Apollo Hospitals - Set for higher growth: Kotak Sec

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Apollo Hospitals (APHS)
Pharmaceuticals
Set for higher growth. Apollo reported excellent results with total income at Rs5.9
bn, 4% higher and PAT at Rs496 mn, 10% higher than our estimate. EBITDA margin in
2QFY11 is up 100 bps yoy to 17% versus our est. of 16.5%, led by (1) standalone
pharmacies (29% of sales) registering positive EBITDA margin of 2% for the first time in
2QFY11, (2) sales growth of 25% in healthcare services, up from 19% in FY2010, and
(3) improvement in profitability of key subsidiary/JV hospitals. We expect strong
performance reported in 1HFY11 to continue in 2HFY11E. We increase our FY2011-12E
PAT estimates by 9-15%. We increase PT to Rs580 (14X FY2012E EBITDA), maintain
BUY.




2QFY11 total income at Rs5.9 bn, 4% higher than our est.
Total Income grew 29% yoy to Rs5.9 bn led by (1) strong volume growth driven by >17% yoy
increase in outpatient volume across all hospitals, (2) 40% sales growth in standalone pharmacies
which now stand at 1,110, (3) improvement in OCR across existing hospitals with OCR improving
to 84% in 1HFY11 from 77% in FY2010 in Chennai, (4) addition of 900 beds across 7 new
hospitals in the last 12 months with hospitals such as Bhubaneswar registering strong OCR of
85% and (5) decline in ALOS to 4.97 in 1HFY11 from 5.52 days in FY2010 across hospitals leading
to increase in ARPOB of 10% yoy in 1HFY11, same as that seen in FY2010.

EBITDA margin in 2QFY11 is up 100 bps yoy to 17% versus our est. of 16.5%
Apollo reported EBITDA margin of 17% in 2QFY11, up 100 bps yoy, and up from 15.8% reported
in FY2010 (adjusted for the one-off costs in 4QFY10). This sharp improvement in EBITDA margin
was driven by (1) strong sales growth across healthcare services at 25% in 2QFY11, (2) standalone
pharmacies registering positive EBITDA margin of 2% in 2QFY11 for the first time and (3)
improvement in profitability of key subsidiary hospitals such as Bangalore which have turned
EBITDA positive in 1HFY11.

Maintain BUY with PT revised to Rs580 (was Rs520)
Although there will be no significant addition to beds in the next 18 months, we expect strong
performance reported in 1HFY11 to continue in 2HFY11E. We accordingly increase our FY2011-
12E PAT estimates by 9-15%. We increase PT to Rs580 (14X FY2012E EBITDA), maintain BUY.