FINANCIAL

MANAGEMENT
II

Financial Analysis of Hospital

Industry:
Apollo Hospitals Enterprise Ltd.
Narayana Hrudayalaya Ltd.

Submitted to:

By:
Anshul Yadav 10C
Arushi Gautam 13C
Ashish Bhartia 14C
Priyanka Tibdewal 39C
Vivek Gupta 56C

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Apollo Hospital Enterprise Ltd.
AHEL, is the leading private sector healthcare provider in Asia and owns and manages a network of
specialty hospitals and clinics, a chain of Pharmacy retail outlets across the country, and provides
Consultancy Services for commissioning and managing the Specialty Hospitals.

1. Liquidity Position Analysis

The percentage of current assets to total assets and current liabilities to total liabilities:
Title FY17-18 FY16-17
Current Assets/Total Assets 25.78% 26.22%
Current Liability/Total Liability 29.97% 20.58%

The percentage of each component of current assets to total current assets:

Components of current assets
and their % with total current FY17-18 FY16-17
assets
(A) Inventories 25.49% 21.93%
(B) Financial assets
Trade receivables 39.85% 35.25%
Cash and cash equivalents 13.80% 13.28%
Bank balances other than above 5.00% 11.35%
Investments 2.61% 4.97%
Other financial assets 7.23% 6.55%
(C) Other current assets 6.04% 6.66%

The current assets and current liabilities form almost one-fourth of the total asset and liabilities. Of
the total current assets, the highest chunk is that of trade receivables forming ~40% in FY17-18. The
inventories follow that with a share of ~25% in the same year.

----Liquidity Analysis--------
Current Assets constitute almost 25.78% of the total assets with no change in the current asset
position from FY16-17 to FY17-18 which indicates there is no change in liquidity position of the
company.
There is increment of almost 9% in current liability of the company from FY16-17 to FY17-18 which
implies company has increased its short-term debts to finance its current assets thereby decreasing
the liquidity of the firm.

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2. Approaches of working capital financing

Particulars (in mn.) FY17-18 FY16-17

Current Assets 22,201.25 21,292.16
Permanent Current Asset
Working Capital 6,528.56 11,658.60

Temporary Current Asset 15672.69 9633.56

Matching
Short term Liabilities 15672.69 9633.56

As it can be observed that the temporary current assets are financed by short term liabilities
completely hence the permanent current asset would be financed by the long-term liabilities.
Therefore, there is the exact match between the life of asset and life of source of finance thereby
implying the Hedging Approach of working capital financing.

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3. Gross operating cycle and net operating cycle/cash conversion cycle

Particulars (in days) FY17-18 FY16-17

Gross Operating cycle 80.92 76.83
Cash Conversion cycle 34.31 30.82

The cash conversion cycle varies significantly in Hospital Industry among the peers for the chosen two
companies however the cash conversion cycle for AHEL projects good health with regard to the
industry.
Source: Bloomberg

4. Investments through short term surplus funds

The short-term investments of Apollo Hospitals Enterprise Ltd. amounts to Rs. 578.73 million which
have been invested in total of 29 Mutual Funds, the prominent ones with the respective investment
for FY 17-18 are as follows:
Investments in Rs. Mn. FY 17-18
Reliance Short Term Fund 72.74
ICICI Prudential 54.39
Birla Sun Life 53.64
ICICI Equity Arbitrage Fund 51.34
Aditya Birla Sun life Short term fund 51.13
SBI STD Fund - Reg plan Growth 50.96

For FY 16-17 the short-term investments were almost double that of the following year amounting to
Rs. 1058.45 million, prominent investments are as follows:
Investments in Rs. Mn. FY 16-17
DHFL Pramerica Short Maturity Fund-Growth 142.59
Reliance Short Term Fund-Growth 367.80
ICICI Prudential STP - Growth 119.97
DHFL Pramerica Insta Cash Plus Fund 104.36

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Narayana Hrudayalaya Ltd.
NH is a india based holding company. The company operates a network of hospitals, diagnostic
centers, clinical centers or test laboratories. The company operates through Medical and Healthcare
Services business segment. The Company offers medical, surgery and diagnostic and support services.
The company operates a network of over 20 hospitals, approximately seven heart centers and over
20 primary care facilities across India and a hospital at Cayman Islands with approximately 5,347
operational beds.

1. Liquidity Position Analysis

The percentage of current assets to total assets and current liabilities to total liabilities:
Title FY17-18 FY16-17
Current Assets/Total Assets 18.90% 18.31%
Current Liability/Total Liability 33.99% 47.19%

The percentage of each component of current assets to total current assets:

Components of current assets
and their % with total current FY17-18 FY16-17
assets
(A) Inventories 17.45% 17.36%
(B) Financial assets
Trade receivables 58.21% 52.03%
Cash and cash equivalents 6.95% 8.70%
Bank balances other than above 0.40% 2.61%
Investments 1.72% 1.00%
Other financial assets 2.90% 11.70%
(C) Other current assets 12.38% 6.60%

The current assets form 18% of the total assets and current liabilities form 33% of the total liabilities.
Of the total current assets, the highest chunk is that of trade receivables forming ~60% in FY17-18.
The inventories follow that with a share of ~18% in the same year.

----Liquidity Analysis----

Current Assets constitute almost 19% of the total assets with no change in the current asset position
from FY16-17 to FY17-18 which indicates there is no change in liquidity position of the company.
There is reduction of almost 13% in current liability of the company from FY16-17 to FY17-18 which
implies company has reduced its short-term debts to finance its current assets thereby increasing the
liquidity of the firm.

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2. Approaches of working capital financing

Particulars (in mn.) FY17-18 FY16-17

Current Assets 4792.93 3015.80
Permanent Current Asset
Working Capital (304.73) (209.76)
Aggressive
Short term Liabilities 5097.66 3225.56

As it can be observed that Total Current Assets (Permanent + Temporary) are fully financed by short
term sources of financing. Even a part of fixed asset is being financed by short term source of
financing.
As permanent working capital requirements are financed from short-term sources with high
profitability and low liquidity implies Aggressive Approach to working capital financing.

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3. Gross operating cycle and net operating cycle/cash conversion cycle

Particulars (in days) FY17-18 FY16-17

Gross Operating cycle 78.49 72.46
Cash Conversion cycle -74.36 -79.50

Gross operating cycle is an indicator of the efficiency in the management. Negative cash conversion
cycle implies company is generating revenues from customers before it has to pay its suppliers for
inventory. It is an interest free way to finance operation through borrowing from suppliers.
With the reduction in cash cycle from FY16-17 to FY17-18, profitability improves as it helps in freeing
up cash. This improvement in cash conversion cycle as be majorly attributed to marginal increase in
Average collection period with respect to average payment period.
Source: Bloomberg

4. Investments through short term surplus funds

The short-term investments of Apollo Hospitals Enterprise Ltd. amounts to Rs. 147.27 million which
have been invested in Loans and Advances to related parties and other than related parties for FY 17-
18 and FY16-17 are as follows:
Investments in Rs. Mn. FY 17-18 FY 16-17
Cash in deposit accounts 19.25 78.77
Other Loans and advances 45.76 21.55
Loan to the parties other than related 82.26 30.07
parties
Total 147.27 130.39

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5. Working capital management policies

Current asset policy and current asset financing policy of Narayana Hrudayalaya

Particulars (in mn.) FY17-18 FY16-17

Level of current assets (NH) 18.90% 18.31%

Level of current assets (AHEL) 25.78% 26.22%

Level of current Liabilities (NH) 33.99% 47.19%

Level of current Liabilities (AHEL) 29.97% 20.58%

Overall working capital policy

80
Moderate Aggressive

Current Assets Financing Policy

70
Fortis
Throcare Technologies
60
Poly Medicure
50
Conservative Moderate
40

Narayana 30
Apollo
Hrudayalaya
Hospital 20

10

0
50 45 40 35 30 25 20 15 10 5 0
Current Assets Policy

Overall working capital policy depends on two factors:

1. Level of current assets (Current asset policy)
On comparing the level of current assets of Narayana Hrudayalaya and Apollo Hospital with its
competitors, we find that Narayana Hrudayalaya has lower level of current assets whereas Apollo
Hospital has relatively higher level of current assets.

2. Financing of current assets (working capital financing policy)

The level of current liabilities of Narayana Hrudayalaya and Apollo Hospital is relatively lower as
compared to industry benchmark.

With high low current assets policy and low current asset financing policy, Narayana Hrudayalaya
follows Moderate overall Working Capital Policy.

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With high current assets policy and low current asset financing policy, Apollo Hospital follows
Conservative overall Working Capital Policy.

6. Long term sources of finance

Various sources of finances and their composition in terms of amount sourced is as follows:
Particulars (Amount in Rs. Mn.) FY 17-18 FY 16-17
(A) Equity Shares 10357.47 9630.82
(B) Secured
Term loans from Banks 6963.32 1798.01
(C) Other Financial Liabilities
Payable towards share purchased for ESOP Trust 20.40 20.40
Liability towards assets acquisition 887.10 -
Liability towards asset replacement cost 67.98 38.79
Creditors for capital goods 52.82 -
Interest rate swap 16.50 -
Total 18365.59 11488.02

Summary: