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UBS Investment Research
First Read: Apollo Hospitals
News-reports about CBI raids on one of the
d irectors: Nothing new
Event: Media reports about CBI rain on one of the directors
There are some media reports of CBI raid against one of the directors, and key
shareholder of Apollo Hospitals in context of her role in the Aircel/Maxis deal.
We spoke with the company and as per the company this is in continuation of prior
CBI questioning of the same director. The director has a stake in Aircel through a
separate entity and not through Apollo Hospital. Also Maxis has clarified that it
holds 99% economic interest in Aircel, through the Apollo Hospitals director. We
think this news-flow is not a new event.
Impact: No impact on Apollo Hospitals
We expect that this news-flow is not important to Apollo Hospitals.
Action: Reiterate Buy rating and Rs650 price target
We believe that the current news-flow will not impact Apollo Hospitals’
fundamentals. We believe that Apollo Hospitals provides an attractive investment
opportunity to investors to invest in a secular growth story in the Indian healthcare
space. We retain our Buy rating and Rs650 price target on APLH.
Valuation: sum of the parts
We base our price target on our 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 an 11.85% WACC). At our
price target, 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
First Read: Apollo Hospitals
News-reports about CBI raids on one of the
d irectors: Nothing new
Event: Media reports about CBI rain on one of the directors
There are some media reports of CBI raid against one of the directors, and key
shareholder of Apollo Hospitals in context of her role in the Aircel/Maxis deal.
We spoke with the company and as per the company this is in continuation of prior
CBI questioning of the same director. The director has a stake in Aircel through a
separate entity and not through Apollo Hospital. Also Maxis has clarified that it
holds 99% economic interest in Aircel, through the Apollo Hospitals director. We
think this news-flow is not a new event.
Impact: No impact on Apollo Hospitals
We expect that this news-flow is not important to Apollo Hospitals.
Action: Reiterate Buy rating and Rs650 price target
We believe that the current news-flow will not impact Apollo Hospitals’
fundamentals. We believe that Apollo Hospitals provides an attractive investment
opportunity to investors to invest in a secular growth story in the Indian healthcare
space. We retain our Buy rating and Rs650 price target on APLH.
Valuation: sum of the parts
We base our price target on our 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 an 11.85% WACC). At our
price target, 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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