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UBS Investment Research
Apollo Hospitals Enterprise
Robust quarter, set to beat FY11 estimates
Operating parameters in hospitals continue to improve.
Apollo Hospitals (APHS) showed robust revenue growth in each segment. In
Standalone hospital segment, the ARPOB (revenue per bed day) grew at 12%, 15%
and 18% YY in Chennai, Hyderabad and other clusters during 9MFY11. The OPD
revenue grew at 35%YY during 9MFY11 compared to 24% for IPD revenue
growth, demonstrating further potential for continued improvement patient mix.
Apollo Hospitals will likely beat FY11 consensus
In 9MFY11, Apollo Hospitals has reported 79% of our and consensus EBITDA
estimates (we do not model Apollo Healthstreet in consolidated numbers). We
believe Apollo Hospitals is set to beat consensus numbers for FY11.
Losses in new hospitals hurt EBITDA and PAT
APHS’s bed count grew 6.4% in Q3FY11, compared to 1.7% growth in hospital
revenue (seasonality in Q3). Losses in newer facilities led to lower EBITDA
margins in standalone hospitals (EBITDA margins declined 170bps QQ and
133bps YY). Additionally, other income was lower and depreciation was higher
due to new hospitals.
Valuation: sum-of-the-parts-based price target of Rs650
We base our price target on a sum-of-the-parts valuation methodology, valuing the
consolidated business (Rs625) on DCF, and associates using a multiple based
approach. At our target price Apollo trades at 17.6x FY12 EV/EBITDA, which is
supported by secular, non-cyclical revenue stream and improving return ratios.
Operating parameters continued to improve
APHS’s ARPOB grew across all clusters, in Chennai, Hyderabad and other
clusters. ARPOB growth continued to be very robust in Hyderabad cluster.
OPD revenue growth continued to outpace IPD revenue growth. Continued
rapid OPD growth would allow APHS better patient/case mix and propel long
term ARPOB growth.
Apollo set to beat consensus FY11 estimates
During 9MFY11 APHS reported 79% of our and streets estimated FY11
EBITDA. We believe APHS is well on way to beat street’s expectations of
FY11 EBITDA. The beat so far was driven by better operating performance in
associate and JV hospitals in Kolkota, Bangalore and Ahmedabad.
New beds and seasonality impacts profitability
in standalone hospitals
APHS’s bed count grew 6.4% QQ compared to hospital services revenue growth
of 1.7% QQ. Subsequently EBITDA margins in standalone hospital segment
declined 170bps QQ. QQ growth was muted due to seasonality (observed every
year).
APHS also had slower QQ revenue growth in Q4 as well; it grew revenue at
1.1% QQ during Q4FY09 and 0% during Q4FY10. The underperformance of
APHS post results indicates the market is worried about decline in EBIT
margins during Q3FY11. However, we would like to point out that, while
quarterly revenues have historically shown consistent trend, quarterly EBIT
margins have not been secular.
Apollo Hospitals Enterprise
Apollo Hospitals owns and manages a network of tertiary and higher secondary
care hospitals and clinics. It also operates a pharmacy chain. It has a stake in
Apollo Health Street, a medical business process outsourcing company. Apollo
Hospitals manages around 8,500 beds (5,376 in owned hospitals and 2,588 in
managed hospitals) in 46 hospitals, and a chain of 1,100 Apollo Pharmacy stores
in India.
Statement of Risk
Hospitals require high upfront investment and have high fixed costs.
Consequently, we believe any increase in competition can impact volumes and
pricing, and subsequently impact operating profit. Additionally, land prices in
India have been rising and it is becoming increasingly more expensive to acquire
land for expansion and this could affect future profitability. Other risks include
regulatory and tax changes, doctor attrition and the lack of an internationally
recognised auditor.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Apollo Hospitals Enterprise
Robust quarter, set to beat FY11 estimates
Operating parameters in hospitals continue to improve.
Apollo Hospitals (APHS) showed robust revenue growth in each segment. In
Standalone hospital segment, the ARPOB (revenue per bed day) grew at 12%, 15%
and 18% YY in Chennai, Hyderabad and other clusters during 9MFY11. The OPD
revenue grew at 35%YY during 9MFY11 compared to 24% for IPD revenue
growth, demonstrating further potential for continued improvement patient mix.
Apollo Hospitals will likely beat FY11 consensus
In 9MFY11, Apollo Hospitals has reported 79% of our and consensus EBITDA
estimates (we do not model Apollo Healthstreet in consolidated numbers). We
believe Apollo Hospitals is set to beat consensus numbers for FY11.
Losses in new hospitals hurt EBITDA and PAT
APHS’s bed count grew 6.4% in Q3FY11, compared to 1.7% growth in hospital
revenue (seasonality in Q3). Losses in newer facilities led to lower EBITDA
margins in standalone hospitals (EBITDA margins declined 170bps QQ and
133bps YY). Additionally, other income was lower and depreciation was higher
due to new hospitals.
Valuation: sum-of-the-parts-based price target of Rs650
We base our price target on a sum-of-the-parts valuation methodology, valuing the
consolidated business (Rs625) on DCF, and associates using a multiple based
approach. At our target price Apollo trades at 17.6x FY12 EV/EBITDA, which is
supported by secular, non-cyclical revenue stream and improving return ratios.
Operating parameters continued to improve
APHS’s ARPOB grew across all clusters, in Chennai, Hyderabad and other
clusters. ARPOB growth continued to be very robust in Hyderabad cluster.
OPD revenue growth continued to outpace IPD revenue growth. Continued
rapid OPD growth would allow APHS better patient/case mix and propel long
term ARPOB growth.
Apollo set to beat consensus FY11 estimates
During 9MFY11 APHS reported 79% of our and streets estimated FY11
EBITDA. We believe APHS is well on way to beat street’s expectations of
FY11 EBITDA. The beat so far was driven by better operating performance in
associate and JV hospitals in Kolkota, Bangalore and Ahmedabad.
New beds and seasonality impacts profitability
in standalone hospitals
APHS’s bed count grew 6.4% QQ compared to hospital services revenue growth
of 1.7% QQ. Subsequently EBITDA margins in standalone hospital segment
declined 170bps QQ. QQ growth was muted due to seasonality (observed every
year).
APHS also had slower QQ revenue growth in Q4 as well; it grew revenue at
1.1% QQ during Q4FY09 and 0% during Q4FY10. The underperformance of
APHS post results indicates the market is worried about decline in EBIT
margins during Q3FY11. However, we would like to point out that, while
quarterly revenues have historically shown consistent trend, quarterly EBIT
margins have not been secular.
Apollo Hospitals Enterprise
Apollo Hospitals owns and manages a network of tertiary and higher secondary
care hospitals and clinics. It also operates a pharmacy chain. It has a stake in
Apollo Health Street, a medical business process outsourcing company. Apollo
Hospitals manages around 8,500 beds (5,376 in owned hospitals and 2,588 in
managed hospitals) in 46 hospitals, and a chain of 1,100 Apollo Pharmacy stores
in India.
Statement of Risk
Hospitals require high upfront investment and have high fixed costs.
Consequently, we believe any increase in competition can impact volumes and
pricing, and subsequently impact operating profit. Additionally, land prices in
India have been rising and it is becoming increasingly more expensive to acquire
land for expansion and this could affect future profitability. Other risks include
regulatory and tax changes, doctor attrition and the lack of an internationally
recognised auditor.
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