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Apollo Hospitals (APHS)
Pharmaceuticals
Growth intact. PAT ex-forex was 3% below our estimate due to lower sales growth on
account of slower growth in the Chennai cluster, which picked up sequentially but still
lower than our expectation. However, operating margin was higher than our estimate
by 50 bps. We leave our FY2012-13E consolidated estimates largely unchanged and
expect FY2012E sales growth at 20% (21% in 1HFY12) and EBITDA margin at 16.7%
(16.6% in 1HFY12). Maintain ADD; PT Rs650 (unchanged), 14X FY2013E EBITDA.
2QFY12 total income at Rs7 bn, 5% below our estimate
Total income grew 19% yoy to Rs7 bn in 2QFY12, 5% below our estimate due to lower growth in
both hospitals and pharmacies—(1) retail pharmacies reported sales of 25%, lowest in the past
several quarters due to the management’s focus on bottom line growth which led to calibrated
expansion in new stores and closure of 55 underperforming stores, and (2) healthcare services
reported sales of 17%, same as in 1QFY12, lower than our estimate of 22%, due to poor revenue
growth in Chennai which reported sales growth of only 9%. 2QFY12 witnessed strong
performance from Hyderabad and JV/other standalone hospitals—(1) Hyderabad reported sales
growth of 27.5% led by strong volume of 30% and ARPOB growth of 12.5%, (2) JVs and other
standalone hospitals reported sales growth of 19-24%. Sales growth was driven mainly by
increasing ARPOB with occupancy rates largely flat, although on expanded operational beds of
175 and 166 across JV and other standalone clusters, respectively.
EBITDA margin in 2QFY12 at 17%, flat yoy, 50 bps higher than our estimate
Despite lower sales growth than estimated, EBITDA margin beat our estimate at 17%, flat yoy, up
from 16.5% in 1QFY12, despite muted growth in the Chennai cluster which is an established
high-margin cluster. This was led mainly by improving ARPOB across all clusters by around 12-17%
across al four clusters led by (1) improving case mix towards high-margin ailments, (2) tariff
increase of around 6% yoy. Retail pharmacies showed qoq improvement in EBIT margin of 60 bps
at 0.8% led by (a) 60 bps EBITDA margin improvement in stores up to 2007 to 6% and (b) closure
of 55 underperforming stores. All cost items were in line with our estimate, however, selling costs
doubled yoy due to higher advertising spend and reclassification of expenses of Rs30 mn.
Maintain ADD with PT at Rs650 (unchanged)
Despite addition of around 500 operational beds in the past 18 months and slowing sales growth
to 21% in 1HFY12 from 28% in FY2011, Apollo has reported EBITDA margin at 16.6% in 1HFY12,
up from 16% in FY2011. Although there will be no significant bed additions in the next 12
months, we expect PAT growth of over 20% to sustain led by (1) maturity of new hospitals and (2)
improving profitability in SAP and JV/subsidiary hospitals.
Key takeaways from conference call
Apollo expects to take its owned bed count capacity to over 8,500 beds from the current
5,888 beds with addition of 2,300 beds over FY2012-15E, with majority coming on
stream in FY2014E.
Interest cost ex-forex increased yoy despite decline in gross debt levels to Rs6.4 bn as of
Sep 2011 from Rs7.4 bn as of March 2011 due to increase in interest cost by 200 bps.
Other income excluding forex increased to Rs70 mn in 2QFY12 from Rs45 mn in 2QFY11
due to interest income on funds collected through QIP.
Out of the total capex of Rs16 bn over FY2012-15E, Apollo has spent Rs1.6 bn YTD. Out
of the balance—(1) Rs5.3 bn will be the equity portion as Rs3.3 bn has been collected
through the recent QIP and Rs2 bn will come from the two tranches of outstanding
warrants, (2) Rs4 bn will come through internal accruals and (3) the balance through debt.
Cash as of Sep 2011 was Rs4 bn comprising funds collected through QIP. No further
dilution is planned and Apollo is comfortable taking debt/equity up to 1X from 0.3 X
currently to fund its expansion program. Further, Apollo could also generate funds from
unlocking value from investments in retail pharmacies and the Apollo Health Street.
Apollo aims to increase EBITDA margin from an average of 23% across its hospitals to 25-
26% over the next 3-4 years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Hospitals (APHS)
Pharmaceuticals
Growth intact. PAT ex-forex was 3% below our estimate due to lower sales growth on
account of slower growth in the Chennai cluster, which picked up sequentially but still
lower than our expectation. However, operating margin was higher than our estimate
by 50 bps. We leave our FY2012-13E consolidated estimates largely unchanged and
expect FY2012E sales growth at 20% (21% in 1HFY12) and EBITDA margin at 16.7%
(16.6% in 1HFY12). Maintain ADD; PT Rs650 (unchanged), 14X FY2013E EBITDA.
2QFY12 total income at Rs7 bn, 5% below our estimate
Total income grew 19% yoy to Rs7 bn in 2QFY12, 5% below our estimate due to lower growth in
both hospitals and pharmacies—(1) retail pharmacies reported sales of 25%, lowest in the past
several quarters due to the management’s focus on bottom line growth which led to calibrated
expansion in new stores and closure of 55 underperforming stores, and (2) healthcare services
reported sales of 17%, same as in 1QFY12, lower than our estimate of 22%, due to poor revenue
growth in Chennai which reported sales growth of only 9%. 2QFY12 witnessed strong
performance from Hyderabad and JV/other standalone hospitals—(1) Hyderabad reported sales
growth of 27.5% led by strong volume of 30% and ARPOB growth of 12.5%, (2) JVs and other
standalone hospitals reported sales growth of 19-24%. Sales growth was driven mainly by
increasing ARPOB with occupancy rates largely flat, although on expanded operational beds of
175 and 166 across JV and other standalone clusters, respectively.
EBITDA margin in 2QFY12 at 17%, flat yoy, 50 bps higher than our estimate
Despite lower sales growth than estimated, EBITDA margin beat our estimate at 17%, flat yoy, up
from 16.5% in 1QFY12, despite muted growth in the Chennai cluster which is an established
high-margin cluster. This was led mainly by improving ARPOB across all clusters by around 12-17%
across al four clusters led by (1) improving case mix towards high-margin ailments, (2) tariff
increase of around 6% yoy. Retail pharmacies showed qoq improvement in EBIT margin of 60 bps
at 0.8% led by (a) 60 bps EBITDA margin improvement in stores up to 2007 to 6% and (b) closure
of 55 underperforming stores. All cost items were in line with our estimate, however, selling costs
doubled yoy due to higher advertising spend and reclassification of expenses of Rs30 mn.
Maintain ADD with PT at Rs650 (unchanged)
Despite addition of around 500 operational beds in the past 18 months and slowing sales growth
to 21% in 1HFY12 from 28% in FY2011, Apollo has reported EBITDA margin at 16.6% in 1HFY12,
up from 16% in FY2011. Although there will be no significant bed additions in the next 12
months, we expect PAT growth of over 20% to sustain led by (1) maturity of new hospitals and (2)
improving profitability in SAP and JV/subsidiary hospitals.
Key takeaways from conference call
Apollo expects to take its owned bed count capacity to over 8,500 beds from the current
5,888 beds with addition of 2,300 beds over FY2012-15E, with majority coming on
stream in FY2014E.
Interest cost ex-forex increased yoy despite decline in gross debt levels to Rs6.4 bn as of
Sep 2011 from Rs7.4 bn as of March 2011 due to increase in interest cost by 200 bps.
Other income excluding forex increased to Rs70 mn in 2QFY12 from Rs45 mn in 2QFY11
due to interest income on funds collected through QIP.
Out of the total capex of Rs16 bn over FY2012-15E, Apollo has spent Rs1.6 bn YTD. Out
of the balance—(1) Rs5.3 bn will be the equity portion as Rs3.3 bn has been collected
through the recent QIP and Rs2 bn will come from the two tranches of outstanding
warrants, (2) Rs4 bn will come through internal accruals and (3) the balance through debt.
Cash as of Sep 2011 was Rs4 bn comprising funds collected through QIP. No further
dilution is planned and Apollo is comfortable taking debt/equity up to 1X from 0.3 X
currently to fund its expansion program. Further, Apollo could also generate funds from
unlocking value from investments in retail pharmacies and the Apollo Health Street.
Apollo aims to increase EBITDA margin from an average of 23% across its hospitals to 25-
26% over the next 3-4 years.
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