| | | Neutral (Rs1,520.00 price target) | | UBS Research THESIS MAP | a guide to our thinking and what's where in this report | OUR THESIS IN PICTURES→ | | Q: Can Apollo Hospitals continue to gain market share in an increasingly competitive Indian healthcare services market over the next two years? Yes. We believe there is strong potential for expansion of organized players in the domestic healthcare market considering that organized players have only c. 6% market share. With increasing awareness and growing incomes, there is an increasing propensity for patients to go for brand name... more→ Q: Can Apollo sustain its margins considering that rapid expansion in hospitals and rising competitive pressures would lead to cost escalations especially in staff costs? We see near term pressure on Apollo's operating margins, declining 88bps YoY in FY16E due to a substantial addition to bed capacity and acquisitions (loss-making). Overall, corporate hospitals will continue to attract talent for junior and middle positions though find it difficult to attract and... more→ Q: Can Apollo sustain RoICs despite rising cost of setting up new facilities? Over the long term, we believe the company would be able to sustain RoICs by pricing its services at a premium in the major cities and sustain its track record of breaking even at the EBITDA level by the second year. However, in smaller cities and towns, it is likely to contain capital expenditure... more→ | | We maintain Neutral as we see margin pressure in the near term. Over the long term, we expect Apollo to benefit from the structural growth of healthcare services in India. The company has substantial enhanced bed capacity in FY16. We expect around 26.3% FY16-18E earnings CAGR on the back of strong capacity addition, although we expect growth to be back-ended. | | Apollo has commissioned nearly 1,500 beds over the last two years expanding its capacity by 25%. Further, it has acquired Assam Hospitals and Hetero's pharmacy business over the last year. Both these factors have resulted in margin dilution that is likely to continue in the near term. | | Apollo along with regional hospitals has seen PE rerating over the last two years. As such Indian healthcare services sector remains a structural theme and we continue to be positive on the back of a shortage of quality services, an increase in affordability and rising insurance penetration. We see strong long term growth prospects for Apollo. However, we see near term... more→ | | 
Value drivers | Hospital sales growth (FY16-18E CAGR) | Retails Pharmacy sales growth (FY16-18E CAGR) | EBITDA margin (FY18E) | Rs1,775 upside | 20.5% | 18.5% | 15.7% | Rs1,520 base | 19.1% | 17.5% | 14.9% | Rs1,094 downside | 17.5% | 16.5% | 14.2% | Source: UBS | | | |
more→ | | Apollo Hospitals Enterprise owns and manages a network of tertiary and higher-secondary-care hospitals and clinics. It also operates a pharmacy chain. Apollo Hospitals has over... more → |
| | | OUR THESIS IN PICTURES | return ↑ | 
| Total hospital beds addition peaked in FY16. | 
| Revenue per store to increase to Rs12.8m by 18E, though the company is likely to add 300+ stores over FY16-18E | 
| We expect Apollo's operating margins to improve as capacity utilization in recently commissioned facilities improves. | 
| RoIC and RoE to recover as new facilities ramp up and profitability of acquired pharmacies improves. | Sources for exhibits above: Company data, UBS Research |
| | | PIVOTAL QUESTIONS | return ↑ | Q: Can Apollo Hospitals continue to gain market share in an increasingly competitive Indian healthcare services market over the next two years? UBS VIEW Yes. We believe there is strong potential for expansion of organized players in the domestic healthcare market considering that organized players have only c. 6% market share. With increasing awareness and growing incomes, there is an increasing propensity for patients to go for brand name facilities. EVIDENCE Organized healthcare service providers account for 37,000 out of more than 800,000 private hospital beds in India clearly leaving substantial room for future growth. Brand name assumes significance in metros and cities where patients prefer to go to recognized hospitals. Further, organized chains typically are empanelled with wide range of insurance companies. WHAT'S PRICED IN? Market already price in substantial long term growth potential considering that nearly 60% of the stock price is accounted by long term growth as per our residual income model. |
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Figure 1: Hospital beds in India | 
| Source: Report by Expert group, Planning Commission of India |
Figure 2: Structure of private hospital beds in India | 
| Source: Report by Expert group, Planning Commission of India; Company filings |
| | | PIVOTAL QUESTIONS | return ↑ | Q: Can Apollo sustain its margins considering that rapid expansion in hospitals and rising competitive pressures would lead to cost escalations especially in staff costs? UBS VIEW We see near term pressure on Apollo's operating margins, declining 88bps YoY in FY16E due to a substantial addition to bed capacity and acquisitions (loss-making). Overall, corporate hospitals will continue to attract talent for junior and middle positions though find it difficult to attract and retain talent at high end resulting in some cost escalations. EVIDENCE Apollo's operating margins have declined nearly 200bps during FY12-15 due to commissioning of new facilities (added 25% of its total capacity in FY12) that drove up other expenditure. Apollo's staff costs have gone up at 19.6% CAGR over FY12-15 marginally ahead of its revenue growth despite increasing competition from other hospital chains like Fortis, Medicity, Artemis, CARE. With increase in utilization, staff costs as % of total revenues would decline over the next three years (FY16-19E). WHAT'S PRICED IN? Street expects Apollo to be able to manage the increase gradual in competition in Indian healthcare services sector. Notwithstanding competitive pressures and concomitant cost escalations, street numbers factor Apollo's ability to price services to more than recover these cost escalations. | |
Figure 3: Hospital expansion and EBITDA trend | 
| Source: Company filing, UBS estimates |
Figure 4: Margin trends | 
| Source: Company filings, UBS estimates |
| | | PIVOTAL QUESTIONS | return ↑ | Q: Can Apollo sustain RoICs despite rising cost of setting up new facilities? UBS VIEW Over the long term, we believe the company would be able to sustain RoICs by pricing its services at a premium in the major cities and sustain its track record of breaking even at the EBITDA level by the second year. However, in smaller cities and towns, it is likely to contain capital expenditure per bed by sharing resources with its bigger regional hospitals. Over the next two years, we expect RoICs to improve by nearly 700bps as capacity utilization of recently added beds increases. EVIDENCE Apollo and some of other organized hospital chains have adopted hub and spoke model where high end services (tertiary care) and equipment are provided at regional hubs while hospitals in smaller cities have facilities enough to provide secondary care but not tertiary. Apollo, specifically, has a platform called Apollo Reach to set up low cost facilities in smaller cities. WHAT'S PRICED IN? Bloomberg consensus factors nearly 600bps increase in RoIC over FY16-18E marginally lower than UBS estimates. This factors Apollo's ability to price services as per increase in cost of setting up new facilities. | |
| | | WHAT'S PRICED IN? | return ↑ | 
| Market ascribes substantial value to long term growth
|
Apollo along with regional hospitals has seen PE rerating over the last two years. As such Indian healthcare services sector remains a structural theme and we continue to be positive on the back of a shortage of quality services, an increase in affordability and rising insurance penetration. We see strong long term growth prospects for Apollo. However, we see near term margin pressures due to rapid addition to existing bed capacity. We continue to see Apollo retaining PE premium on back of strong earnings trajectory over FY16-18E. Figure 5: PE analysis | 
| Source: Reuters, UBS estimates, Company data |
Figure 6: Global peer valuation | Company Name | Rating | Price | Mcap | EPS CAGR | P/E (x) | EV/EBITDA(x) | P/BV (x) | RoE (%) | RoIC(%) | | | (LC) | (U$ m) | (FY16-18E) | FY17E | FY18E | FY17E | FY18E | FY18E | FY18E | FY18E | Apollo Hospitals | Neutral | 1,389 | 2,894 | 44.6% | 42.7 | 30.6 | 20.7 | 16.4 | 4.6 | 15.8 | 17.8 | IHH Healthcare | Sell | 6.4 | 13,084 | 7.4% | 51.1 | 49.1 | 22.0 | 20.8 | 2.2 | 4.6 | 6.8 | Bangkok Dusit Medical | Buy | 24 | 10,509 | 15.9% | 44.2 | 37.0 | 25.1 | 21.8 | 6.0 | 17.0 | 18.2 | Bumrungrad Hospital | Sell | 188 | 3,881 | 17.0% | 34.3 | 28.7 | 22.4 | 19.5 | 8.4 | 31.1 | 37.8 | KPJ Healthcare | Neutral | 4.4 | 1,105 | 12.8% | 29.8 | 26.7 | 12.6 | 11.3 | 2.8 | 10.7 | 13.5 | Asian average | | | | 19.5% | 40.4 | 34.4 | 20.6 | 18.0 | 4.8 | 15.8 | 18.8 | | | | | | | | | | | | | Universal HLTH-B | Buy | 138 | 13,822 | 8.8% | 19.2 | 17.2 | 10.2 | 9.4 | 2.4 | 14.8 | 17.3 | Community Health | Buy | 15 | 1,699 | -12.5% | 6.2 | 6.0 | 7.1 | 7.1 | 0.4 | 6.4 | 6.8 | Tenet Healthcare | Buy | 30 | 2,995 | 10.1% | 16.8 | 12.1 | 6.9 | 6.2 | 2.7 | 26.1 | 10.7 | Healthsouth Corp | Neutral | 42 | 4,131 | 9.6% | 15.1 | 14.0 | 1.7 | 1.8 | 3.8 | 29.1 | 15.9 | Lifepoint Hospital | Buy | 71 | 3,282 | 5.0% | 18.6 | 15.7 | 6.4 | 6.0 | 1.2 | 7.8 | 9.4 | Kindred Healthcare | Neutral | 12 | 1,058 | -13.3% | 13.5 | 12.6 | -3.3 | -3.1 | 0.7 | 5.5 | 9.5 | US mean | | | | 3.0% | 14.5 | 12.7 | 5.2 | 4.9 | 0.0 | 3.6 | 13.8 |
| Source: Reuters, UBS estimates. Note: Prices as on 09-Jun-2016 |
Figure 7: Price performance | Company Name | Rating | Price (LC) | Mcap ($ m) | 1 week | 1M | 3M | 6M | 12M | Apollo Hospitals | Neutral | 1,389 | 2,894 | -0.9% | 3.8% | -0.4% | 2.3% | 18.4% | IHH Healthcare | Sell | 6 | 13,084 | 1.4% | -1.1% | 0.2% | 1.9% | 10.5% | Ramsay Health | Neutral | 73 | 10,978 | 2.7% | 7.3% | 10.9% | 13.4% | 23.1% | HCA Holdings Inc | Buy | 81 | 33,700 | 2.6% | 0.1% | 12.1% | 20.3% | -0.4% | Universal HLTH Services | Buy | 138 | 13,822 | 0.5% | 2.2% | 22.1% | 16.2% | 8.3% | Community Health | Buy | 15 | 1,699 | 5.0% | 0.4% | -10.6% | -45.7% | -72.6% | Tenet Healthcare | Buy | 30 | 2,995 | 0.9% | -3.8% | 14.7% | -4.1% | -41.3% | Healthsouth Corp | Neutral | 42 | 4,131 | 1.6% | 1.2% | 15.2% | 20.0% | -4.8% | Lifepoint Hospital | Buy | 71 | 3,282 | 3.9% | 4.9% | 9.5% | 1.7% | -4.2% | Kindred Healthcare | Neutral | 12 | 1,058 | -2.5% | -6.8% | 5.5% | -5.7% | -43.7% |
| Source: Reuters, UBS. Note: Prices as on 09-Jun-2016 |
| | | UPSIDE / DOWNSIDE SPECTRUM | return ↑ | 
Value drivers | Hospital sales growth (FY16-18E CAGR) | Retails Pharmacy sales growth (FY16-18E CAGR) | EBITDA margin (FY18E) | Rs1,775 upside | 20.5% | 18.5% | 15.7% | Rs1,520 base | 19.1% | 17.5% | 14.9% | Rs1,094 downside | 17.5% | 16.5% | 14.2% | Source: UBS | | | |
| Apollo Hospitals is trading at Rs1,355.00 (as of 10 June). |
Risk to the current share price is skewed (1.6:1) to the upside Apollo Hospitals is trading at Rs1,355.00 (as of 10 June). Upside (Rs1,775): In our upside scenario, we assume hospital business sales to grow at 20.5% CAGR over FY16-18E, driven by a more rapid scale-up of new capacity, a faster improvement in the occupancy rates for Hyderabad and a better overall case mix (ARPOBs). We also assume faster scale-up of EBITDA margins for new facilities, resulting in 15.7% FY18E EBITDA margin for Apollo. This would imply FY18E EPS of Rs50.58. This scenario suggests fair value of Rs1,775.00 per share. Base (Rs1,520): In our base case scenario, we assume hospital business sales to grow at 19.1% CAGR over FY16-18E, driven by scale-up of new capacity, a faster improvement in the occupancy rates for Hyderabad and a better overall case mix (ARPOBs). We also assume EBITDA margins for to be 14.9% in FY18E. This would imply FY18E EPS of Rs45.39. We believe, the stock can trade at 35x FY18E PE, implying a fair value of Rs1,520.00 per share. Downside (Rs1,094): In our downside scenario, we assume hospital business sales to grow at 17.5% CAGR over FY16-18E, driven by lower initial occupancy rates for its new capacity and a gradual recovery in recent acquisitions. This would lead to EBITDA margin of 14.2% and EPS of Rs40.39 in FY18E. As a result, we estimate Apollo could trade at 27x FY18E PE, implying fair value of Rs1,094.00 per share.
| | | COMPANY DESCRIPTION | return ↑ | Market Cap | Rs193bn/US$2.89bn | Shares Outstanding | 139m (ORD) | Industry | Healthcare Providers | Region | India | Website | www.apollohospitals.com |
Apollo Hospitals Enterprise owns and manages a network of tertiary and higher-secondary-care hospitals and clinics. It also operates a pharmacy chain. Apollo Hospitals has over 7,100 beds in owned hospitals and over 2,000 beds in managed hospitals, and a chain of more than 2,200 Apollo Pharmacy stores in India. Apart from this, it also has a health insurance business with Munich Health. The company recently acquired Nova Specialty Hospitals, which is a chain of 11 facilities in eight cities. Industry outlook There is large scope for healthcare services in India—especially good-quality services—due to a structural undersupply of beds and healthcare spending. With a rapidly growing middle class, rising affordability and the increasing prevalence of so-called 'lifestyle' diseases, healthcare spending in India should continue to increase. As of 2014, India's healthcare expenditure was just 4% of its GDP (the global average was 9%). India also had 9 beds per 10,000 persons, while the global average was 30. Increasing healthcare insurance penetration should support spending in the long term. In India, the percentage of private spending out of total healthcare was high at 65% compared with the 37% global average, which supports pricing power for the sector's incumbents. | Revenues by product segment (FY16) 
Source: Company reports EBITDA by product segment (FY16)  Source: Company reports.
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| | | | | | Apollo Hospitals Enterprise (APLH.BO) | | | | | | | | | | | Revenues | 43,842 | 51,785 | 60,856 | 72,625 | 19.3 | 86,241 | 18.7 | 100,238 | 114,659 | 129,332 | Gross profit | 22,341 | 25,973 | 30,298 | 36,676 | 21.0 | 43,551 | 18.7 | 51,122 | 58,476 | 65,959 | EBITDA (UBS) | 6,724 | 7,347 | 7,823 | 10,151 | 29.8 | 12,853 | 26.6 | 15,311 | 17,735 | 19,762 | Depreciation & amortisation | (1,678) | (2,117) | (2,533) | (2,920) | 15.3 | (3,100) | 6.2 | (3,246) | (3,373) | (3,508) | EBIT (UBS) | 5,046 | 5,230 | 5,290 | 7,232 | 36.7 | 9,753 | 34.9 | 12,065 | 14,362 | 16,255 | Associates & investment income | 267 | 397 | 342 | 249 | -27.3 | 389 | 56.5 | 668 | 954 | 1,112 | Other non-operating income | 0 | 0 | 0 | 0 | - | 0 | - | 0 | 0 | 0 | Net interest | (1,142) | (1,114) | (1,685) | (1,540) | 8.6 | (1,422) | 7.7 | (1,372) | (1,131) | (708) | Exceptionals (incl goodwill) | 0 | 135 | 292 | 0 | - | 0 | - | 0 | 0 | 0 | Profit before tax | 4,171 | 4,648 | 4,239 | 5,941 | 40.1 | 8,720 | 46.8 | 11,362 | 14,185 | 16,658 | Tax | (1,018) | (1,300) | (1,002) | (1,442) | -43.9 | (2,442) | -69.4 | (3,238) | (4,003) | (4,701) | Profit after tax | 3,154 | 3,348 | 3,237 | 4,499 | 39.0 | 6,278 | 39.6 | 8,123 | 10,182 | 11,957 | Preference dividends | 0 | 0 | 0 | 0 | - | 0 | - | 0 | 0 | 0 | Minorities | 14 | 51 | 73 | 22 | -70.5 | 30 | 38.2 | 38 | 47 | 55 | Extraordinary items | 0 | 0 | 0 | 0 | - | 0 | - | 0 | 0 | 0 | Net earnings (local GAAP) | 3,167 | 3,399 | 3,310 | 4,520 | 36.6 | 6,308 | 39.5 | 8,161 | 10,228 | 12,012 | Net earnings (UBS) | 3,167 | 3,264 | 3,019 | 4,520 | 49.8 | 6,308 | 39.5 | 8,161 | 10,228 | 12,012 | Tax rate (%) | 24.4 | 28.0 | 23.6 | 24.3 | 2.7 | 28.0 | 15.4 | 28.5 | 28.2 | 28.2 |
| | | | | | | | | | | EPS (UBS, diluted) | 22.77 | 23.46 | 21.70 | 32.49 | 49.8 | 45.34 | 39.5 | 58.66 | 73.52 | 86.34 | EPS (local GAAP, diluted) | 22.77 | 24.43 | 23.79 | 32.49 | 36.6 | 45.34 | 39.5 | 58.66 | 73.52 | 86.34 | EPS (UBS, basic) | 22.77 | 23.46 | 21.70 | 32.49 | 49.8 | 45.34 | 39.5 | 58.66 | 73.52 | 86.34 | Net DPS (Rs) | 6.73 | 6.93 | 7.22 | 9.38 | 30.0 | 13.63 | 45.4 | 17.64 | 22.10 | 25.96 | Cash EPS (UBS, diluted) | 34.83 | 38.67 | 39.90 | 53.48 | 34.0 | 67.62 | 26.4 | 81.99 | 97.76 | 111.55 | Book value per share | 213.95 | 227.86 | 248.23 | 271.35 | 9.3 | 303.06 | 11.7 | 344.10 | 395.52 | 455.90 | Average shares (diluted) | 139.13 | 139.13 | 139.13 | 139.13 | 0.0 | 139.13 | 0.0 | 139.13 | 139.13 | 139.13 |
| | | | | | | | | | | Cash and equivalents | 2,741 | 3,773 | 3,976 | 5,810 | 46.1 | 6,899 | 18.7 | 8,019 | 9,173 | 10,347 | Other current assets | 15,814 | 19,944 | 25,862 | 25,288 | -2.2 | 30,028 | 18.7 | 34,902 | 39,924 | 45,033 | Total current assets | 18,555 | 23,718 | 29,838 | 31,098 | 4.2 | 36,928 | 18.7 | 42,921 | 49,096 | 55,379 | Net tangible fixed assets | 30,227 | 36,115 | 42,082 | 43,708 | 3.9 | 45,333 | 3.7 | 46,637 | 45,764 | 44,757 | Net intangible fixed assets | 1,499 | 1,652 | 2,120 | 2,120 | 0.0 | 2,120 | 0.0 | 2,120 | 2,120 | 2,120 | Investments / other assets | 3,216 | 3,106 | 2,697 | 2,697 | 0.0 | 2,697 | 0.0 | 2,697 | 2,697 | 2,697 | Total assets | 53,497 | 64,592 | 76,737 | 79,623 | 3.8 | 87,078 | 9.4 | 94,376 | 99,678 | 104,953 | Trade payables & other ST liabilities | 7,343 | 9,906 | 11,234 | 13,406 | 19.3 | 15,919 | 18.7 | 18,503 | 21,165 | 23,874 | Short term debt | 625 | 857 | 1,820 | 2,000 | 9.89 | 2,000 | 0.00 | 2,000 | 2,000 | 2,000 | Total current liabilities | 7,968 | 10,763 | 13,054 | 15,406 | 18.0 | 17,919 | 16.3 | 20,503 | 23,165 | 25,874 | Long term debt | 12,283 | 17,365 | 23,001 | 20,318 | -11.7 | 20,848 | 2.6 | 19,855 | 15,342 | 9,508 | Other long term liabilities | 3,291 | 4,031 | 4,843 | 4,843 | 0.0 | 4,843 | 0.0 | 4,843 | 4,843 | 4,843 | Preferred shares | 0 | 0 | 0 | 0 | - | 0 | - | 0 | 0 | 0 | Total liabilities (incl pref shares) | 23,542 | 32,160 | 40,898 | 40,567 | -0.8 | 43,611 | 7.5 | 45,201 | 43,351 | 40,225 | Common s/h equity | 29,767 | 31,702 | 34,537 | 37,752 | 9.3 | 42,164 | 11.7 | 47,871 | 55,024 | 63,425 | Minority interests | 188 | 730 | 1,303 | 1,303 | 0.0 | 1,303 | 0.0 | 1,303 | 1,303 | 1,303 | Total liabilities & equity | 53,497 | 64,592 | 76,737 | 79,623 | 3.8 | 87,078 | 9.4 | 94,376 | 99,678 | 104,953 |
| | | | | | | | | | | Net income (before pref divs) | 3,167 | 3,399 | 3,310 | 4,520 | 36.6 | 6,308 | 39.5 | 8,161 | 10,228 | 12,012 | Depreciation & amortisation | 1,678 | 2,117 | 2,533 | 2,920 | 15.3 | 3,100 | 6.2 | 3,246 | 3,373 | 3,508 | Net change in working capital | (2,140) | (1,608) | (4,792) | 912 | - | (3,317) | - | (3,410) | (3,513) | (3,574) | Other operating | 1,240 | 640 | 1,685 | 1,540 | -8.6 | 1,422 | -7.7 | 1,372 | 1,131 | 708 | Operating cash flow | 3,945 | 4,547 | 2,736 | 9,893 | 261.6 | 7,513 | -24.1 | 9,368 | 11,219 | 12,653 | Tangible capital expenditure | (5,958) | (8,655) | (8,500) | (4,545) | 46.5 | (4,725) | -4.0 | (4,550) | (2,500) | (2,500) | Intangible capital expenditure | 0 | 0 | 0 | 0 | - | 0 | - | 0 | 0 | 0 | Net (acquisitions) / disposals | 0 | 0 | 0 | 0 | - | 0 | - | 0 | 0 | 0 | Other investing | 2,400 | 1,064 | 144 | 1,834 | - | 1,089 | - | 1,120 | 1,154 | 1,174 | Investing cash flow | (3,558) | (7,591) | (8,356) | (2,711) | 67.6 | (3,636) | -34.1 | (3,430) | (1,346) | (1,326) | Equity dividends paid | (765) | (800) | (1,004) | (1,305) | -30.0 | (1,896) | -45.4 | (2,454) | (3,075) | (3,611) | Share issues / (buybacks) | 72 | 417 | 1,090 | 0 | - | 0 | - | 0 | 0 | 0 | Other financing | (1,204) | (1,176) | (1,685) | (1,540) | 8.60 | (1,422) | 7.65 | (1,372) | (1,131) | (708) | Change in debt & pref shares | 1,262 | 5,481 | 6,598 | (2,503) | - | 530 | - | (993) | (4,513) | (5,834) | Financing cash flow | (635) | 3,923 | 4,999 | (5,348) | - | (2,788) | 47.9 | (4,818) | (8,719) | (10,153) | Cash flow inc/(dec) in cash | (248) | 880 | (621) | 1,834 | - | 1,089 | -40.6 | 1,120 | 1,154 | 1,174 | FX / non cash items | (211) | 152 | 823 | 0 | -100.0 | 0 | - | 0 | 0 | 0 | Balance sheet inc/(dec) in cash | (459) | 1,032 | 202 | 1,834 | NM | 1,089 | -40.6 | 1,120 | 1,154 | 1,174 |
Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.Cash EPS (UBS, diluted) is calculated using UBS net income adding back depreciation and amortization.
Apollo Hospitals Enterprise (APLH.BO) | | | | | | | | | P/E (local GAAP, diluted) | 39.8 | 45.6 | 56.8 | 41.7 | 29.9 | 23.1 | 18.4 | 15.7 | P/E (UBS, diluted) | 39.8 | 47.5 | 62.3 | 41.7 | 29.9 | 23.1 | 18.4 | 15.7 | P/CEPS | 26.0 | 28.8 | 33.9 | 25.3 | 20.0 | 16.5 | 13.9 | 12.1 | Equity FCF (UBS) yield % | (1.6) | (2.6) | (3.1) | 2.8 | 1.5 | 2.6 | 4.6 | 5.4 | Net dividend yield (%) | 0.7 | 0.6 | 0.5 | 0.7 | 1.0 | 1.3 | 1.6 | 1.9 | P/BV x | 4.2 | 4.9 | 5.4 | 5.0 | 4.5 | 3.9 | 3.4 | 3.0 | EV/revenues (core) | 3.0 | 3.2 | 3.4 | 2.8 | 2.4 | 2.1 | 1.8 | 1.6 | EV/EBITDA (core) | 19.7 | 22.5 | 26.1 | 20.3 | 16.0 | 13.4 | 11.6 | 10.4 | EV/EBIT (core) | 26.2 | NM | NM | 28.5 | 21.1 | 17.1 | 14.3 | 12.7 | EV/OpFCF (core) | 23.2 | 27.0 | NM | 24.3 | 18.6 | 15.3 | 13.0 | 11.6 | EV/op. invested capital | 3.9 | 4.1 | 4.2 | 3.9 | 3.8 | 3.5 | 3.4 | 3.3 |
| | | | | | | | | Market cap. | 126,181 | 155,017 | 188,072 | 188,521 | 188,521 | 188,521 | 188,521 | 188,521 | Net debt (cash) | 9,204 | 12,308 | 17,647 | 18,677 | 18,677 | 18,677 | 18,677 | 18,677 | Buy out of minorities | 188 | 730 | 1,303 | 1,303 | 1,303 | 1,303 | 1,303 | 1,303 | Pension provisions/other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | Total enterprise value | 135,573 | 168,055 | 207,023 | 208,501 | 208,501 | 208,501 | 208,501 | 208,501 | Non core assets | (3,216) | (3,106) | (2,697) | (2,697) | (2,697) | (2,697) | (2,697) | (2,697) | Core enterprise value | 132,358 | 164,949 | 204,326 | 205,804 | 205,804 | 205,804 | 205,804 | 205,804 |
| | | | | | | | | Revenue | 16.3 | 18.1 | 17.5 | 19.3 | 18.7 | 16.2 | 14.4 | 12.8 | EBITDA (UBS) | 10.6 | 9.3 | 6.5 | 29.8 | 26.6 | 19.1 | 15.8 | 11.4 | EBIT (UBS) | 8.3 | 3.6 | 1.1 | 36.7 | 34.9 | 23.7 | 19.0 | 13.2 | EPS (UBS, diluted) | 6.3 | 3.1 | -7.5 | 49.8 | 39.5 | 29.4 | 25.3 | 17.4 | Net DPS | 4.5 | 3.0 | 4.2 | 30.0 | 45.4 | 29.4 | 25.3 | 17.4 |
| | | | | | | | | Gross profit margin | 51.0 | 50.2 | 49.8 | 50.5 | 50.5 | 51.0 | 51.0 | 51.0 | EBITDA margin | 15.3 | 14.2 | 12.9 | 14.0 | 14.9 | 15.3 | 15.5 | 15.3 | EBIT margin | 11.5 | 10.1 | 8.7 | 10.0 | 11.3 | 12.0 | 12.5 | 12.6 | Net earnings (UBS) margin | 7.2 | 6.3 | 5.0 | 6.2 | 7.3 | 8.1 | 8.9 | 9.3 | ROIC (EBIT) | 14.9 | 13.0 | 10.8 | 13.5 | 17.8 | 20.6 | 23.5 | 26.0 | ROIC post tax | 11.2 | 9.2 | 8.0 | 10.2 | 12.6 | 14.4 | 16.5 | 18.2 | ROE (UBS) | 11.1 | 10.6 | 9.1 | 12.5 | 15.8 | 18.1 | 19.9 | 20.3 |
| | | | | | | | | Net debt / EBITDA | 1.5 | 2.0 | 2.7 | 1.6 | 1.2 | 0.9 | 0.5 | 0.1 | Net debt / total equity % | 33.9 | 44.6 | 58.2 | 42.3 | 36.7 | 28.1 | 14.5 | 1.8 | Net debt / (net debt + total equity) % | 25.3 | 30.8 | 36.8 | 29.7 | 26.8 | 22.0 | 12.7 | 1.8 | Net debt/EV % | 7.7 | 8.8 | 10.2 | 8.0 | 7.7 | 6.7 | 4.0 | 0.6 | Capex / depreciation % | NM | NM | NM | 155.7 | 152.4 | 140.2 | 74.1 | 71.3 | Capex / revenue % | 13.6 | 16.7 | 14.0 | 6.3 | 5.5 | 4.5 | 2.2 | 1.9 | EBIT / net interest | 4.4 | 4.7 | 3.1 | 4.7 | 6.9 | 8.8 | 12.7 | 23.0 | Dividend cover (UBS) | 3.4 | 3.4 | 3.0 | 3.5 | 3.3 | 3.3 | 3.3 | 3.3 | Div. payout ratio (UBS) % | 29.5 | 29.5 | 33.3 | 28.9 | 30.1 | 30.1 | 30.1 | 30.1 |
| | | | | | | | | Others | 43,842 | 51,785 | 60,856 | 72,625 | 86,241 | 100,238 | 114,659 | 129,332 | Total | 43,842 | 51,785 | 60,856 | 72,625 | 86,241 | 100,238 | 114,659 | 129,332 |
| | | | | | | | | Others | 5,046 | 5,230 | 5,290 | 7,232 | 9,753 | 12,065 | 14,362 | 16,255 | Total | 5,046 | 5,230 | 5,290 | 7,232 | 9,753 | 12,065 | 14,362 | 16,255 |
Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts. | | | | | Forecast returns | Forecast price appreciation+12.2% | Forecast dividend yield0.7% | Forecast stock return+12.9% | Market return assumption12.5% | Forecast excess return+0.4% |
| Valuation Method and Risk Statement We value Apollo on basis of 1-yr forward PE multiple.
Key risks include 1) delay in sales and profitability improvement from new capacities; 2) higher than planned capital costs and project delays; 3) high competition locally, which could impact pricing and occupancy; 4) doctor attrition and regulatory changes. Required Disclosures This report has been prepared by UBS Securities India Private Ltd, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS acts or may act as principal in the debt securities (or in related derivatives) that may be the subject of this report. Analyst Certification: Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. UBS Investment Research: Global Equity Rating Definitions 12-Month Rating | Definition | Coverage | IB Services | Buy | FSR is > 6% above the MRA. | 49% | 32% | Neutral | FSR is between -6% and 6% of the MRA. | 38% | 26% | Sell | FSR is > 6% below the MRA. | 14% | 19% | Short-Term Rating | Definition | Coverage | IB Services | Buy | Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event. | <1% | <1% | Sell | Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event. | <1% | <1% |
Source: UBS. Rating allocations are as of 31 March 2016.
1:Percentage of companies under coverage globally within the 12-month rating category.
2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category.
4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with FINRA. Such analysts may not be associated persons of UBS Securities LLC and therefore are not subject to the FINRA restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows. UBS Securities India Private Ltd: Hemant Bakhru. Company Disclosures Company Name | Reuters | 12-month rating | Short-term rating | Price | Price date | Apollo Hospitals Enterprise | APLH.BO | Neutral | N/A | Rs1,388.65 | 09 Jun 2016 |
Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Investment Research. Apollo Hospitals Enterprise (Rs) 
Source: UBS; as of 09 Jun 2016 |
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