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Apollo Hospitals Enterprise
Budget marginally negative
Sales tax to be applicable to all Hospital services
The budget has provision for a uniform 5% sales tax on all the services provided
by private hospitals with more than 25 beds. This is marginally negative for all
hospitals as it will impact the patient’s ability to pay.
No 80 I(A) tax benefit
Our prior checks with some investors indicated expectation that the 80 I(A) tax
benefit may be extended to new hospitals being set up. This has not come through.
We think this is a sentimental negative. We did not build in any 80I(A) tax
incentive in our estimates.
Private medical insurance companies to benefit
Prior to this budget, there was 10% sales tax on payments reimbursed by private
medical insurance companies. This sales tax is now reduced to 5% and also
brought in line with sales tax on hospital services.
Valuation: sum-of-the-parts-based price target of Rs650
We base our price target on our sum-of-the-parts valuation methodology, valuing
the consolidated business (Rs625) on DCF, and associates using a multiple-based
approach. At our price target, Apollo trades at 17.6x FY12 EV/EBITDA, which is
supported by a secular, non-cyclical revenue stream and improving return ratios.
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.
Company profile
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
Budget marginally negative
Sales tax to be applicable to all Hospital services
The budget has provision for a uniform 5% sales tax on all the services provided
by private hospitals with more than 25 beds. This is marginally negative for all
hospitals as it will impact the patient’s ability to pay.
No 80 I(A) tax benefit
Our prior checks with some investors indicated expectation that the 80 I(A) tax
benefit may be extended to new hospitals being set up. This has not come through.
We think this is a sentimental negative. We did not build in any 80I(A) tax
incentive in our estimates.
Private medical insurance companies to benefit
Prior to this budget, there was 10% sales tax on payments reimbursed by private
medical insurance companies. This sales tax is now reduced to 5% and also
brought in line with sales tax on hospital services.
Valuation: sum-of-the-parts-based price target of Rs650
We base our price target on our sum-of-the-parts valuation methodology, valuing
the consolidated business (Rs625) on DCF, and associates using a multiple-based
approach. At our price target, Apollo trades at 17.6x FY12 EV/EBITDA, which is
supported by a secular, non-cyclical revenue stream and improving return ratios.
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.
Company profile
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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