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Apollo Hospitals Enterprise Ltd.
Overweight
APLH.BO, APHS IN
Growth momentum looking up, raise PT to Rs590
Our recent discussions with APHS management indicate that key operating
parameters are tracking ahead of our expectations. Occupancy rates are close to
75% and ARPOB is up 11% YTD. Pharmacy business is being restructured and
margins are looking up. APHS is looking to add about 2700 beds over FY11-
FY14E, which will increase total beds to about 6300. We raise our FY11E-FY12E
EPS estimates by 3%-10% and raise our PT to Rs590.
• Operating performance looking up: Hospitals growth is on track, with YTD
occupancy rates at 75%, while ARPOB is up 11% driven by better mix and
lower ALOS. Pharmacy margins are turning around with YTD EBITDA
margins up 300bps YoY driven by closure of loss making pharmacies. APHS is
looking to add about 2700 beds over FY11-FY14E, aided by a strong mature
hospital base that it delivering strong margins and cash flows.
• Focus on enhancing capital efficiency: Management have initiated various
measures to improve operating performance and enhance capital efficiency
including 1) Re-alignment of beds to focus on higher revenue generating beds
(oncology, cardiac), 2) Centralised use of high cost medical equipment (e.g. 36
slice CT scan equipment) and shared lab facilities for hospitals around Chennai,
and 3) Asset-light models entailing lower capex per bed for Tier II cities
• Divestment of non core assets to drive re-rating: Management reiterated their
focus on core hospitals business and would look to induct strategic partner in
the pharmacy business at an appropriate time (when FDI in multi-brand retail is
allowed provding better valuations). We continue to believe that stake sale in
pharmacy business and divestments of BPO and Healthcare Insurance could
trigger potential re-rating of stock.
• Raise PT to Rs590: We raise our FY11-FY12 EPS estimates by 3%-10%
incorporating better than expected 9mFY11 (though we moderate FY13E EPS
by 5% accounting for delays in bed additions). We increase our Sep-11 PT to
Rs590 based on SOTP valuation. Our DCF valuation returns a fair price of
Rs578 per share. Key risks include delay in expansion plans, investments in
non-core business, availability of skilled personnel and aggressive expansion in
un-tested Tier II cities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Hospitals Enterprise Ltd.
Overweight
APLH.BO, APHS IN
Growth momentum looking up, raise PT to Rs590
Our recent discussions with APHS management indicate that key operating
parameters are tracking ahead of our expectations. Occupancy rates are close to
75% and ARPOB is up 11% YTD. Pharmacy business is being restructured and
margins are looking up. APHS is looking to add about 2700 beds over FY11-
FY14E, which will increase total beds to about 6300. We raise our FY11E-FY12E
EPS estimates by 3%-10% and raise our PT to Rs590.
• Operating performance looking up: Hospitals growth is on track, with YTD
occupancy rates at 75%, while ARPOB is up 11% driven by better mix and
lower ALOS. Pharmacy margins are turning around with YTD EBITDA
margins up 300bps YoY driven by closure of loss making pharmacies. APHS is
looking to add about 2700 beds over FY11-FY14E, aided by a strong mature
hospital base that it delivering strong margins and cash flows.
• Focus on enhancing capital efficiency: Management have initiated various
measures to improve operating performance and enhance capital efficiency
including 1) Re-alignment of beds to focus on higher revenue generating beds
(oncology, cardiac), 2) Centralised use of high cost medical equipment (e.g. 36
slice CT scan equipment) and shared lab facilities for hospitals around Chennai,
and 3) Asset-light models entailing lower capex per bed for Tier II cities
• Divestment of non core assets to drive re-rating: Management reiterated their
focus on core hospitals business and would look to induct strategic partner in
the pharmacy business at an appropriate time (when FDI in multi-brand retail is
allowed provding better valuations). We continue to believe that stake sale in
pharmacy business and divestments of BPO and Healthcare Insurance could
trigger potential re-rating of stock.
• Raise PT to Rs590: We raise our FY11-FY12 EPS estimates by 3%-10%
incorporating better than expected 9mFY11 (though we moderate FY13E EPS
by 5% accounting for delays in bed additions). We increase our Sep-11 PT to
Rs590 based on SOTP valuation. Our DCF valuation returns a fair price of
Rs578 per share. Key risks include delay in expansion plans, investments in
non-core business, availability of skilled personnel and aggressive expansion in
un-tested Tier II cities.
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