Indian Institute of Management Indore

Managerial Accounting and Control - 1

Annual Report Analysis Fortis Healthcare (India) Ltd.

Submitted By:
Kashyap Suruchi Brhamprakash PGP2011686 Section C

Table of Contents 1. 2. 3. 4. 5. 6. 7. 8. 9.
Executive Summary 3 Introduction 4 Overview and Trends 5 The Road Ahead - 2012 6 Fortis Healthcare Ltd. A Brief Background 7 Consolidated Balance Sheet 8 Consolidated Income Statement 9 Consolidated Cash flow statements 10 Key Financial Ratios 11

10. P/E Ratio

12

11. DuPont Analysis

16

12. Accounting Standards

17

13. Industry and Competitors Analysis

22

14. References
23

Executive Summary
Fortis Healthcare Ltd. has shown a significant growth in the past few years with a growth rate which is much higher than the industry average. The operating profit margin has decreased while the net profit margin has increased substantially. Fortis has inventory and fixed asset turnover ratio which is one of the best in the industry. The company has increased its assets substantially through mergers and acquisitions. This inherently showcases the companys effort in growing in the industry. However, financing has been done with reserves capital which implies the company efforts to reduce debt. It fared better than many of its competitors in terms of debt management. The price earnings have been extraordinary and highlight the high expectations which the share holders have from Fortis. The analysis also reveals that it had paid very handsome dividends in the recent past. The financial analysis clearly highlights the companys effort in increasing the shareholder wealth. The company shows a lot of potential in the near future.

Introduction
The Indian healthcare industry is a US$ 36 billion industry and is anticipated to reach US$ 75 billion by 2012. This sector thus provides a lot of potential as Indians are becoming more health conscious and vying for better amenities. To address the increasing demands of this sector, India needs about US$ 50 billion annually. The healthcare system is practically non-existent in rural India. With a rise in India's economy and rural infrastructure, the healthcare industry is stated to grow exponentially in this area. Thus, there is a need for investment in infrastructure, equipment, and technological areas. The public healthcare system is overburdened and also lacks technological support. The entry of private equity has enhanced the healthcare industry of India further. In addition, healthcare majors have released IPOs (initial public offerings) trying to tap the potential of this field further. With growing consciousness about the health hazards and illnesses that can befall them, Indians are recognizing the benefits of health insurance. Thus, this sector shows lots of promise. The health insurance industry is going to reach US$ 7 billion by 2012. Also, with the stress- and lifestyle-related illnesses on the rise, this sector is gaining more popularity. More people are going for insurance to help secure their healthcare needs so it is a major investment arena. The pharmaceutical industry is also gaining in prominence. With skilled labor available and low research costs this is a nice investment option. Also the rise of biotechnology and bioinformatics offers tremendous growth prospects. The production costs and technologically sound infrastructure make it a viable option. Yet another area is the export of medical equipment to India. There is a demand for more technologically sound instruments in India. With the rise of high-end hospitals, this offers immense prospects. And with patients vying for quality healthcare facilities and hospitals this is an expanding field.

India is also a rising destination for medical tourism. With affordable medical expenses and a sound technology in place, this is a growing sector. This bodes well for the healthcare industry in India. Also, Indian Healthcare Systems like Ayurveda and Homeopathy are increasingly gaining prominence overseas. More patrons abroad are going for these alternate therapies as they are completely natural (derived from plant extracts) and have no side effects. There are no inhibiting factors for foreign investment in this industry unlike other industries. The absence of regulatory laws is an encouragement. The government recognizing the need for technological advances in this sector has granted many relaxations.

Healthcare Sector: Overview and Trends 2012

The Indian healthcare industry, unlike other industries, stands untouched by recession. There had been a steady growth in this sector, revenues from the healthcare sector accounts for 5.2% of the GDP, making it the third largest growing sector in India, which is further projected to grow at a Compounded Annual Growth Rate (CAGR) of 15-17% for the next 710 years atleast. Major players are Apollo Hospitals Enterprise Ltd., Fortis Healthcare Ltd., Max Hospitals and Aravind Eye hospitals. Market Size: The sector comprises hospital and allied sectors that include: a. Medical care (includes physicians, specialist clinics, nursing homes and hospitals) b. Diagnostic service centers and pathology laboratories c. Medical equipment manufacturers d. Contract research organizations and pharmaceutical manufacturers e. Third party support service providers (e.g. Insurance companies) In India, 80% of all the healthcare expenditure is borne by the patients. State bears 12% and insurance claims is 3%. As a result the price sensitivity is quite high. The high level healthcare facilities are out of reach for the patients Among the top 5 therapeutic segments, gastro-intestinal and cardiac are experiencing high volume and value growth. Opthologicals, cardio-vascular, anti-diabetic and neurological drugs continue to top the growth list. The anti-infective, neurology, cardio-vascular and anti-diabetic segments have witnessed a high number of new product launches in recent years Current Landscape Amount spent on healthcare 103,000 Crores/annum 86,000 Crores is the healthcare delivery market 17,000 Crores is the retail pharma market Key Features in recent trends Private spending on healthcare delivery 69,000 Crores

61% of this is spent on OPD services; 44,000 Crores indicates low levels of affordability and a disease pattern dominated by infections 39% on IPD services = 25,000 Crores 85% of IPD spend is in 5 major areas: cardio, cancer, accidents, infections and maternity

The Road Ahead 2012

Private spending on healthcare delivery: 156,000 Crores because of an increase in the population will lead to increase in treatments Change in socio-economic mix will lead to 8% increase in treatment rate and 30% increase in average price paid Change in prices: 26% increase in price per treatment Change in mix of diseases 50% increase in prevalence of lifestyle diseases will lead to 12% increase in treatment rate & 7% increase. This would lead to a change in GDP from 5.2% to 6.2% Richest(15%) will account for 50% of all private healthcare spending & 60% of inpatient spend Private spending would increase by another 39,000 Crores, if the insurance is likely to impact on middle-income households(approx. 350 million) in 2012, leading to achieving GDP spending to 7.5% and private spending on healthcare delivery to 195,000 Crores

Fact File
Parameters No. Of Beds No. Of Doctors No. Of Nurses Infant Mortality Rate Maternal Mortality Rate % of population Insured Total Private Spending OPD Spending Current 1.2 beds per 1000 50,00,000 doctors 0.8 per 1000 34:1000 4:1000 12.00% 69,000 Crores 44,000 Crores By 2012 9,14,543 In addition 6,25,130 In addition 8,36,000 In addition 10:1000 1 :1000 50.00% 156,000 Crores 82,000 Crores

Hospitals

30,000 (approx.)

17300 In addition 1,64,000 In addition 24,000 In addition 179 New

Primary/Community Health Centres 1,50,000 (approx.) Retails chemist outlets Medical Colleges Market size Average life Expectancy 3,50,000 229

103,000 Crores(current) 1,80,000 Crores(est.) 63.3 years 74 years

Fortis Healthcare (India) Ltd. - A Brief Background

Fortis Healthcare Ltd., the fastest growing and Indias second largest healthcare provider was incorporated in 1996 by a visionary business leader, Late Dr. Parvinder Singh, the architect of Ranbaxy Laboratories. It was a manifestation of his ideology: To create a world-class integrated healthcare delivery system in India, entailing the finest medical skills combined with compassionate patient care. Companys Vision Statement To be a globally respected healthcare organization known for clinical excellence and distinctive patient care. Companys Mission Statement To deliver quality healthcare focussed on clinical excellence, technology, research and patient care. Starting with its first hospital which opened in 2001, Fortis Healthcare Ltd. Is now a network of 45 hospitals with the capacity to increase inpatient beds to approximately 6600 beds. These hospitals include multi-speciality hospitals as well as super speciality centres providing comprehensive tertiary and quaternary healthcare to patients across specialities such as cardiac care, orthopaedics, neurosciences, oncology, renal care, gastroenterology, mother and child care. Fortis has been rapidly growing through a combination of acquisitions, greenfields and brownfields and management contracts. In addition, there are two hospitals in the company which are run in a public-private partnership framework. Recently, Fortis created history in the Indian healthcare sector by acquiring 10 hospitals from Wockhardt, including two under construction, giving it a strong pan India presence. This deal is the largest ever in the healthcare space. Previously, it was the acquisition of 5 Escorts Heart Institute & Research Ltd. Hospitals in 2005, also by Fortis. To match this stupendous growth, the companys employee strength across the network has increased to over 10,000. In January 2009, Fortis announced its first international foray. Jointly with its Mauritius based local partner, the company acquired majority stake in leading private hospital, Clinique Darne. Renamed as Fortis Clinique Darne, the hospital is one of the most modern medical centres in Mauritius offering a wide range of general and specialised medical services.

Consolidated Balance Sheet

Top of Form Bottom of Form

Year SOURCES OF FUNDS : Share Capital Reserves Total Equity Application Money Total Shareholders Funds Minority Interest Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions

Mar 11 412.49 2,869. 38 3.51 3,285. 38 30.36 617.03 471.3 1,088. 33 4,404. 07 3,016. 13 492.37 2,523. 76 270.8 90.15

Mar 10 321.65 1,565. 30 0 1,886. 95 34.49 3,045. 38 2,425. 27 5,470. 65 7,392. 09 2,502. 98 401.05 2,101. 93 425.61 3,448. 49

Mar 09 238.71 831.91 0 1,070. 62 21.58 305.87 173.13 479 1,571. 20 1,551. 83 334.95 1,216. 88 183.63 54.13

Mar 08 238.27 736.84 150 1,125. 11 21.42 275.4 102.55 377.9 5 1,524. 48 1,518. 38 292.37 1,226. 01 120.02 33.06

Mar 07 207.67 161.19 0 368.8 6 19.35 355.72 241.47 597.1 9 985.4 1,040. 98 254.79 786.19 104.01 0.44

26.33 195.23 163.63 1,480. 89 1,866. 08

23.78 156.67 1,311. 34 164.53 1,656. 32

13.26 133.51 57.95 158.08 362.8

12.35 95.91 16.06 197.36 321.68

10.84 91.83 30.68 101.48 234.83

319.6 35.41

292.15 26.58

190.41 55.84

124.53 53.33

106.47 53.13

Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets Contingent Liabilities
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355.01 1,511. 07 2.5 17.2 11.41 5.79 4,404. 07 196.21

318.73 1,337. 59 66.45 13.33 1.31 12.02 7,392. 09 206.99

246.25 116.55 1.23 1.05 2.27 -1.22 1,571. 20 141.98

177.86 143.82 0.73 3.03 2.19 0.84 1,524. 48 175.61

159.6 75.23 0.09 23.35 3.91 19.44 985.4 358.87

Key takeaways from the balance sheet The Share capital has increased over time, which shows that the company has gone for an FPO which has funded the growth. Also, the reserves have gone from a negative value to positive The secured loans have decreased in 2011 from 2010 which had lead to a decrease in total liabilities Gross block has tripled in the last five years which points to enormous growth. The funds in investment have decreased whereas net current assets have increased which indicates that the company has grown(infrastructure, equipment, etc.)
Year INCOME : Sales Turnover Excise Duty Net Sales Other Income Total Income EXPENDITURE : Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Less: Pre-operative Expenses Capitalised Total Expenditure Operating Profit Interest Gross Profit Depreciation 1,511.0 7 0 1,511.0 7 458.75 1,969. 82 392.98 41.39 273.12 392.16 284.45 79.7 0 1,463.8 0 506.02 249.99 256.03 104.49 955.91 0 955.91 49.19 1,005. 10 262.67 25.76 195 200.77 99.57 30.73 0 814.5 190.6 57.29 133.31 59.94 641.89 0 641.89 34.75 676.6 4 189.54 21.6 147.36 116.61 58.8 22.16 0 556.07 120.57 43.66 76.91 48.74 534.35 0 534.35 41 575.3 5 161.48 19 138.36 98.42 78.1 18.12 0 513.48 61.87 55.48 6.39 46.82 519.43 0 519.43 5.97 525.4 177.27 18.42 134.49 85.41 33.87 16.25 0 465.71 59.69 66.01 -6.32 83.81 Mar 11 (12) Mar 10 (12) Mar 09 (12) Mar 08 (12) Mar 07 (12)

Consolidated Income Statement

Profit Before Tax Tax Fringe Benefit Tax Deferred Tax Net Profit Minority Interest (after tax) Profit/Loss of Associate Company Net Profit after Minority Interest & P/L Asso. Co. Extraordinary Items Adjusted Net Profit Adjusted below Net Profit P & L Balance brought forward Appropriations P & L Balance carried down EPS before Minority Interest (Unit Curr.) EPS after Minority Interest (Unit Curr.) Book Value (Unit Curr.)
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151.54 9.01 0 6.23 136.3 4.43 -7.51 124.36 335.35 -210.99 0 -178.47 22.35 -76.46 3.36 3.07 72.14

73.37 14.55 0.01 -11.2 70.01 2.09 1.56 69.48 9.66 59.82 0 -247.95 0 -178.47 2.21 2.19 47.55

28.17 0.64 1.4 2.07 24.06 2.74 -0.5 20.82 7.89 12.93 0 268.77 0 247.95 1.06 0.92 30.14

40.43 -0.4 1.36 18.59 59.98 -5.04 -0.54 55.48 2 -57.48 0 213.29 0 268.77 0 0 26.05

90.13 8.68 1.23 -2.64 -97.4 0.62 -0.1 98.12 -0.08 -98.04 -3.14 112.03 0 213.29 0 0 18.92

Consolidated Cash Flow Statement

Bottom of Form

Year Cash Flow Summary Cash and Cash Equivalents at Beginning of the year Net Cash (from Operating Activities) Net Cash (Used in Investing Activities ) Net Cash (Used in Financing Activities Net Inc/(Dec) in Cash and Cash Equivalent Cash and Cash Equivalents at End of the year

Mar-11

Mar-10 Mar-09

Mar-08 15.3599996 6 11.6099996 6 200.789993 3 188.449996 9 0.73000001 9 14.6300001 1

Mar-07 4.32000017 2 32.9500007 6 66.0299987 8 44.1199989 3 11.0399999 6 15.3599996 6

1304.6 -81.81 2169.72 3239.86 1151.95 152.65

57.28 132.5 4501.16 5615.98 1247.32 1304.6

14.63 47.99 -97.6 92.26 42.65 57.28

Key takeaways from Income Statement Total income has almost doubled from the previous year and so has the PAT The company has increased the total expenditure esp. in administrative area which indicates scaling up of operations (hiring, recruiting, etc.) during the year which has lead to decreased net profit There has been a 58% increase in sales turnover which indicates healthy growth in companys top line The company has earned a substantial income from other sources which indicates that other ventures/investments are giving good returns Associate companies have undergone losses which has been incurred by the company
The EPS has increased slightly whereas the book value has increased significantly

Key takeaways from Cash Flow Statement The cash from operating activities is negative which indicates poor business in the current year The cash used in financing activities is too high which indicates that either the company has paid a lot of interest during the year i.e. the company has taken a huge loan Cash from investment is quite huge which indicates that the company has sold some assets The cash at the end of the year has been substantially less indicating poorer state of the company in case of cash

Key Financial Ratios

Year Profitability Ratios Operating Profit Margin(%) PBIT(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) ROA (excluding revaluations)

Mar '11 9.03 2.93 5.01 34.52 34.52 32.17 5.63 4.7 74.42

Mar '10 10.71 4.86 5.65 14.15 14.15 12.27 1.64 1.92 49.7

Mar '09 6 -0.47 -0.52 3.53 3.53 -3.57 1.64 -0.88 34.74

Mar '08 7.15 0.41 0.49 5.94 5.94 1.41 2.88 0.37 31.88

Mar '07 3.36 -4.81 -26.73 -27.19 -27.93 -35.15 0.26 -10.52 23.06

ROA (including revaluations) Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Number of Days In Working Capital Profit & Loss Account Ratios Selling Distribution Cost Composition Cash Flow Indicator Ratios Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times Earnings Per Share Book Value

74.42 5.63 18.74 18.71 0.15 3.64 0.15 3.84 3.84

49.7 2.42 1.46 15.78 0.79 2.19 0.79 2.58 2.85

34.74 1.81 1.48 3.06 0.38 0.84 0.38 1.34 1.21

31.88 3.52 2.66 7.49 0.27 1.14 0.27 1.4 1.45

23.06 0.27 1.96 3 1.06 0.05 1.06 0.26 0.27

79.95 5.02 79.95 1.71 0.07 1.71 2,590.61

-4.56 67.24 -0.07 1.57 2,288.97

2,058.52 4.4 2,058.52 1.37 0.16 1.37 523.33

2,610.60 4.81 2,610.60 1.24 0.15 1.24 619.49

55.71 4.98 2,176.85 1.22 0.15 0.89 210.11

-100 100 2.95 3.5 74.42

3.32 100 100 35.42 0.96 49.73

2.83 -100 41.19 -0.31 34.77

2.9 100 100 16.18 0.12 31.92

2.19 ----2.58 23.06

Debt- Equity Ratio

This ratio signifies the financial leverage of a company. A high D/E ratio signifies that the company has been growing by the means of debts, where as lower signifies that the growth has been because of equity of the shareholder. It must be noted however that debt is cheaper than equity, but a very high debt equity ratio will signify that the company has too much of debts. This may pose a threat to the credit rating of the company. The following graph shows the comparison of Fortis Healthcare (India) Ltd. as compared to that of the industry It can be inferred that whereas the industry has a higher ratio, the ratio for Fortis (India) is close to zero, as the company has financed through reserves both. It must be noted that the debts shown in the balance sheet is the consolidated figure, and hence includes debts incurred

by subsidiaries. Fortis India has financed its growth by the means of reserves which means that less interest has to be paid

Current Ratio
The current ratio presents an indication of the capabilities of the company to pay off its current liabilities by the virtue of the current assets the company has. Fortis has acquired a lot of assets in the year 2011 and has comparatively less liabilities. Hence it indicates a strong point of the company

Fixed Assets Turnover Ratio

This ratio gives an indication of the leverage of the fixed assets in the income from operations from the company. The higher turnover ratio for Fortis as compared to the industry average shows that the company is efficient in better utilizing its fixed assets than its counterparts (like Apollo). This ratio has been higher for reasons that even after the acquisition of other companies, the company managed to have a proportionate increase in the sales turnover thus maintain its fixed asset turnover ratio over the years.

Interest Coverage Ratio

This ratio is actually a comparison of how many times the earnings of the company is with respect to its interest expenses and signifies how easily the company can pay off its interest expense. It is computed as the ratio of EBIT and the interest expenses.

It is clear from the graph that the interest coverage ratio is higher than that of the industry, primarily because the company is majorly financed by reserves and that whatsoever over the years it has better learnt to manage its capital well. Its counterparts, on the other hand are driven by debts as well as equity, and hence have lower interest coverage ratio in comparison.

ROCE
This ratio is the measure of the returns of the company with respect to the level of capital that the company employs to get such returns. A higher return would signify higher returns, or a lower capital, whereas lower ratio may signify poor returns or very high capital requirement, or both. As the graph suggests, the company has requires a large capital or the returns are not as much as the capital that has been utilized

P/E Ratio
The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public. The financial reporting of both companies and investment research services use a basic earnings per share (EPS) figure divided into the current stock price to calculate the P/E multiple (i.e. how many times a stock is trading (its price) per each dollar of EPS).

The above figure shows the P/E for Fortis. The graph observes a significant dip in the 200809 periods which can be attributed to the fact that the market was under the wrath of the economic slowdown. However, the company has been doing well since then, and the prices have started to rise again. The growth of its P/E has been better as compared to the industry average. This is because of its better image. Also, in 2011 earnings has actually reduced, and hence the P/E ratio soars.

DuPont Analysis

The Du-Pont ratio analysis is a combination of financial ratios in a series in order to assess the investment returns of the company. One of the plus points of this method is that it provides a clear understanding of how the company generates its return. This analysis provides an insight into the importance of asset turnover as well as sales to overall return The Du-Pont ratio divides the Return on equity into three parts: Net Profit Margin, total asset turnover, and the company s use of leverage referred to as Equity Multiplier also. We shall now see the decomposition of RONW / ROE to do the DuPont Analysis Mar10 3.71 Mar09 2.25 Mar08 -5.33 Mar07 -26.4

Particular ROE (%)

Mar-11 4.15

Net Income/Sales Revenues 0.090 Sales Revenues/Total 0.343 Assets 1.341 Total Assets/Net Worth

0.073 0.129 3.917

0.037 0.409 1.468

0.112 0.351 1.355

0.186 0.527 2.671

Key Learning from DuPont Analysis: The ROE has improved considerably going from negative to positive in the last 5 years Profit margin has not increased that much since previous year The firm has aggressively acquired new assets which has increased the total assets. Asset turnover has increased considerably which indicated better utilization Total shareholder equity has almost doubled from previous to this year whereas net assets have gone down, which has led to a decrease in the A/E ratio or the equity multiplier. Several new plants have come up which have largely been funded through the reserve capital

Accounting Standards
(a) Basis of preparation The financial statements have been prepared to comply in all material respects in accordance with the Notified Accounting Standards by Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year. (b) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period end. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from these estimates. (c) Fixed Assets Fixed assets are stated at cost less accumulated depreciation and impairment loss, if any. Cost comprises the purchase price and any directly attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of fixed assets which take substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use. (d) Depreciation i) Depreciation on Leasehold Improvements is provided over the primary period of lease or over the useful lives of the respective fixed assets, whichever is shorter. ii) Depreciation on all other fixed assets is provided using the Straight Line Method as per the useful lives of the assets estimated by the management, or at the rates prescribed under Schedule XIV of the Companies Act, whichever is higher. iii) Individual assets not exceeding ` 5,000 are depreciated fully in the year of purchase. (e) Intangibles Technical Know-how Fees Technical know-how fees are amortized over a period of 3 years. Software Cost of software is amortized over a period of 6 years, being the estimated useful life as per the management estimate. (f) Impairment i) The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/ external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset's net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessment of the time value of money and risk specific to asset. This rate is estimated from the rate implicit in current market transactions for similar assets or from the weighted average cost of capital of the Company. ii) After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life. (g) Leases Where the Company is the lessee Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. Operating lease payments are recognised as an expense in the Profit and Loss account on a straight-line basis over the lease term.

Where the Company is the lessor Assets subject to operating leases are included in fixed assets. Lease income is recognised in the Profit and Loss account on a straight-line basis over the lease term. Costs, including depreciation are recognised as expense in the Profit and Loss account. (h) Investments Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments. Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of such long term investments. (i) Inventories Inventory of Medical Consumables, Drugs, Stores and Spares are valued at Lower of cost and net realizable value. Cost is determined on Weighted Average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. (j) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Operating Income Operating Income is recognised as and when the services are rendered / pharmacy items are sold. Management fee from hospitals and income from medical services is recognised as per the terms of the agreement with respective hospitals. Rehabilitation Centre Income Revenue is recognised as and when the services are rendered. Income from Academic Services Revenue is recognized on pro-rata basis over the duration of the program. Equipment Lease Rentals Revenue is recognised in accordance with the terms of lease agreements entered into with the respective lessees. Interest Revenue is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. Dividends Dividend is recognised if the right to dividend is established by the balance sheet date. (k) Miscellaneous Expenditure (not written off) Cost incurred in raising funds (Arrangement fees on term loan) is amortised over the period for which the funds are obtained. (l) Foreign Currency Transactions i) Initial recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

ii) Conversion Foreign currency monetary items are reported using the closing rate. Non-monetary items that are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. iii) Exchange Differences Exchange differences arising on the settlement of monetary items or on reporting company's monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognised as income or as expenses in the year in which they arise. (m) Employee benefits: i) Contributions to Provident fund The Company makes contributions to statutory provident fund in accordance with Employees Provident Fund and Miscellaneous Provisions Act, 1952. Provident Fund is a defined contribution scheme for certain employees, the contributions for these employees are charged to the Profit and Loss account of the year when the contributions to the respective funds are due. For other employees, the provident fund is defined benefit scheme contribution of which is being deposited with "Fortis Healthcare Limited Provident Fund Trust" managed by the Company; such contribution to the trust additionally requires the Company to guarantee payment of interest at rates notified by the Central Government from time to time, for which shortfall, if any has to be provided for as at the balance sheet date. ii) Gratuity Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the year using projected unit credit method. iii) Compensated Absences Long term compensated absences are provided for based on actuarial valuation made at the end of the year using projected unit credit method. Short term compensated absences are provided for based on estimates. iv) Actuarial gains/losses Actuarial gains/losses are recognised in the Profit and Loss Account as they occur. (n) Income Taxes Tax expense comprises current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act, 1961. Deferred income tax reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits. At each balance sheet date, the Company re-assesses and recognises unrecognised deferred tax assets. It recognises unrecognised deferred tax asset to the extent that it has become

reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realised. The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such writedown is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. Minimum Alternative Tax ('MAT') credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in Guidance Note issued by the Institute of Chartered Accountants of India ('ICAI'), the said asset is created by way of a credit to the profit and loss account and shown as MAT Credit Entitlement. (o) Employee Stock Compensation Cost Measurement and disclosure of the employee share-based payment plans is done in accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on Accounting for Employee Share-based Payments, issued by the ICAI. The Company measures compensation cost relating to employee stock options using the intrinsic value method. Compensation expense is amortized over the vesting period of the option on a straight line basis. (p) Earnings Per Share Basic earnings per share are calculated by dividing the net profit or loss for the year (including prior period items, if any) attributable to the equity shareholders (after deducting preference dividends and attributable taxes, if any) by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. (q) Provisions A provision is recognised when an enterprise has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. (r) Cash and cash equivalents Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short term investments with an original maturity of three months or less.

Industry and Competitor Analysis

Aggrega te Apollo Dr Hospital Kovai Agarwa N G Fortis s Medical l's Eye Inds. Health. 201103 201103 201103 201103 201103

YRC Key Ratios Debt-Equity Ratio Long Term D-E Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%)

0.51 0.33 1.53 0.94 13.48 5.57 5.61 17.01 13.98 14.52 10.78 7.75

0.44 0.1 0.94 1.73 16.37 9.82 5.59 17.08 14.07 14.56 10.81 7.79

3.3 3.23 1.06 0.94 32.46 52.52 2.76 21.34 17.54 14.98 10.72 6.92

2.86 2.44 1.57 1.91 26.05 16.69 1.84 13.55 7.69 9.37 7.85 2

0 0 1.03 1.26 18.62 101.55 103 25.16 18.44 24.98 20.05 13.34

0.37 0.37 17.3 1.83 83.65 5.16 3.64 77.51 73.59 57.31 57.31 53.39

ROCE (%) RONW (%)

6.48 5.64

14.03 11.2

15.66 26.57

18.92 18.96

17.23 12.46

6.1 6.03

Though Fortis is not the leader, it is only behind Apollo. Earning Per Share is also almost at par with Apollo. In other words, this company has a lot of potential to perform much better being a comparatively new player in the market.

References
1. 2. 3. 4. 5. 6. 7. 8. 9. http://www.business-standard.com http://money.rediff.com http://marketresearch.com www.fortis www.moneycontrol.com www.capitaline.com www.fortishealthcare.com www.wikipedia.com www.ibef.org