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Apollo Hospitals
Numero Uno
Event
We initiate coverage on Apollo Hospitals (APHS IN) with an OP rating and a
target price of Rs645. Given the track-record, scale, pan India presence,
strong brand-equity and integrated healthcare delivery model APHS remains
strategically well positioned to capitalize on the domestic healthcare growth.
Increasing focus on Tier II and Tier III cities and a potential pharmacy
business turnaround further add to the investment appeal.
Impact
Numero uno: Apollo has been the pioneer of corporate hospitals and now
has the largest network of hospitals (5,842 owned and 2,875 managed beds
of which 4,986 are operational).Given the scale with a large proportion of
mature hospitals, APHS is well positioned to grow profitably despite
aggressive planned bed additions. APHS has mainly followed an organic
route to date and has consistently grown ahead of the industry growth rate.
Hospitals running the show: The hospital business constitutes ~73% of the
revenue and ~99% of operating profit for APHS. A strong foothold in south
India with mature hospitals (Chennai and Hyderabad clusters contribute >
55% of hospitals revenue) remains the key driver medium term along with
being a cash cow that will likely help fuel planned expansions. APHS has
plans to add ~2,400 beds (> 40% of current owned beds) by FY14 with an
additional capex of ~Rs8.5b.Access to capital is a competitive edge post the
recent successful QIP of Rs3.3b and another Rs2b due post the exercising of
warrants by promoters.
Integrated healthcare delivery model: APHS has a presence in the majority
of healthcare verticals including hospitals, pharmacy stores (~1,200 stores),
health insurance and a healthcare BPO. This gives APHS an edge over
competitors given the strong brand equity leveraged across the network.
Pharmacy business turnaround: A maturing store-mix of pharmacy
operation and incremental focus on profitability (vs. expansion earlier) is likely
to be accretive to overall operating profit. The potential listing (including stake
dilution to a strategic partner) of the pharmacy business and likely divestment
of the healthcare BPO business could unlock significant value, in our view,
going forward.
Earnings and target price revision
Initiating coverage with Outperform rating and TP of Rs645.
Price catalyst
12-month price target: Rs645.00 based on an EV/EBITDA methodology.
Catalyst: 1) Pharmacy business turnaround 2) Maturing hospitals
Action and recommendation
We value APHS at 14x FY13E EV/EBITDA at a relative premium to its global
peers and in line with its historical mean. We estimate 20% revenue and 22%
EBITDA cagr between FY11-14E and believe the premium valuations could
sustain given significant growth opportunity ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Hospitals
Numero Uno
Event
We initiate coverage on Apollo Hospitals (APHS IN) with an OP rating and a
target price of Rs645. Given the track-record, scale, pan India presence,
strong brand-equity and integrated healthcare delivery model APHS remains
strategically well positioned to capitalize on the domestic healthcare growth.
Increasing focus on Tier II and Tier III cities and a potential pharmacy
business turnaround further add to the investment appeal.
Impact
Numero uno: Apollo has been the pioneer of corporate hospitals and now
has the largest network of hospitals (5,842 owned and 2,875 managed beds
of which 4,986 are operational).Given the scale with a large proportion of
mature hospitals, APHS is well positioned to grow profitably despite
aggressive planned bed additions. APHS has mainly followed an organic
route to date and has consistently grown ahead of the industry growth rate.
Hospitals running the show: The hospital business constitutes ~73% of the
revenue and ~99% of operating profit for APHS. A strong foothold in south
India with mature hospitals (Chennai and Hyderabad clusters contribute >
55% of hospitals revenue) remains the key driver medium term along with
being a cash cow that will likely help fuel planned expansions. APHS has
plans to add ~2,400 beds (> 40% of current owned beds) by FY14 with an
additional capex of ~Rs8.5b.Access to capital is a competitive edge post the
recent successful QIP of Rs3.3b and another Rs2b due post the exercising of
warrants by promoters.
Integrated healthcare delivery model: APHS has a presence in the majority
of healthcare verticals including hospitals, pharmacy stores (~1,200 stores),
health insurance and a healthcare BPO. This gives APHS an edge over
competitors given the strong brand equity leveraged across the network.
Pharmacy business turnaround: A maturing store-mix of pharmacy
operation and incremental focus on profitability (vs. expansion earlier) is likely
to be accretive to overall operating profit. The potential listing (including stake
dilution to a strategic partner) of the pharmacy business and likely divestment
of the healthcare BPO business could unlock significant value, in our view,
going forward.
Earnings and target price revision
Initiating coverage with Outperform rating and TP of Rs645.
Price catalyst
12-month price target: Rs645.00 based on an EV/EBITDA methodology.
Catalyst: 1) Pharmacy business turnaround 2) Maturing hospitals
Action and recommendation
We value APHS at 14x FY13E EV/EBITDA at a relative premium to its global
peers and in line with its historical mean. We estimate 20% revenue and 22%
EBITDA cagr between FY11-14E and believe the premium valuations could
sustain given significant growth opportunity ahead.
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