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UBS Investment Research
Apollo Hospitals Enterprise
E xpect consensus upgrade
We expect consensus upgrade post Apollo Hospitals’ results
Apollo Hospitals reported EBITDA of Rs3.2bn in 9MFY11 compared to consensus
estimates of Rs4.02bn. Historically, Apollo Hospitals has achieved 71% of annual
EBITDA during first 9M of FY. We estimate analyst upgrades for FY12 onwards.
We are increasing our FY11 EBITDA estimate by 8% to Rs4.19bn.
Hyderabad cluster likely to show rapid growth
Hyderabad cluster currently operates at low occupancy (64%); however
accelerating ARPOB (rev per bed day) growth (@14.8%) and high OPD revenue
growth are indicators of robust revenue and EBITDA growth in Hyderabad cluster
over next two-three years. We estimate robust 27% revenue CAGR in Hyderabad
cluster over next three years.
35 AD tax treatment expected to improve cash flows
Hospitals will avail of 35AD tax treatment which allows Hospitals to expense
capex in first year of operation. We estimate this will improve operating cash flow
by 17% over FY12E-FY15E and the cash tax rate will be down to MAT (18.5%)
over foreseeable future.
Valuation
We base our price target on a sum-of-the-parts valuation methodology, valuing the
consolidated entity (Rs625/share) on DCF. We explicitly forecast long-term
valuation drivers using UBS’s VCAM tool (assuming 11.85% WACC). At our
target price Apollo Hospitals would trade at 13.3x FY13E EV/EBITDA
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
E xpect consensus upgrade
We expect consensus upgrade post Apollo Hospitals’ results
Apollo Hospitals reported EBITDA of Rs3.2bn in 9MFY11 compared to consensus
estimates of Rs4.02bn. Historically, Apollo Hospitals has achieved 71% of annual
EBITDA during first 9M of FY. We estimate analyst upgrades for FY12 onwards.
We are increasing our FY11 EBITDA estimate by 8% to Rs4.19bn.
Hyderabad cluster likely to show rapid growth
Hyderabad cluster currently operates at low occupancy (64%); however
accelerating ARPOB (rev per bed day) growth (@14.8%) and high OPD revenue
growth are indicators of robust revenue and EBITDA growth in Hyderabad cluster
over next two-three years. We estimate robust 27% revenue CAGR in Hyderabad
cluster over next three years.
35 AD tax treatment expected to improve cash flows
Hospitals will avail of 35AD tax treatment which allows Hospitals to expense
capex in first year of operation. We estimate this will improve operating cash flow
by 17% over FY12E-FY15E and the cash tax rate will be down to MAT (18.5%)
over foreseeable future.
Valuation
We base our price target on a sum-of-the-parts valuation methodology, valuing the
consolidated entity (Rs625/share) on DCF. We explicitly forecast long-term
valuation drivers using UBS’s VCAM tool (assuming 11.85% WACC). At our
target price Apollo Hospitals would trade at 13.3x FY13E EV/EBITDA
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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