141,204
3,000
63%
120,000
45,575
4,000
68%
56%
FY12
ARPOB (RHS)
FY13
Inpatient volumes
FY14
Volume growth to be key in tier II/III cities

Tier II/III cities saw healthy revenue growth of 12.6% in FY16 driven by capacity expansion
and steadily increasing ARPOB. As part of the expansion phase, Apollo operationalised 841
beds over FY12-16 in tier II/III cities, taking the total to 2,087 operational beds in FY16. In
Vizag and Malleswaram, 245 beds and 190 beds, respectively, were commissioned. Growth
was also driven by a steady increase of 9.3% in ARPOB to 16,347 per day. ALOS declined
to 4.5 days in FY16 from 4.8 days in FY15. Owing to capacity expansion and decline in
ALOS, occupancy dipped to 57% in FY16 from 63% in FY15.
With steady growth of ~10% in IP volumes in FY17-18 and no major bed additions expected
in the near term (except expansion of 65 beds in Indore in Q3FY17), we expect occupancy
at these hospitals to improve and revenue to grow at a CAGR of 13% over FY16-18.
FY15
Outpatient Volumes
58%
FY16
Occupancy (RHS)
Fig. 13: Revenue growth to pick up in FY17
Fig. 14: ARPOB and ALOS improved in FY16
(x)
( mn)
(%)
10,000
9,000
30%
18,000
24%
5.2
16,000
6.0
5.0
4.8
4.5
25%
8,000
5.0
14,000
7,000
17%
20%
6,000
13%
5,000
13%
12,000
4.0
10,000
14%
15%
3.0
8,000
4,000
10%
3,000
6,000
2.0
4,000
2,000
1,000
(x)
5.4
5%
5,383
6,308
7,103
8001
9096
FY14
FY15
FY16
FY17
FY18E
1.0
2,000
0%
Revenue
10,784
11,603
13,662
14,953
16,347
FY12
FY13
FY14
FY15
FY16
Growth y-o-y (RHS)
ARPOB
FY13 hospitals broke even, new ones to ramp up

While the FY13 batch of REACH hospitals broke even at the EBITDA level in FY15, the
FY14-15 batch is yet to break even. The combined EBITDA of hospitals in Jayanagar and
Vanagaram (commissioned in FY13) increased to 195 mn in FY16 from 68 mn in FY15
driven by volume growth of 20% and 15%, respectively. New hospitals commissioned in
FY14-15 - Trichy, Nashik, Women and Child (OMR and SMR), Nellore and Perungudi - along
with the FY16 batch (Vizag and Malleswaram) reported combined EBITDA loss of 216 mn
in FY16.
As the focus now shifts to operationalising projects, we expect volumes to ramp-up at the
new hospitals, thereby increasing occupancy. Moreover, we expect the batch of new
hospitals to positively contribute to EBITDA from FY19 onwards.
ALOS (RHS)
Current phase of expansion near completion

The current phase of expansion is near completion as most hospitals that were initially
planned have been commissioned in the past three years. Apollo has added 1,945 beds
across 11 locations over the past 36 months. It plans to add another 545 beds in FY17 via
expansion of 65 beds in an existing location in Indore and commissioning of a new 480-bed
multi-speciality hospital at Navi Mumbai. Moreover, Apollo acquired 51% stake in the 220bed Assam Hospitals Ltd in Guwahati for 573 mn in FY16, where it plans to upgrade and
expand the capacity of the existing facility to 300 beds and introduce new services.
Table 2: Recently commissioned hospitals
Location
Jayanagar
Trichy
Vanagram
Nellore
Nashik
Women and Child (OMR and SMR)
Indore
Perungudi
Vizag
Malleswaram
Assam (acquired 51% stake)
Year
FY13
FY14
FY14
FY15
FY15
FY15
FY15
FY15
FY16
FY16
FY16
Beds commissioned
140
200
260
190
120
110
120
150
245
190
220
10
Commissioning of new hospitals delayed owing to regulatory and lease

issues
As per management, hospitals in Byculla (Mumbai) and south Chennai (including Proton)
have been delayed to FY19 owing to delays in obtaining the required approvals.
Proton Therapy Centre, Chennai - The Atomic Energy Regulatory Boards approval
was received in FY16. After the approval, management has started developing the site
in south Chennai. We expect the Proton technology to be commissioned in FY20 as we
expect the time required to fully operationalise the hospital to be 30-36 months.
Byculla, Mumbai Delay in receipt of necessary approvals and issues relating to the
lease of land have held up progress until Q1FY17. We expect the Byculla Hospital to
be operational by FY21. We have factored in delays in our projections accordingly, but
delays beyond the estimated time may impact our projections.
Patna Since the company could not acquire land for the hospital, it was dropped from
the expansion plan in FY16. Setting up a new hospital in Patna would now be contingent
on the companys ability to acquire land at a reasonable price.
Table 3: Status summary of upcoming hospitals

Location
Indore (expansion)
Navi Mumbai
South Chennai (including proton)
Byculla
Management's
expected
completion
Our estimated
completion
Number of
beds to be
commissioned
Estimated
project cost
Q3FY17
Q3FY17
FY19
FY19
Q3FY17
Q3FY17
FY20
FY21
65
480
200
300
280
6,024
7,500
1,400
11
Pharmacy business on growth trajectory, margin expected to

improve further
Apollo Pharmacy, Indias largest pharmacy chain, continued to demonstrate strong business
performance. Revenue increased 31% to 23,237 mn in FY16. Continuous expansion of
pharmacy stores and timely closure of non-performing stores have been growth catalysts.
As of Q1FY17, Apollo has 2,383 stores (including 278 Hetero stores) in India.
Revenue from mature stores also saw healthy growth. Revenue per store from the mature
batch (opened until FY10) increased 13.5% in FY16, whereas revenue per store from the
non-mature batch (excluding revenue from Hetero) grew 15.4% in FY16.
In FY15, the company acquired the chain of Hetero stores, located in Telangana, Andhra
Pradesh and Tamil Nadu. Though Hetero stores made losses in FY16, we expect them to
turn around in future. Optimising inventory and logistics costs, and leveraging Apollos brand
value would help the company ramp up sales in these stores. Sale of high-margin private
labels (through Hetero) would also lead to improvement in the pharmacy business
profitability.
We expect growth to moderate slightly but continue at a CAGR of 19.3% over FY16-18 owing
to steady growth in revenue from the existing stores and continuous addition of new stores.
Fig. 16: with calibrated expansion of pharmacy stores
Fig. 15: Revenue increasing across store batches

( mn)
(x)
14,000
3000
12,000
2500
7,925
2,000
2000
12,198
2,134
1,916
1,678
2,617
4,000
2,319
4,947
6,287
1,975
6,000
5,653
8,000
5,048
10,000
Acquisition of Hetero
stores (278 stores
operational as of
Q1FY17)
1500
2326
1000
1364
1503
1632
FY12
FY13
FY14
2,514
2,701
1822
500
Mature stores
(Upto 2008)
FY14
Mature stores
(2009 batch)
FY15
Mature stores
Non mature
(2010 batch) stores (including
Hetero)
0
FY15
Number of stores
FY16
12
FY16
FY17E
FY18E
Ramp-up in revenue and sales of private labels to improve EBITDA margin

Over the past three years, mature stores EBITDA margin has improved significantly. The
combined EBITDA margin of stores opened before FY10 improved to 6.1% in FY16 from
4.2% in FY13. Constant growth in revenue per store, as they mature, and rising contribution
of private labels led to increase in EBITDA margin.
We expect EBITDA margin to improve further as revenue from non-mature stores is
estimated to increase to 12.4 mn per store in FY18 from 8.8 mn in FY16. The share of
high-margin private labels is expected to rise from 6.7% in FY16, as the company targets
private label sales in the newly acquired stores of Hetero as well.
6.20%
4.0%
6.00%
1.0%
5.80%
1.3%
2.9%
2.0%
3.7%
3.0%
1.0%
5.0%
0.7%
6.40%
5.7%
6.0%
4.6%
6.60%
4.1%
7.0%
4.9%
6.80%
6.8%
(%)
8.0%
5.9%
Fig. 18: Proportion of sale of private labels up in FY16
(%)
5.6%
Fig. 17: EBITDA margin improving across batches
FY14
6.34%
5.64%
5.60%
5.40%
0.0%
Mature stores
(Upto 2008)
6.70%
Mature stores
(2009 batch)
FY15
Mature stores
(2010 batch)
5.20%
Non mature
stores (including
Hetero)
5.00%
FY14
FY15
FY16
Share of private labels in pharmacy revenue
FY16
Retail healthcare: An emerging opportunity

Apollo, through its wholly owned subsidiary AHLL, has been increasing its presence in retail
healthcare. To gain a strong foothold in this space, in FY15, the company a) acquired the
short-stay surgery chain of Nova Specialty Hospitals and b) tied up with Sanofi for expanding
its sugar clinic business. As of Q1FY17, Apollo has 42 sugar clinics, 71 dental clinics, eight
cradles and 11 day care and short-stay surgery centres.
Growth in the retail business has been relatively weak. In FY16, AHLLs revenue increased
12% to 1,242 mn. However, the company reported an EBITDA loss of 420 mn compared
to a loss of 289 mn in FY15, owing to the newly acquired businesses. We expect losses to
continue over the next two years wherein the company is expected to revamp existing
facilities with marginal additions to capex. Though long-term growth of the business depends
on managements expansion plan, we expect the company to be able to leverage its brand
equity and hospital expertise to grow this business in the next few years.
13
Diagnostics business: Retail healthcares vanguard

The diagnostics chain business could be a key driver of AHLLs margin owing to the healthy
prospects of the Indian diagnostic industry. We expect the Indian diagnostic industry to
continue to grow 16-18% to ~600 bn by FY18. Focus on evidence-based treatment,
increasing share of lifestyle related diseases and rising demand for better healthcare
services make 16-18% growth sustainable in the near to medium term.
Despite intense competition in the industry, we expect AHLLs diagnostic business to do well
owing to large demand-supply gap in the healthcare industry and Apollos strong brand value
in the healthcare space. As of March 2016, Apollo has 172 primary care and diagnostics
clinics. Management plans to open ~2,000 collection centres (CC) in the next five years
which would aid volume growth in this business. Volume growth at diagnostics centres could
also lead to growth of IP and OP volumes for the hospital business as patients are likely to
be referred to Apollos own hospitals for treatment.
Diagnostic centers can potentially generate RoCE of ~20% in stable growth phase
We have analysed the business model of diagnostics chains to understand potential margin
and return ratios. For this, we have analysed returns generated by a diagnostic chain
operating for 10 years in a metropolitan city.
Investments: We assume majority of investments to take place in the initial five years of
operations. Initial setup cost for a lab is 20-25 mn and that of a CC is 0.2-0.5 mn.
Fixed costs: Typically, 50-60% of costs are fixed in nature - comprising employee expenses
and lease rentals. Hence, operating leverage of this business is relatively high.
Margin: High operating leverage causes returns to be highly dependent on volumes. A 10%
reduction in business volumes could moderate EBITDA margin by 500-600 bps.
Table 4: Potential for healthy EBITDA margins and ROCE in stable growth phase
Particulars
Initial 5 years
Years 6-10 Year 10 (Terminal year)
Average EBITDA margin
5-10%
25-30%
30-35%
Average ROCE
<-10%
15-20%
~20%
14
Key Risks
Delays in commissioning of new hospitals
Management expects facilities in south Chennai (200 beds) and Byculla, Mumbai (300 beds)
to be commissioned by FY19. The facility in Byculla has been behind schedule for over three
years; the original plan was to commission it by FY16. We have factored delays in our
projections. However, higher-than-expected delays or cost over-runs at these projects can
impact our projections and valuations.
Unavailability of skilled talent at new facilities

As the company now looks to ramp up operations and consolidate its position in the new
markets, it would be imperative for management to acquire and retain highly skilled talent at
these facilities. Unavailability of skilled professionals or inability to retain key doctors at some
of the relatively newer locations could impact patient volumes at those locations.
High real estate prices

Land and buildings typically account for 45-50% of the total capital cost in setting up a
hospital. High real estate prices, especially in metros and tier I cities, effect the commercial
viability of hospitals. Though Apollo has already procured land for its south Chennai hospital
(Proton), its retail healthcare and pharmacy expansion plans are exposed to the risk of
increase in prices.
15
Financial Outlook
Revenue to grow at a two-year CAGR of 18%
We expect Apollos consolidated revenue to grow at a two-year CAGR of 18% to 84.6 bn
by FY18. The hospital business revenue is expected to grow at a CAGR of 17% to 51.5 bn
in FY18 driven by growth in the existing hospitals and contribution from new hospitals. The
pharmacy business revenue is expected to increase at a two-year CAGR of 19% to 33.1
bn in FY18 driven by addition of ~190 stores per year and same store revenue growth of 1516%.
Fig. 20: Share of pharmacy business to increase
( mn)
18.2%
18.1%
17.6%
17.5%
70,000
50,000
40,000
16.3%
39%
28%
29%
50,000
16.5%
40,000
30,000
35%
16.0%
33,073
27,920
11,017
13,648
17,726
23,237
43,842
51,785
60,856
71,936
10,000
84,563
FY14
FY15
FY16
Revenue
FY17E
10%
20,639 26,680 30,181 34,059 37,619 44,016 51,490
FY13
Healthcare
growth y-o-y (RHS)
FY14
FY15
Pharmacy
EBITDA margin to improve by 10 bps in FY18

We expect EBITDA margin to marginally improve in FY18 after contraction in FY17, as new
hospitals start ramping up operations. The pharmacy business margin is expected to expand
60 bps to 4.2% in FY18. Mature hospitals margins are expected to see a marginal
improvement of 0.1% driven by better occupancy and a richer case mix. However, initial
operating losses from newly added beds along with losses at the retail healthcare facilities
will keep margin improvement relatively low in the near term.
16
5%
0%
FY12
FY18E
25%
15%
8,066
15.0%
30%
20%
20,000
15.5%
45%
40%
31%
60,000
17.0%
39%
34%
70,000
20,000
10,000
38%
80,000
18.0%
17.5%
60,000
(%)
90,000
18.5%
80,000
30,000
( mn)
(%)
90,000
FY16
FY17E FY18E
Share of pharmacy (RHS)

( mn)
(%)
12,000
18.0%
15.4%
16.0%
14.2%
10,000
12.9%
12.6%
13.0%
14.0%
8,000
12.0%
10.0%
6,000
8.0%
4,000
6.0%
4.0%
2,000
2.0%
6,767
7,376
7,856
9,064
10,993
FY14
FY15
FY16
FY17E
FY18E
0.0%
EBITDA
EBITDA margin % (RHS)
PAT to register 17% growth in next two years

We expect consolidated PAT to grow at a two-year CAGR of 17% to 4.1 in FY18 bn owing
to consolidation of operations, consequently leading to healthy revenue growth and a slight
improvement in EBITDA margin. Moreover, as the company has executed most of its
expansion plans, we expect the capex to be ~40% lower in FY17-18 compared to capex in
FY15-16. Adjusted EPS is expected to increase to 29.5 in FY18 from 21.7 in FY16.
Fig. 22: PAT to grow at CAGR of 17% over FY16-18
( mn)
4,500
Fig. 23: Healthy EPS expected in FY17-18

(x)
(%)
7.2%
4,000
6.3%
3,500
5.0%
3,000
4.7%
4.9%
8.0%
35.0
7.0%
30.0
6.0%
25.0
5.0%
20.0
2,500
4.0%
2,000
1,000
500
15.0
3.0%
1,500
3,168
3,264
3,019
3,393
4,110
FY14
FY15
FY16
FY17E
FY18E
PAT
2.0%
10.0
1.0%
5.0
0.0%
29.5
22.8
23.5
FY14
FY15
21.7
FY16
EPS
PAT margin (RHS)
17
24.4
FY17E
FY18E
Robust cash flow from operations and strong balance sheet

We expect Apollo to report over 9.4 bn cash flow from operations in the next two years. To
fund the balance capex for addition of 1,045 beds, we estimate debt to increase to 30 bn
in FY18 from 27 bn in FY16. Gearing (gross debt to equity) is expected to remain stable at
0.7x.
Fig. 24: Strong cash flow from operations
Fig. 25: Comfortable gearing; healthy interest coverage

( mn)
( mn)
7.0
6,000
6.0
5,000
6.3
5.7
4.7
5.0
4,000
4.5
4.5
4.0
3,000
4,693
3.0
4,781
2,000
2,783
2.0
3,303
2,499
1,000
1.0
0.4
0.6
0.7
0.7
0.7
FY14
FY15
FY16
FY17E
FY18E
FY14
FY15
FY16
FY17E
FY18E
Cashflows from operations
Gross debt to equity ratio
18
Interest coverage ratio
Q1FY17 result snapshot

Standalone revenue increased 12.2% y-o-y and 5% q-o-q to 14.65 bn. EBITDA margin
contracted 85 bps y-o-y and 41 bps q-o-q to 12.8%. Adjusted PAT declined 17.5% y-o-y and
4.7% q-o-q to 722 mn.
Healthcare business:
Revenue increased 5.9% y-o-y to 8.3 bn.
EBIT margin contracted 118 bps y-o-y to 13.9%.
The Chennai clusters revenue increased 1.3% y-o-y owing to relatively weak volume
growth. IP grew 0.1% y-o-y and OP declined 1.1%. Low volume growth in the quarter
can be partially attributed to elections in Tamil Nadu.
The Hyderabad clusters revenue increased 11.2% y-o-y driven by 19.8% ARPOB
growth.
Tier II/III hospitals revenue increased 12.7% y-o-y driven by 9.7% ARPOB growth.
Pharmacy business:
Revenue increased 21.8% y-o-y to 6.3 bn.
EBITDA margin improved 19 bps y-o-y to 3.5%
Revenue per store increased 11% y-o-y. Net 57 stores were added during the quarter.
Table 5: Q1FY17 results summary (standalone)

( mn)
Net sales
Raw materials cost
Raw materials cost (% of net sales)
Employees cost
Other expenses
EBITDA
EBITDA margin
Depreciation
EBIT
Interest and finance charges
Operating PBT
Other Income
PBT
Tax
PAT
Adj PAT
Adj PAT margin
No of equity shares (mn)
Adj EPS ()
Q1FY17
14,654
7,589
51.8%
2,155
3,042
1,869
12.8%
557
1,312
444
868
53
921
199
722
722
4.9%
139.1
5.2
Q4FY16*
13,963
7,349
52.6%
2,255
2,521
1,838
13.2%
568
1,270
438
832
53
885
128
757
757
5.4%
139.1
5.4
Q1FY16
13,057
6,701
51.3%
1,907
2,673
1,777
13.6%
487
1,290
269
1,022
53
1,074
199
875
875
6.7%
139.1
6.3
q-o-q (%)
5.0
3.3
-85bps
(4.4)
20.7
1.7
-41bps
(1.9)
3.2
1.3
4.3
0.6
4.1
55.7
(4.7)
(4.7)
-50bps
(4.7)
y-o-y (%)
12.2
13.2
46bps
13.0
13.8
5.2
-85bps
14.6
1.7
65.2
(15.1)
0.6
(14.3)
(0.1)
(17.5)
(17.5)
-178bps
(17.5)
*Note: Q1FY17 and Q1FY16 results are reported by the company in accordance with IND-AS. However, the company has not shared Q4FY16
results as per IND-AS. Our projections are as per IGAAP. Source: Company, CRISIL Research Estimates
19
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors, such as industry and business prospects, and financial
performance.
Experienced and professional top management

Apollo has a strong top management with over three decades of experience in the healthcare
industry. The top management is headed by Mr Pratap Reddy (Founder and Executive
Chairman) along with his four daughters Ms. Preetha Reddy (Executive Vice Chairperson),
Ms. Suneeta Reddy (Managing Director), Mrs Shobana Kamineni (Executive Vice
Chairperson) and Ms. Sangita Reddy (Joint Managing Director).
The top management has stayed committed to the growth of the group. From a ~150-bed
hospital in 1983 to becoming the largest private healthcare player in India, comprising of 70
hospitals with capacity of ~9,700 beds and ~2,400 pharmacy stores as of Q1FY17, Apollo
has grown organically and inorganically. The company has increased clinician strength to
more than 7,000 in FY16 from ~4,500 in FY12. Ramping up operations at the new hospitals
and turning around loss-making locations/businesses into profitable entities are key
monitorables for management.
Supported by a strong second line of management

Though the company is family-driven, it has a strong second line of management,
represented by Dr. K. Hariprasad (President Hospitals Division), Mr S.K. Venkataraman
(Chief Strategy Officer) and Mr Krishnan Akhileswaran (Chief Financial Officer). Based on
our interaction with management, we believe the second line is well aligned to ably support
the top management team.
Succession plan in place

We believe there is a well-defined succession plan in place. After Mr Prathap Reddys
retirement, Ms. Preetha Reddy is expected to take over Mr Reddys responsibilities. Given
reasonably well-defined roles and responsibilities, we do not foresee any succession issues
in the near to medium term.
20
Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses
the shareholding structure, board composition, typical board processes, disclosure
standards and related-party transactions. Any qualifications by regulators or auditors also
serve as useful inputs while assessing a companys corporate governance.
We perceive corporate governance at Apollo to be good based on a fairly independent board
with relevant experience, periodic disclosure of key operating parameters and healthy quality
of earnings.
Composition of board
Apollos board consists of 13 members, of whom eight are independent directors (ID),
thereby meeting the regulatory requirements. Most IDs are of strong repute and are on
boards of other major organisations. Mr N Vaghul is on the board of Wipro, Piramal
Enterprise, etc.; and Mr Sanjay Nayar is on the board of Magma Fincorp, Grameen Capital,
etc.
Superior disclosure levels and transparency in financial

reporting
Based on information furnished in the annual reports, presentations, websites and quarterly
earnings call, we believe Apollos disclosure levels are superior. For instance, the company
provides cluster-wise performance of hospitals on a quarterly basis. We believe the
information provided is sufficient to assess and understand the business performance
holistically.
Other key observations

Good quality of earnings: Quality of earnings is good as indicated by positive cash flows
generated from operations over the past five years.
Maintained healthy dividend pay-out: Over the past few years, the company has
maintained a healthy dividend pay-out of 24-26%. Additionally, it has declared an interim
dividend of 6 per share in March 2016, thus having a dividend pay-out of 25%6 in FY16.
Transparent systems and processes: Based on our interactions with the company over
the past few years, we opine that its governance systems and processes are adequate. It
has all the necessary committees in place audit, remuneration, and investor grievances
etc.
Long tenure of auditors: M/s Viswanathan has been the auditor of the company for over
10 years. Long tenure may impede the objectivity of the auditor.
Dividend payout ratio of 25% is calculated based on reported basic EPS of 23.8
21
Valuation
Grade: 4/5
We maintain our DCF-based fair value at 1,510. At this value, EV/EBITDA multiples are
25.6x FY17E and 21.4x FY18E. At the current market price of 1,338 our valuation grade is
4/5.
Key DCF assumptions
We have considered the discounted value of the firms estimated free cash flows from
FY17 to FY26.
Fair value maintained at 1,510
We have assumed cost of equity of 12.5%.
We have assumed terminal growth rate of 5% beyond the explicit forecast period until
FY26.
Table 6: WACC computation

FY17-26E
12.5%
7.7%
10.6%
Cost of equity
Cost of debt (post-tax)
WACC
Terminal growth rate
Terminal value
12.5%
7.7%
10.6%
5.00%
One-year forward P/E band
One-year forward EV/EBITDA band
()
( mn)
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
300,000
250,000
200,000
150,000
100,000
Apollo
30x
10x
40x
EV
Source: NSE, CRISIL Research
10x
22
15x
20x
Oct-16
May-16
Jun-15
Nov-15
Jul-14
Jan-15
Feb-14
Sep-13
Oct-12
Mar-13
May-12
Jun-11
Nov-11
Jul-10
Jan-11
Feb-10
Apr-09
20x
50x
Sep-09
Oct-16
Nov-15
May-16
Jan-15
Jun-15
Jul-14
Feb-14
Sep-13
Oct-12
Mar-13
May-12
Jun-11
Nov-11
Jul-10
Jan-11
Feb-10
Apr-09
Sep-09
50,000
25x
P/E premium / discount to CNX 500
Forward P/E chart
250%
(Times)
100
90
200%
80
70
150%
60
+1 std dev
50
100%
40
-1 std dev
30
50%
20
10
Premium/Discount to CNX 500

Median premium/discount to CNX 500
()
('000)
1,600
18,000
1,400
16,000
1,200
14,000
12,000
1,000
10,000
800
8,000
600
6,000
400
4,000
200
2,000
Total Traded Quantity (RHS)
CRISIL Fair Value
Oct-16
Jun-16
Feb-16
Oct-15
Jun-15
Oct-14
Feb-15
Jun-14
Feb-14
Oct-13
Jun-13
Feb-13
Oct-12
Jun-12
Jan-12
Sep-11
Jan-11
May-11
Sep-10
May-10
Apollo
23
Oct-16
Nov-15
Median PE
May-16
Jun-15
Jul-14
Jan-15
Feb-14
Sep-13
Oct-12
Mar-13
May-12
Jun-11
Nov-11
Jul-10
Stock performance vs Nifty 50
Jan-10
Jan-11
1yr Fwd PE (x)
Sep-09
Feb-10
Apr-09
Sep-09
Oct-16
May-16
Jun-15
Nov-15
Jul-14
Jan-15
Feb-14
Sep-13
Oct-12
Mar-13
Nov-11
May-12
Jan-11
Jun-11
Feb-10
Aug-10
Apr-09
Sep-09
0%
CRISIL IER reports released on Apollo Hospitals Enterprise Ltd

Fundamental
grade
Fair value
Valuation
grade
CMP
(on the date of report)
Initiating coverage
Q2FY10 result update
Detailed Report
Detailed Report
Detailed report
Detailed Report
Event Update
Detailed Report
4/5
4/5
4/5
4/5
4/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
321#
321#
362#
387#
387#
533
533
533
533
533
533
655
655
655
655
982
982
982
982
982
1,040
1,040
1,010
1,195
1,195
1,195
1,386
1,386
1,386
1,386
1,510
1,510
4/5
4/5
3/5
3/5
3/5
4/5
4/5
3/5
3/5
3/5
3/5
3/5
3/5
3/5
2/5
4/5
4/5
3/5
3/5
4/5
4/5
3/5
3/5
3/5
3/5
3/5
3/5
3/5
3/5
3/5
3/5
4/5
270#
264#
356#
390#
402#
454
463
489
516
549
559
613
680
626
834
840
826
943
912
867
925
950
947
1,174
1,146
1,193
1,303
1,365
1,322
1,388
1,410
1,326
Detailed Report
5/5
1,510
4/5
1,338
Date
Nature of report
22-Sep-09
30-Nov-09
01-Feb-10
18-Jun-10
27-Aug-10
07-Jan-11
15-Feb-11
06-Jun-11
15-Aug-11
10-Nov-11
23-Nov-11
16-Feb-12
07-Jun-12
17-Aug-12
16-Nov-12
14-Feb-13
02-May-13
23-May-13
19-Aug-13
19-Nov-13
18-Feb-14
12-May-14
05-Jun-14
20-Aug-14
19-Sep-14
25-Nov-14
26-Feb-15
31-July-15
08-Sep-15
15-Dec-15
07-Mar-16
14-Jun-16
01-Nov-16
24
Company Overview
Incorporated in 1979 and promoted by Dr. Prathap Reddy, Apollo commenced its operations
in 1983 with a 150-bed hospital in Chennai. Over the years, it has emerged as Indias leading
healthcare service provider. It has 7,840 owned beds and 1,434 managed beds. Apollo has
treated over 33 mn patients until March 2016. The company has a dominant presence in
Chennai, Hyderabad and other southern cities such as Karaikudi and Madurai. It is also
expanding its hospital network in western India and tier II/III cities through its REACH
initiative. Apollo is one of the largest organised players in the pharmacy business. As of
Q1FY17, it has 2,383 pharmacy stores across India.
Fig. 26: Hospital and pharmacy businesses revenue break-down
( mn)
70,000
60,000
50,000
23,237
17,726
40,000
13,648
11,017
30,000
8,066
20,000
10,000
20,639
26,680
30,181
FY13
FY14
34,059
37,619
FY15
FY16
FY12
Healthcare
Pharmacy
25
Table 7: Milestones
1979
Incorporated by Dr. Prathap Reddy
1983
Started first private hospital in Chennai with 150 beds
1992
Introduced artery stent for the first time in India
1994
Set up cancer hospital in Chennai
1995
Did first bone marrow and multi-organ transplant in India
2000
Extended operations to Sri Lanka, Dubai, Saudi Arabia and Ghana
2007
Partnered with Munich Health to enter the health insurance business
2008
Chennai and Hyderabad hospitals received healthcare award
2009
Launched the CyberKnife Robotic Radio Surgery System at Chennai hospital
2010
JV with British-American investment company Mitus Ltd to set up a multi-speciality hospital in Moka, Mauritius
2010
Launched 50th hospital with 150 beds in Secunderabad
2010
Mr Reddy felicitated with Padma Vibhushan in FY10 by the Government of India for his exceptional service in the
healthcare industry
2012
Bhubaneswar, Karaikudi and Hyderguda hospitals commenced operations
2012
Seven hospitals received Joint Commission International (JCI) accreditation. Three hospitals received accreditations
from the National Accreditation Board for Hospitals
2012
The US-based Sutherland Global Services, a business process outsourcing (BPO) company, acquired 100% stake in
Apollo Health Street (Apollos BPO arm)
2013
Hospitals in Ayanambakkam (Chennai), Jayanagar (Bengaluru) and Trichy (Tamil Nadu) with capacity of 625 beds
commenced operations
2015
Annual consolidated revenue crossed 50 bn
2016
Commissioned hospitals in Vizag and Malleswaram. Acquired 51% stake in a hospital in Guwahati for 573 mn
26
Annexure: Financials#
Income statement
( m n)
Operating incom e
EBITDA
EBITDA m argin
Depreciation
EBIT
Interest
Operating PBT
Other income
Exceptional inc/(exp)
PBT
Tax provision
Minority interest/share of profit
PAT (Reported)
Less: Exceptionals
Adjusted PAT
Balance Sheet
FY14
43,842
6,767
15.4%
1,678
5,089
1,194
3,895
172
4,067
1,018
(118)
3,168
3,168
FY15
51,785
7,376
14.2%
2,117
5,259
1,179
4,081
339
(438)
3,981
1,300
(145)
2,826
(438)
3,264
FY16#
60,856
7,856
12.9%
2,530
5,326
1,685
3,641
231
292
4,164
1,002
(149)
3,310
292
3,019
FY17E
71,936
9,064
12.6%
2,687
6,377
2,032
4,345
236
4,581
1,305
(118)
3,393
3,393
FY18E
84,563
10,993
13.0%
2,865
8,128
2,455
5,673
235
5,908
1,924
(126)
4,110
4,110
FY14
FY15
FY16#
FY17E
FY18E
Grow th
Operating income (%)
EBITDA (%)
Adj PAT (%)
Adj EPS (%)
16.3
10.5
4.1
4.1
18.1
9.0
3.0
3.0
17.5
6.5
(7.5)
(7.5)
18.2
15.4
12.4
12.4
17.6
21.3
21.1
21.1
Profitability
EBITDA margin (%)
Adj PAT Margin (%)
RoE (%)
RoCE (%)
RoIC (%)
15.4
7.2
11.0
12.2
12.0
14.2
6.3
10.5
11.0
10.8
12.9
5.0
8.8
9.3
9.2
12.6
4.7
9.2
9.9
9.6
13.0
4.9
10.4
11.9
10.7
Valuations
Price-earnings (x)
Price-book (x)
EV/EBITDA (x)
EV/Sales (x)
Dividend payout ratio (%)
Dividend yield (%)
58.8
6.2
28.9
4.5
25.3
0.4
57.0
5.7
27.4
3.9
28.3
0.4
61.7
5.2
26.7
3.5
25.2
0.4
54.9
4.9
23.2
2.9
25.0
0.5
45.3
4.5
19.4
2.5
25.0
0.6
33
53
44
70
1.4
1.9
1.5
2.8
0.4
0.3
5.7
4.3
34
55
43
78
1.4
1.9
1.6
2.9
0.6
0.5
6.3
4.5
37
57
42
89
1.4
1.9
1.5
3.1
0.7
0.6
4.7
3.2
35
54
41
86
1.5
2.0
1.7
2.9
0.7
0.6
4.5
3.1
34
54
41
84
1.5
2.2
1.8
2.7
0.7
0.6
4.5
3.3
Ratios
B/S ratios
Inventory days
Creditors days
Debtor days
Working capital days
Gross asset turnover (x)
Net asset turnover (x)
Sales/operating assets (x)
Current ratio (x)
Debt-equity (x)
Net debt/equity (x)
Interest coverage (EBITDA/interest)
Interest coverage (EBIT/interest)
Per share
Adj EPS ()
CEPS
Book value
Dividend ()
Actual o/s shares (mn)
FY14
22.8
34.8
215.3
5.7
139.1
FY15
23.5
38.7
233.2
5.7
139.1
FY16#
21.7
39.9
257.5
6.0
139.1
FY17E
24.4
43.7
273.9
6.1
139.1
FY18E
29.5
50.1
294.2
7.4
139.1
( m n)
Liabilities
Equity share capital
Reserves
Minorities
Net w orth
Convertible debt
Other debt
Total debt
Deferred tax liability (net)
Total liabilities
Assets
Net fixed assets
Capital WIP
Total fixed assets
Investm ents
Current assets
Inventory
Sundry debtors
Loans and advances
Cash & bank balance
Marketable securities
Total current assets
Total current liabilities
Net current assets
Intangibles/Misc. expenditure
Total assets
FY14
FY15
FY16#
FY17E
FY18E
696
29,071
188
29,955
13,444
13,444
3,291
46,689
696
31,018
730
32,443
19,923
19,923
4,020
56,386
696
33,828
1,303
35,827
26,867
26,867
4,843
67,537
696
36,153
1,260
38,109
27,768
27,768
5,741
71,618
696
39,026
1,213
40,935
29,768
29,768
6,088
76,791
25,136
5,338
30,474
2,028
30,328
5,996
36,325
1,949
34,443
7,825
42,268
2,333
36,752
6,943
43,695
2,408
38,887
8,967
47,853
1,987
2,786
5,250
7,179
2,529
1,400
19,144
6,807
12,336
1,851
46,689
3,503
6,093
9,679
3,557
1,374
24,205
8,206
15,998
2,113
56,386
4,433
7,037
12,510
3,721
619
28,320
9,188
19,132
3,803
67,537
5,043
8,118
15,466
4,132
619
33,379
11,668
21,711
3,803
71,618
5,792
9,540
17,758
3,153
619
36,862
13,716
23,146
3,803
76,791
FY14
4,067
(21)
1,678
(2,941)
2,783
FY15
4,419
(571)
2,117
(2,661)
3,303
FY16#
3,872
(179)
2,530
(3,724)
2,499
FY17E
4,581
(408)
2,687
(2,167)
4,693
FY18E
5,908
(1,577)
2,865
(2,415)
4,781
(5,869)
2,079
(3,790)
(8,229)
105
(8,124)
(10,164)
371
(9,793)
(4,114)
(75)
(4,189)
(7,023)
421
(6,602)
11
1,311
(936)
188
575
(431)
2,529
10
6,479
(964)
323
5,849
1,028
3,557
6,944
(1,004)
1,518
7,458
164
3,721
901
(1,021)
28
(92)
411
4,132
2,000
(1,237)
79
842
(979)
3,153
Q1FY16
13,057
8%
1,777
2%
13.6%
875
875
14%
6.7%
6.3
Q2FY16
13,673
5%
1,932
9%
14.1%
937
937
7%
6.9%
6.7
Q3FY16
13,805
1%
1,826
-5%
13.2%
1,092
1,092
17%
7.9%
7.9
Q4FY16
13,963
1%
1,838
1%
13.2%
757
757
-31%
5.4%
5.4
Q1FY17
14,654
5%
1,869
2%
12.8%
722
722
-5%
4.9%
5.2
Cash flow
( m n)
Pre-tax profit
Total tax paid
Depreciation
Working capital changes
Net cash from operations
Cash from investm ents
Capital expenditure
Investments and others
Net cash from investm ents
Cash from financing
Equity raised/(repaid)
Debt raised/(repaid)
Dividend (incl. tax)
Others (incl extraordinaries)
Net cash from financing
Change in cash position
Closing cash
Quarterly financials (standalone)

( m n)
Net Sales
Change (q-o-q)
EBITDA
Change (q-o-q)
EBITDA m argin
PAT
Adj PAT
Change (q-o-q)
Adj PAT m argin
Adj EPS
Note: 1) Q1FY17 and Q1FY16 results are reported by the company in accordance with IND-AS. However, Q4FY16 results as per IND-AS are not
available. Financials and projections presented in the annexure above are in accordance with IGAAP
2) We have reclassified certain items in the financial statements as per CRISIL Research standard parameters.
#Abridged financials.
Source: CRISIL Research
27
Focus Charts
Revenue growth to pick up in FY17
Share of pharmacy revenue to increase
( mn)
( mn)
(%)
12,000
15.4%
14.2%
10,000
12.9%
13.0%
12.6%
(%)
18.0%
90,000
16.0%
80,000
14.0%
70,000
12.0%
60,000
10.0%
50,000
31%
29%
8.0%
40,000
6.0%
30,000
4.0%
20,000
2.0%
10,000
35%
30%
33,073
27,920
6,000
4,000
40%
34%
28%
8,000
39%
39%
38%
45%
11,017
13,648
25%
23,237
17,726
20%
15%
8,066
10%
2,000
6,767
7,376
7,856
9,064
10,993
FY14
FY15
FY16
EBITDA
FY17E
0%
FY12
FY18E
FY13
Healthcare
EBITDA margin % (RHS)
FY14
FY15
FY16
Pharmacy
FY17E FY18E
Share of pharmacy (RHS)
EBITDA margin improving across pharmacy stores
Addition of operational beds and pharmacy stores
(%)
(x)
8.0%
8,000
7.0%
7,000
6.0%
6,000
5.0%
1.3%
1.0%
5.7%
4.6%
4.1%
4,000
0.7%
1.0%
4.9%
2.9%
2.0%
3.7%
5.9%
5.6%
6.8%
5,000
4.0%
3.0%
5%
20,639 26,680 30,181 34,059 37,619 44,016 51,490
0.0%
3,000
2,000
0.0%
1,000
Mature stores
(Upto 2008)
Mature stores
(2009 batch)
FY14
Mature stores
(2010 batch)
FY15
Non mature
stores (including
Hetero)
1,503
1,822
1,632
2,383
2,326
0
FY13
FY14
FY15
Operational beds
FY16
FY16
Case mix distribution of inpatients
Fair value movement since initiation
FY16 - No. of Inpatients
Cardiology
23%
Q1FY17
Pharmacy stores
Others
37%
6,796
6,724
6,321
5,811
5,359
()
('000)
1,600
18,000
1,400
16,000
1,200
14,000
12,000
1,000
10,000
800
Neurology
11%
6,000
400
4,000
200
2,000
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
Jun-12
Oct-12
Feb-13
Jun-13
Oct-13
Feb-14
Jun-14
Oct-14
Feb-15
Jun-15
Oct-15
Feb-16
Jun-16
Oct-16
Gastroenterology
7%
8,000
600
Oncology
8%
Orthopaedic
11%
Transplants
3%
Total Traded Quantity (RHS)
28
CRISIL Fair Value
Apollo
CRISIL Research Team

Senior Director
Nagarajan Narasimhan
CRISIL Research
+91 22 3342 3540
nagarajan.narasimhan@crisil.com
Prasad Koparkar
Senior Director, Industry & Customised Research
+91 22 3342 3137
prasad.koparkar@crisil.com
Binaifer Jehani
Director, Customised Research
+91 22 3342 4091
binaifer.jehani@crisil.com
Manoj Damle
Director, Customised Research
+91 22 3342 3342
manoj.damle@crisil.com
Jiju Vidyadharan
Director, Funds & Fixed Income Research
+91 22 3342 8091
jiju.vidyadharan@crisil.com
Ajay Srinivasan
Director, Industry Research
+91 22 3342 3530
ajay.srinivasan@crisil.com
Rahul Prithiani
Director, Industry Research
+91 22 3342 3574
rahul.prithiani@crisil.com
Bhaskar S. Bukrediwala
Director
+91 22 3342 1983
bhaskar.bukrediwala@crisil.com
Miren Lodha
Director
+91 22 3342 1977
miren.lodha@crisil.com
Analytical Contacts
Business Development
Prosenjit Ghosh
Director, Industry & Customised Research
+91 99206 56299
prosenjit.ghosh@crisil.com
Megha Agrawal
Associate Director
+91 98673 90805
megha.agrawal@crisil.com
Neeta Muliyil
Associate Director
+91 99201 99973
neeta.muliyil@crisil.com
Dharmendra Sharma
Associate Director
(North)
+91 98189 05544
dharmendra.sharma@crisil.com
Ankesh Baghel
Regional Manager
(West)
+91 98191 21510
ankesh.baghel@crisil.com
Sonal Srivastava
Regional Manager
(West)
+91 98204 53187
sonal.srivastava@crisil.com
Sarrthak Sayal
Regional Manager
(North)
+91 95828 06789
sarrthak.sayal@crisil.com
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(East)
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CRISIL IER

Independent Equity Research

Apollo Hospitals Enterprise Ltd

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

Client servicing desk

Apollo Hospitals Enterprise Ltd

November 01, 2016

Set to reap rewards of past investments

Valuation Grade: 4/5 (CMP has upside)

Industry: Healthcare Provider & Services

Fair Value: 1,510 CMP: 1,338

Hospital business: Steady performance, occupancy to improve in FY17-18

KEY FORECAST (CONSOLIDATED)

NM: Not meaningful; CMP: Current market price #Abridged financials

Fundam ental Grade

KEY STOCK STATISTICS

PERFORMANCE VIS--VIS MARKET

Source: Company, CRISIL Research estimates

For detailed initiating coverage report please visit: www.crisil.com

Table 1: Business environment

Hospital-based pharmacy (prescription drugs, surgical

Standalone pharmacies business

Pan-India network of 2,383 pharmacy

Leading player in organised pharmacy

Southern India Manipal Group (5,569 beds)

Western India Sterling Hospitals (819 beds)

Standalone pharmacies business

Other organised players include

Delay in addition of new beds

Delay in ramp-up of new stores

Rise in real estate prices might impact the viability of

Attracting and retaining skilled talent

Rise in real estate costs

Source: Company, CRISIL Research

expected to increase at 17% CAGR

Fig. 2: Driven by expansion of operational beds and

pharmacies over FY12-16

Note: Above figures consolidated. Healthcare business includes

Source: Company, CRISIL Research

Hospital business: Relatively lower growth in FY16, occupancy

Fig. 4: Focus on better case mix to improve ARPOB

FY16 - No. of Inpatients

Standalone healthcare revenue

Growth y-o-y (RHS)

Source: Companys investor presentation - March 2016, CRISIL

Apollo to benefit from growth in health insurance

Fig. 6: Indias non-life insurance penetration** well below

Fig. 5: Growth in health insurance industry likely to

Non Life Insurance penetration in 2014

^Health insurance excludes travel domestic/overseas and personal

Source: IRDA, CRISIL Research

Source: IRDA, CRISIL Research

International patients also aid in improvement of ARPOB

Fig. 7: Increase in international patients travelling to India

Fig. 8: ARPOB grew at 8% CAGR over FY12-16

No. of Medical visas issued by India

Source: Ministry of Tourism, CRISIL Research

Source: Company, CRISIL Research

Chennai cluster: Steady increase in volumes and ARPOB drive revenue

Fig. 10: Decline in ALOS in FY16

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Hyderabad cluster: Volumes stable; ARPOB-led growth in FY16