CRISIL revises Apollo Hospitals' fair value to Rs 655

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CRISIL revises Apollo Hospitals' fair value to Rs 655

CRISIL Research has come out with its report on Apollo Hospitals Enterprise. The research firm has maintained the fundamental grade of 5/5 to the company in its February 16, 2012 report.

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CRISIL Research has come out with its report on Apollo Hospitals Enterprise . The research firm has maintained the fundamental grade of 5/5 to the company in its February 16, 2012 report.

Apollo Hospitals Enterprise Ltd's (Apollo's) Q3FY12 revenues and margins were in line with CRISIL Research's expectations but earnings were higher than expected. Healthy growth in the pharmacy and healthcare services businesses supported revenue growth. Increase in other income due to high cash balance and decline in interest cost led to strong earnings growth during the quarter. We continue to remain positive on Apollo given its leading position in the domestic healthcare industry, which has good growth prospects. Factoring in higher cash balance and resultant increase in other income, we have raised our earnings estimates for FY13. We maintain our fundamental grade of 5/5.

Q3FY12 standalone result analysis
• Revenues grew 2.1% q-o-q and 19% y-o-y to Rs 7,148 mn, supported by healthy growth in the pharmacy and healthcare services businesses. The pharmacy business registered a growth of ~7.8% q-o-q and 29.6% y-o-y to Rs 2,246 mn. The healthcare services business was flat q-o-q and up 14.6% y-o-y to Rs 4,903 mn. Historically, Q3 sees a decline in healthcare activity due to postponement in medical procedures during festive season.

• EBITDA margin declined by ~60 bps q-o-q to 16.6% (up 90 bps y-o-y) as healthcare services' margin declined due to low occupancy. Pharmacy margin improved ~20 bps q-o-q and ~150 y-o-y.

• PAT grew by 9.6% q-o-q and 41.1% y-o-y to Rs 647 mn due to revenue growth, decline in interest costs and higher other income. The company reported EPS of Rs 4.8 vs. Rs 3.7 in Q3FY11.

Key developments: Added 33 new pharmacy stores in Q3FY12
• Apollo added 33 new stores in Q3FY12, totalling 1,290. It is going slow on new additions and focusing on increasing profitability of the existing ones.

• It has outlay of Rs 16.5 bn for adding ~2,850 beds in the next three-four years. It incurred Rs 2.2 bn till December 2011, has cash balance of Rs 4.4 bn and balance funding will be through a mix of debt and internal accruals.

Earnings estimates - revised upwards, introducing FY14 numbers
We maintain our revenue and EBITDA margin estimates but raise our earnings estimates by 6% for FY13, factoring in higher interest income. We introduce FY14 numbers and expect revenue to increase by 17% y-o-y to Rs 40.2 bn with PAT of Rs 3.3 bn.

Valuations: Current market price is aligned
We continue to use the discounted cash flow method to value Apollo. We have rolled forward our projections by one year and factored in higher margins in the pharmacy business in the later years. Consequently, we revise our fair value to Rs 655 per share from Rs 533. Given the current market price, this translates to a valuation grade of 3/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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