CRISIL Research Cust Bulletin May Jun 14

CRISIL CRBCustomised Research Bulletin
May - June 2014

Real Estate
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With a new government assuming power at the Centre, riding on a
decisive electoral mandate, the portents for Indias economy are
certainly positive. And the real estate sector is not an exception. After
a sustained economic slowdown, that kept real estate demand and
capital values subdued for last 4-5 quarters, the expectation is that
the new governments policies to address inflation, job creation and
kickstart the investment cycle will provide a boost to growth leading
to a gradual recovery in the sector.

Creating jobs will particularly provide a shot in the arm to a sagging
real estate sectors fortunes, as more jobs will mean higher
disposable incomes. Moreover, any amendments and greater clarity
on the Land Acquisition Act may make it easier for developers to
acquire land. However, as the impact of the new policies is unlikely to
be instantaneous, the revival in demand will be gradual. Moreover,
interest rates are expected to remain firm in the near term, which
hints that growth in demand is expected to improve at a measured
pace. As real estate demand improves, capital values in the 10 major
cities are also likely to increase albeit marginally. In this issue, we
have also examined unfolding trends in related sectors such as
hotels, retail and hospitals.

In 2013, new apartment sales declined across the top 10 cities we
track, barring IT/ITeS hubs like Bengaluru and Pune. Worsening
demand, amid huge unsold inventories, also pulled down capital
values across most cities in the last 8-10 months. However, stable
demand helped Pune and Bengaluru to ward off a fall in capital
values. We expect real estate demand to revive and grow by 5-6 per
cent in 2015. While significant pent-up demand is likely to drive up
real estate absorption by 6-7 per cent in Mumbai, demand in the
NCR, Chennai, Bangalore and Pune is likely to grow by around 5 per
cent.

Foreword

2

CRISIL CRB Customised Research Bulletin

Foreword
The retailing sector too will see green shoots of a recovery in 2014-15.
After having slumped to decadal lows, we expect growth in the Indian
organized retail industry to improve to 13-14 per cent during the year.
Retailers margins will also improve further by 50-100 basis points, as the
effect of cost rationalization measures initiated in 2013-14 continues.
Organized retail penetration is also likely to reach 10 per cent by 2018-19
from 7.9 per cent in 2013-14.

For hotels too, a marginal recovery is in sight, but it will be visible only
from 2015-16. With room supply growing faster than demand in 2014-15,
both occupancy rates (ORs) and average room rates (ARRs) will decline.
As the situation reverses starting 2015-16, ORs will recover. However,
rising competition will keep ARRs rangebound and consequently
revenues per available room (RevPARs) are expected to remain flat over
the next 3-4 years at Rs 4,500.

For the healthcare industry, where a lack of infrastructure (low beds to
population ratio) is a major issue, the game changer will be a rise in
private investments, especially for in-patient department (IPD)
treatments. Among daycare models that we have analysed, the eye care
delivery market will be worth keeping an eye on, given the attractive
returns that it offers.

Prasad Koparkar
Senior Director
Industry & Customised Research

3

Opinion
Segment-wise review of the Indian real estate market 01

Interview
Binaifer F. Jehani, Director - CRISIL Research 03

Economic Overview June 2014 05

Industry Overview
Healthcare delivery 06
Hotels 09
Organised Retail 13

Independent Equity Research Report
Apollo Hospitals Enterprise Ltd, June 05, 2014 15

Customised Research Services
Real Estate 16

Media Coverage 17

Contents

4


1

1. Residential Real Estate
Demand remained tepid in 2013 as well
In 2013, high interest rates and sticky inflation
continued to exert pressure on demand across the 10
major cities (Mumbai, NCR, Bengaluru, Kolkata,
Chennai, Hyderabad, Pune, Ahmedabad, Chandigarh
and Kochi) as potential buyers remained in a wait-and-
watch mode. Consequently, new home bookings
declined year-on-year across all cities barring Pune and
Bengaluru. Average capital values too grew by a tepid
4-5 per cent y-o-y, mainly led by a rise in the first half.
In the latter half of the year, capital values remained
stable or declined marginally over the first half.

Capital value index (for 10 major cities)

Note: Indexed to 2005; E- Estimated
Source: CRISIL Research

Mumbai, NCR to house half of estimated supply
Of the 2.2 billion sq ft of supply planned in the 10 cities,
CRISIL Research expects only 54 per cent (1.2 billion
sq ft) to come up by 2016. Mumbai and NCR alone are
expected to account for 49 per cent of the estimated
supply.

Planned v/s CRISIL Research's estimated supply
(2014-16)


2. Commercial office space
Rentals in most micromarkets stay below 2008
peaks
During the global economic slowdown in 2008-09,
demand for commercial office space, especially from
the IT/ITeS and BFSI sectors, plummeted causing
average lease rentals to fall by 25-30 per cent between
the first half of 2008 and the second half of 2009. In
subsequent years, average lease rentals in the 10
major cities have moved sideward, barring a few micro-
markets which have recorded a rise or a fall. Demand
gained momentum briefly in the first half of 2011, but
high vacancies restricted a sharp rise in lease rentals.
Weak demand has also slowed down execution of
many projects. Currently, lease rentals in almost 90 per
cent of micromarkets in the 10 major cities are 25-30
per cent below peak levels seen in the first half of 2008.

100
120
140
160
180
200
220
240
260
280
300
2
0
0
5
2
0
0
6
2
0
0
7
H
1

2
0
0
8
H
2

2
0
0
8
H
1

2
0
0
9
H
2

2
0
0
9
H
1

2
0
1
0
H
2

2
0
1
0
H
1

2
0
1
1
H
2

2
0
1
1
H
1

2
0
1
2
H
2

2
0
1
2
H
1

2
0
1
3
H
2

2
0
1
3
H
1

2
0
1
4

E
Capital Value Index
18
39
63
63
80
94
124
128
161
419
28
74
88
109
127
155
184
188
322
934
Kochi
Chandigarh Tricity
Ahmedabad
Kolkata
Chennai
Hyderabad
Bengaluru
Pune
Mumbai - MMR
NCR
Planned Supply (mn sq ft.)
CRISIL Research's Estimated Supply (2014-16) (mn sq ft.)
Opinion
Segment-wise review of the Indian real
estate market

2

Lease rental index (for commercial office spaces in
10 major cities)

*Excludes Ahmedabad since transactions happen on outri ght
basis

Only 31 per cent of the total planned supply to
materialise by 2016; oversupply to persist
Of the total 389 million sq ft of office space planned in
the 10 major cities, CRISIL Research expects only 121
million sq ft to metarialise during 2014 to 2016. Of this,
NCR, Bengaluru and Pune will together account for 61
per cent. However, there is a clear evidence of
oversupply as demand will amount to only 53 million sq
ft during the period.

Planned v/s CRISIL Research's estimated supply
(2014-16)

3. Retail real estate
Vacancy levels continue to stunt rise in rentals
Post the 2008-09 slowdown, demand for retail real
estate space was weighed down by the prevailing
oversupply. Since the first half of 2010, lease rentals in
the 10 major cities have also remained flat owing to the
vacancies, failing to breach peak levels seen in the first
half of 2008.

Lease rental index (for retail spaces in 10 major
cities)


NCR to see maximum additions in mall space
during 2014 to 2016
Of the total 70 million sq ft of planned retail real estate
space, CRISIL Research only 27 million sq ft to come
up during 2014 to 2016. In other terms, about 90 malls
out of the total planned 168 malls are likely to be
operational by 2016, of which 39 malls are expected to
be located in the NCR.

100
110
120
130
140
150
160
170
180
190
2
0
0
5
2
0
0
6
2
0
0
7
H
1

2
0
0
8
H
2

2
0
0
8
H
1

2
0
0
9
H
2

2
0
0
9
H
1

2
0
1
0
H
2

2
0
1
0
H
1

2
0
1
1
H
2

2
0
1
1
H
1

2
0
1
2
H
2

2
0
1
2
H
1

2
0
1
3
H
2

2
0
1
3
H
1

2
0
1
4
E
Lease Rental Index
3
2
3
8
9
6
16
20
18
35
7
10
10
21
31
39
53
64
68
86
Chandigarh Tricity
Kochi
Ahmedabad
Chennai
Kolkata
Hyderabad
Mumbai - MMR
Pune
Bengaluru
NCR
Planned supply (mn sq ft.)
CRISIL Research expected supply (2014-16) (mn sq ft.)
100
120
140
160
180
200
220
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8

H
1
2
0
0
8

H
2
H
1

2
0
0
9
H
2

2
0
0
9
H
1

2
0
1
0
H
2

2
0
1
0
H
1

2
0
1
1
H
2

2
0
1
1
H
1

2
0
1
2
H
2

2
0
1
2
H
1

2
0
1
3
H
2

2
0
1
3
H
1

2
0
1
4
E
Lease Rental Index

3

Binaifer F. Jehani, Director, CRISIL Research, Binaifer
leads the research function on the real estate sector at
CRISIL Research. She is responsible for overseeing a
large team of analysts, offering comprehensive
research coverage on real estate, spanning residential,
commercial and retail space. Her areas of expertise
also comprise healthcare delivery, hospitality and
housing finance.

In addition, Binaifer manages customised assignments,
which involve gauging the feasibility, underlying market
potential, etc of prospective business models for
developers, private equity firms, investment bankers
and banks. Research findings of such bespoke
assignments empower these players to make informed
and effective investment decisions.

Binaifer joined CRISIL in 2004. During the course of her
eight-year stint, she has successfully handled several
projects, involving estimation of market and financial
feasibility. These projects have driven critical business
activities in areas of expansion, capacity building, etc.
She has been an active participant at real estate
forums, where she proffered valuable insights and
opinions on vital sectoral issues.

In 2008, Binaifer pioneered the product called City
Reality, which determined underlying potential in the
top ten cities of India. Further, in 2011, she was
instrumental in conceptualising the Reality Next report,
covering the newly emerging cities, by going beyond
the conventional top ten Indian cities.

Binaifer is a Qualified Chartered Accountant and holds
a Post Graduate Diploma in Business Administration
with specialisation in finance from Symbiosis Institute of
Business Management in Pune..

Which segment within the real estate industry is
likely to grow faster in the next 2 years?
With a new government taking power at the Centre,
things should start looking up for the real estate industry
and the residential segment in particular. However, a
recovery in demand will be gradual as prices remain
unaffordable. Over the past 8-10 months, tepid demand
had in fact pulled down capital values by 3-4 per cent
across most of the 10 major cities. Buyers maintained a
wait-and-watch mode given the political and economic
uncertainties. Therefore, capital values are likely to rise
again only in 2015, and only by 2-4 per cent y-o-y,
across the major cities.

In the commercial real estate market, high vacancies
are expected to restrict a rise in lease rentals in the
near term, despite fewer project launches. However,
rentals will also not fall from current levels as we
believe that they have already bottomed out. CRISIL
Research, therefore, expects commercial office space
rentals to remain stable until 2015.

Demand in which of the 10 major cities is expected
to outgrow the rest in the near term?
Pune and Bengaluru. Housing demand in both cities will
by far be driven by a growing IT/ITeS industry. The
Interview
Binaifer F. Jehani
Director, CRISIL Research

4

rising preference for mid-range apartments has helped
these cities weather an economic slowdown. Steady
demand will drive up capital values in these markets by
2-4 per cent between 2014 and 2015. Moreover, both
cities are well-connected to peripheral areas, which
house bulk of upcoming supply. The development of
key infrastructure projects like the Metro Rail and the
ring road is also expected to bolster demand in these
cities.

Which are the micromarkets which will see
maximum appreciation in capital values?
In the long term, certain micromarkets in large cities will
definitely outperform others. For instance, in Mumbai,
capital values in Chembur will rise sharply as various
infrastructure projects such as the Monorail and Metro
rail - improve connectivity. In Pune, prices in
micromarkets like Kharadi and Chakan will also surge
aided by infrastructure projects. In Bangalore, strong
demand from the IT/ITeS sector, will drive up capital
values in Hebbal and Whitefield.

How is the retail industry expected to grow in the
near term and how will this benefit demand for retail
real estate space?
We expect that a revival in consumer sentiments is key
to the retail industrys growth and by extension, demand
for retail real estate space. Going forward, we expect
organised retail industry to grow faster led by higher
same store sales growth and new store rollouts,
especially after hitting a decadal low in 2013-14. New
store rollouts will drive up demand for retail real estate
space, while prevailing high vacancies will restrict a rise
in retail lease rentals in the near term..

5

Indian Economy
Economic Overview June 2014

Macroeconomic Indicators - Forecasts

Medium Threat
Credit growth (%)
Industrial production growth (%) Trade Growth (%)
Currency
Foreign inflow (US$ bn)
Interest rates (%)
Sectoral inflation (%)
High Threat
Inflation (%)
-8
-4
0
4
8
M
a
y
-
1
3
J
u
l
-
1
3
S
e
p
-
1
3
N
o
v
-
1
3
J
a
n
-
1
4
M
a
r
-
1
4
M
a
y
-
1
4
FDI+(ECBs/FCCBs)
Net FII flows
40
45
50
55
60
65
70
May-13 Aug-13 Nov-13 Feb-14 May-14
Avg Rs per US$
-20
-10
0
10
20
Exports Import s
7
8
9
10
11
M
a
y
-
1
3
J
u
l
-
1
3
S
e
p
-
1
3
N
o
v
-
1
3
J
a
n
-
1
4
M
a
r
-
1
4
M
a
y
-
1
4
1 Yr 10 Yr
4
8
12
WPI CPI-IW
0
10
20
M
a
y
-
1
3
A
u
g
-
1
3
N
o
v
-
1
3
F
e
b
-
1
4
M
a
y
-
1
4
Primary
Fuel
Manufacturing
-4
0
4
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
Mfg
0
10
20
30
Non-f ood credit growth
2013-14 2014-15F Rationale
Growth Agriculture 4.6* 3.0
Industry 0.7* 4.0
Services 6.9* 7.6
Total 4.7* 6.0
Inf lation CPI - Average 9.5 8.0
Lagged impact of rate hikes in 2013-14 to bring down non-f ood inf lation. Lower crude
oil prices to ease inf lation in f uel and transportation.
Fiscal def icit as a % of GDP 4.5 4.3
Fiscal def icit expected to remain at elevated levels in 2014-15. Low probability of
adoption of tax ref orms like goods and services tax to cap government revenues. In
addition, rollover of f uel subsidies f rom this year to limit the downside to subsidies.
Interest rate
10- year G-Sec
(year end)
8.8 8.6
Lower inf lation, better liquidity conditions and higher deposit growth to push yields
down. However, high government borrowings to ref inance outstanding debt to limit the
downside.
Exchange
rate
Re/US $
(year end)
60.1 60.0
Forecast revised down to ref lect higher f oreign inf lows than expected earlier, due to
monetary easing in the Eurozone and likely opening up of FDI across sectors.
Note *CSO Advanced Estimates,# Revised estimates, F: Forecasted
Source: Central Statistical Office, RBI, Budget documents, CRISIL Research
Resumption of stalled projects, rise in mining output and higher external demand to
boost growth. Industry to grow at 4.0%. Services and agriculture to grow by 7.6%
and 3.0% respectively. Risks to f orecast f rom a def icient monsoon are however,
rising.

6

Industry Overview

Healthcare delivery

Eyeing the gains in healthcare delivery
Until a few years ago, words like cataract, corneal
implant, surgery, conjured images of long-drawn
operations. No more. With private eye care chains
widening their presence in India, all treatments from
optical treatments or cataract surgeries take only a
few hours at the most. Though costs seem to be a bar,
the patients queuing arent few. Rising incomes and
better insurance penetration have led to more people
seeking paid treatments. Moreover, as private eye care
centres/ chains require less space and a lower capital
outgo, the returns and profits are also better vis--vis
other healthcare delivery models studied by CRISIL
Research.

Eye care chains to grow easily as more patients
queue up
Estimated to be worth Rs 120 billion as of 2013-14, the
market for eye care treatments in India is poised to Rs
236 billion in the next five years. The emergence of
private eye care chains, in a space dominated by
hospitals and standalone centres, will underline the next
growth story in the eye care services market. But are
their takers? Definitely. An ageing and increasingly
diabetic population, greater preference for paid eye
care, shorter procedures and use of better technology
in most treatments will aid a steady rise in people
seeking eye care treatments.

Large patient population.
A majority of Indians with eye disorders struggle with
normal refractive disorders. However, the real gain lies
in tapping the rising demand for surgeries, especially
cataract surgeries, in a largely ageing and diabetic
population. As life expectancy increases, roughly a
tenth of Indians are likely to come under the above 60-
year age bracket over the next five years. Secondly,
India, which is also the diabetes capital of the world, will
contribute to a huge patient base for eye care
treatments: about 75 per cent people with Type 2
diabetes will develop diabetic retinopathy after 15 years
as a diabetic.

Eye care surgery market in 2013-14 (volumes)


better technology making paid eye care attractive
Almost 50 per cent of eye surgeries are performed free
of cost or at highly subsidised rates currently. However,
the emergence of better technology (non-invasive
treatments) is also aiding the shift away from low-cost
or free treatments. For instance, cataract surgeries are
increasingly carried out using phacoemulsification,
where the lens is emulsified and sucked out through a
small incision rather than manual surgeries, which carry
a relatively higher risk of infections. Though
phacoemulsification treatments are at least 40-50 per
cent pricier than normal procedures, efficiency and the
lesser time taken outweigh the cost factor.

Cataract
82%
Retina
diseases
5%
Glaucoma
2%
Cornea
diseases
3%
LASIK etc
3%
Others
5%

7
Key private players in the eye care space

Strong demand for eye care (as highlighted above) and
lower capital outgo ensures attractive returns on
investment, which has prompted the entry of chains in
this industry.

Returns attractive due to strong demand and low
capital outgo
As compared to most other single-specialty hospitals
such as cardiology, oncology or multi-specialty
hospitals, a tertiary eye care centre requires a capital
investment of only Rs 60-70 million. A well-established
tertiary centre can earn operating margins of 25-30 per
cent once it breaks even. Similarly, IRRs for an eye
care centre also fare better vis--vis other healthcare
delivery models studied by CRISIL Research.

Eyeing the money

Hub-and-spoke model aids expansion
Eye care chains are of three types primary (the hub),
secondary and tertiary (the spokes). Primary centres
are usually located in rural areas and are mainly for
outpatient services such as screening and consultation.
Charitable players mostly operate primary centres. In
India, on account of shortage of doctors, there are a few
primary eye care centres with telemedicine facilities.
Secondary eye care centres are mainly located in
smaller towns and cities. These centres mostly cater to
cataract surgeries. For other complex procedures,
patients are referred to tertiary centres.

Brand presence, consistent quality key to success
Low capital costs alone do not make the case for an
eye care chain. To fully tap the potential of this
segment, a strong brand presence is essential for any
player before widening its reach. Associating with
reputed doctors and consistently delivering quality
Center Dr Agarwal's Eye
for Sight Eye Hospitals Q
Established in 1996 1976 2006
No of centers 45 44 24
Locations AP, Gujarat, MP,
Punjab,
UP,NCR,J&K,
Maharashtra,
Rajasthan
TN, Karnataka,
AP, Rajasthan,
Odisha,
Andaman &
Nicobar
NCR, UP,
Haryana,
Uttarkhand,
Gujarat
Revenues (Rs
billion)
1.2
( 2012-13)
1.1
( 2012-13)
0.25
( 2011-12)
Lotus Medfort Vasan
Eyecare Hospitals Healthcare
Established in 1993 n.a. 2002
No of centers 7 13 150
Locations TN, Kerala NCR, AP, TN AP, NCR, WB,
UP, TN, MP,
Rajasthan,
Punjab,
Maharashtra,
Kerala,
Karnataka,
Gujarat,
Haryana,
Jharkhand
Revenues (Rs
billion)
0.3
( 2012-13)
n.a. 5
( 2011-12)
n.a.: Not available; AP: Andhra Pradesh; J&K: Jammu & Kashmir; MP:
Madhya Pradesh; NCR: National Capital
Region; TN: Tamil Nadu; UP: Uttar Pradesh
Type of center/hospital Project IRRs Project Cost
Eye care center ( 4500 sq ft) 17-18% Rs 60-70 million
Dialysis center ( 1500 sq ft) 14-15% Rs 9-10 million
Cardiac super specialty
hospital ( 100 beds)
13-14% Rs 800-900 million
Oncology super specialty
( 200 beds)
13-14% Rs 1,700-1,800 million
Multispecialty Hospital
( 200 beds)
16-17% Rs 1,500-1,600 million

8

treatments will build the brand. Chains must guardedly
expand through the franchisee model as any negative
publicity by word-of-mouth or otherwise can damage
brand/ business prospects.

Moreover, eye care is region-specific. A strong brand in
one city may be unknown in another city. Hence,
intense marketing efforts are necessary. For example,
Vasan Healthcare opened eight centres between 2002
and 2008, and over 120 centres in the next four years.

9
Industry Overview

Hotels

Average occupancy rates (ORs) of premium segment
hotels in India are expected to improve marginally in
2015-16 after remaining at decadal lows of 59 per cent
in 2013-14 and 2014-15. Premium hotels have been
reeling under severe stress, as a demand slowdown
coinciding with huge supply additions. However, an
improvement is in sight from 2015-16 onwards, as
demand picks up and supply additions slow down.
While occupancy rates (ORs) are expected to recover
first, intense competition will keep average room rates
(ARRs) remain under pressure over the next two years.
Consequently, the revenue per available room
(RevPAR) is expected to remain flattish over next 2
years.

Room demand growth to improve to 9 per cent in
the next 2 years

Demand growth is expected to improve

F: Forecast

Post the first economic slowdown in 2008-09, room
demand for premium hotels increased at a CAGR of 11
per cent between 2009-10 and 2011-12. As a global
economic slowdown in 2012-13 and 2013-14 too,
impacted both business and leisure travel, room
demand growth slowed to 7 per cent. However, CRISIL
Research expects room demand growth to improve to
9- 10 per cent 2014-15 onwards with a recovery in
business sentiments as the global and Indian macro-
economic situation improves.

Rising demand; fewer room additions hint at better
times

Supply growth expected to moderate

F: Forecast

Room supply in business and leisure destinations

F: Forecast

Room additions by premium hotels are expected to
increase at a slower 8 per cent over 2014-15 and 2015-
-0.05
0
0.05
0.1
0.15
0.2
0.25
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
2
0
1
2
-
1
3
2
0
1
3
-
1
4
2
0
1
4
-
1
5

F
2
0
1
5
-
1
6

F
33,300
36,200
39,850
56,850
61,100
66,100
2013-14 2014-15 F 2015-16 F
(nos)
Room demand Room supply
44,550
48,050
11,050
12,300 13,050
2013-14 2014-15
F
2015-16
F
2012-13 2013-14 2014-15
F
(nos)
Room demand Room
Business destinations Lesiure destinations

10

16, as compared to an 11 per cent growth in the
previous two years. Supply is moderating mainly on
account of project delays and postponements in light of
the stress being felt by players. In an environment of
room oversupply and falling RevPARs, the payback
period for new hotels has almost doubled to 10-12,
years causing many plans for new hotels to be shelved
or delayed.

ORs likely to improve

Though pan-India supply will far exceed demand

F: Forecast
With an uptick in demand and incremental supply moderating
over the next 2 years, occupancy rates are expected to
improve from 2015-16 onwards

...More rooms to be occupied in both business and
leisure destinations

F: Forecast
However, ARRs to continue to slide with increasing
competition

Pan India- ARR and RevPAR

F: Forecast

Average room rates (ARRs) for premium hotels are
expected to continue falling in 2014-15 and 2015-16
(after an annual decline of 4 per cent in 2012-13 and
2013-14). Despite an improvement in occupancy rates,
an oversupply of rooms, intense competition (also from
branded mid-market hotels) will curb the pricing power
of hotels. The revenue per available room (RevPAR),
which takes into account both ARR and ORs, will
remain flat over the next 2 years.

73
71
65
61
65
62
61
59
59
60
40
50
60
70
80
0
20,000
40,000
60,000
80,000
2
0
0
6
-
0
7
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
2
0
1
2
-
1
3
2
0
1
3
-
1
4
2
0
1
4
-
1
5

F
2
0
1
5
-
1
6

F
(per cent)
(nos)
Room demand (LHS) Room supply (LHS)
Occupancy rate (RHS)
50
55
60
65
70
75
80
2
0
0
6
-
0
7
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
2
0
1
2
-
1
3
2
0
1
3
-
1
4
2
0
1
4
-
1
5

F
2
0
1
5
-
1
6

F
(per cent)
ORs : Business destinations ORs: Leisure destinations
7100
7050
4150
4250
2
0
0
6
-
0
7
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
2
0
1
2
-
1
3
2
0
1
3
-
1
4
2
0
1
4
-
1
5

F
2
0
1
5
-
1
6

F
(Rs per
day)
ARR RevPAR

11
City-wise forecasts

Business destinations

NCR: Room demand, room supply and ORs

F: Forecast

Chennai: Room demand, room supply and ORs

F: Forecast

Large business destinations such as the National
Capital Region (NCR), Bengaluru and Chennai will see
supply additions far in excess of demand, which will pull
down RevPARs by 3-4 per cent. In contrast, Mumbai
will see relatively fewer room additions and, thus,
RevPARs will increase by 5 per cent over the next 2
years.

Bengaluru: Room demand, room supply and ORs

F: Forecast

Mumbai: Room demand, room supply and ORs

F: Forecast

9,250
16,000
50
60
70
80
0
4,000
8,000
12,000
16,000
20,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)
(nos)
Room demand (LHS) Room supply ( LHS)
2,823
5184
40
50
60
70
80
0
1,000
2,000
3,000
4,000
5,000
6,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent) (nos)
4,482
7,717
40
50
60
70
80
0
2,000
4,000
6,000
8,000
10,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)
(nos)
6,761
10100
50
60
70
80
0
3,000
6,000
9,000
12,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent) (nos)

12

Ahmedabad: Room demand, room supply and ORs

F: Forecast

Hyderabad: Room demand, room supply and ORs

F: Forecast

Among smaller business destinations, such Hyderabad
and Ahmedabad, where RevPARs have already
declined substantially, an increase of 5-8 per cent is
expected over the next 2 years.

Leisure destinations

Jaipur: Room demand, room supply and ORs

F: Forecast

Goa: Room demand, room supply and ORs

F: Forecast
Source: CRISIL Research.

Among the large leisure destinations, Jaipur and Goa
will also record a rise of 3-5 per cent in RevPARs over
the next 2 years.

1,020
1708
40
50
60
70
80
0
400
800
1,200
1,600
2,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent) (nos)
2,895
5099
40
50
60
70
80
0
1,500
3,000
4,500
6,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent) (nos)
2,442
4225
40
50
60
70
80
0
1,000
2,000
3,000
4,000
5,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent) (nos)
3,776
5,152
40
50
60
70
80
0
1,500
3,000
4,500
6,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent) (nos)
Room demand (nos.) Room supply (nos.)
Occupancy rate (OR) %

13
Industry Overview

Organised Retail

Growth in retail industry to improve marginally in
2014-15
The overall retailing industry in India is estimated to be
worth ~Rs 31 trillion in 2013-14. Growth in the industry
sunk to the levels of 10-11 per cent, the slowest in the
past 10 years, owing to sluggish economic activities.
Slowdown in overall retailing growth also affected the
organised retailers. The growth in the 2.4 trillion
organised retail industry is estimated to have dipped to
about 12 per cent in 2013-14, the slowest in the past 10
years on account of weak consumer spending due to
lower growth in disposable income and limited new
store rollouts

We expect the economy to pick up in 2014-15, which, in
turn, will help improve consumer sentiment. As a result,
we expect growth in the overall retailing industry to be
marginally higher at about 12 per cent. For organised
retailers, we expect growth to improve to about 13-14
per cent, aided by higher same-store sales and new
store rollouts.

Organised retail market y-o-y growth (RHS)

Note: - E- Estimated, P- Projected

Operating margins to improve on continued cost
rationalisation measures
Despite the slowdown in demand, retailers managed to
expand margins by ~100 bps in 2013-14 owing to
various cost rationalisation measures such as limited
new store rollouts, closure of unprofitable stores, right
sizing of stores, increasing share of private labels, etc.
We expect operating margins to improve further by
about 50-100 bps in 2014-15, on the back of rebound in
demand, continued cost rationalisation measures, lower
discounts and discount days and cautious new store
rollouts.

Operating margins retail y-o-y growth (RHS)


ORP to reach 10 per cent in 2018-19
The overall retailing industry grew at 14-15 per cent
CAGR during the past 5 years (2008-09 to 2013-14).
Indias GDP grew by 6.8 per cent CAGR during the
period. Over the next 5 years, we expect GDP growth to
slow down marginally to 6 per cent CAGR, pulling down
overall growth in the retailing industry to 12-13 per cent
CAGR. We expect the organised sector of the industry
to grow at a CAGR of 17-19 per cent during 2014-15 to
2018-19, slower than the previous 5-year CAGR of 22
1.5 1.8 2.2 2.4 2.8
34%
24%
20%
12%
13-15%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2010-11 2011-12 2012-13 2013-14 E 2014-15 P
(Rs trillion)
Organised retail market y-o-y growth (RHS)
9.5
8.6
8.2
6.9
8.1
8-9
20
34
24
20
12
13-14
0
5
10
15
20
25
30
35
40
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2009-10 2010-11 2011-12 2012-13 2013-14
E
2014-15
P
( per cent) ( per cent)
Operating margins Organised retail y-o-y growth (RHS)

14

per cent. Retailers are expected to be more cautious in
terms of new store rollouts, right sizing of the stores and
space rationalisation.

Following the growth in the organised retail segment,
we expect the ORP to reach 10 per cent by 2018-19
from 7.9 per cent in 2013-14.

Long term growth prospects for organised retail


Very low ORP expected in food and grocery
segment
The food and grocery segment, the largest segment,
will continue to have very low organised retail
penetration (ORP) as the players continue to face stiff
competition from the unorganised grocery stores. On
the other hand, organised retailers will continue to have
strong presence in verticals such as apparels,
consumer durables, jewellery and footwear..

0.9
2.2
2.4
2.8
5.6
2008-09 2012-13 2013-14
E
2014-15
P
2018-19
P
( Rs
trillion)
10 7.9 5.8
ORP

15

Apollo Hospitals Enterprise Ltds (Apollos) Q4FY14 results were below CRISIL
Researchs estimates. While revenue growth of 17.7% y-o-y was broadly in line
with our expectations on account of better performance of the pharmacy business
(27.6% y-o-y growth), the hospital business reported lackluster performance.
Revenue of the hospital business grew a moderate 12.6% on account of lower
occupancy as the ramp-up in the new hospitals has been slower than expected.
This resulted in an EBITDA margin contraction of 62 bps y-o-y and 85 q-o-q to
15%. Subsequently PAT grew by a modest 14.6% y-o-y, and was lower than our
expectations. We have lowered our earnings estimates for FY15 and FY16
factoring in slower-than-expected ramp-up in new hospitals and delay in
commissioning of new hospitals While we expect commissioning of 1,000 new
beds in the next two years to aid revenue growth, we believe it would result in
temporary margin pressure. We expect the company to go back to its normal
margin levels of 16% plus post FY16. We maintain the fundamental grade of 5/5
given its strong positioning in the healthcare sector, established brand and strong
management..
Growth across hospitals in Chennai, Hyderabad, tier II/III cities: muted
q-o-q, up y-o-y
Inpatient volumes grew by a moderate 6.3% y-o-y on account of slow ramp up in
the new hospitals - Ayanambakkam, Jayanagar and Trichy and decline in
occupancy in the existing hospitals. During the quarter, occupancy across
hospitals was under pressure mainly due to postponement of surgeries. Going
forward, we expect occupancy to improve gradually; this coupled with addition of
beds is expected to drive revenues. Of the capacity addition plan of 2,310 beds,
we expect 560 and 900 beds to be operational by FY15-end and FY16-end
respectively. We expect the hospitals business revenues to grow at a two-year
CAGR of 16.2%; new hospitals are estimated to contribute 10% to revenues in
FY16.
Pharmacy business going strong; expect healthy revenues with margin
improvement
As witnessed in the last few quarters, the pharmacy business maintained strong
growth momentum. Revenues grew by a robust 27.6% y-o-y to 3,649 mn on
account of increase in revenue per store (up 17.5% y-o-y to 2.24 mn) and
addition of more than 100 stores during the past one year. EBITDA margin across
stores (mature and non-mature) recorded steady improvement driven by growth in
revenue per store; this coupled with higher contribution from private labels led to
60 bps y-o-y improvement in EBITDA margin to 3.3%. Going forward, we expect
strong revenue growth of 21% during FY14-16 driven by an expected 14% growth
in same-store-sales and addition of 100 stores per annum. EBITDA margin is
expected to improve to 3.9% in FY16 from 3.3% in FY14.
Earnings estimates lowered; fair value revised to 1,010 per share from
1,040
Factoring in lower volumes and delay in capacity addition, we have lowered
FY15-16 EPS estimates by 3.5% and 4.4% respectively. We continue to value
Apollo by the discounted cash flow (DCF) method. In line with the revision in
earnings estimates, we have lowered our fair value to 1,010 from 1,040. At the
current market price, our valuation grade is 3/5.
.

KEY FORECAST (CONSOLIDATED)
( mn) FY12 FY13 FY14# FY15E FY16E
Operating income 31,475 37,697 43,842 51,389 60,203
EBITDA 5,168 6,121 6,724 7,842 9,378
Adj net income 2,193 3,044 3,167 3,732 4,458
Adj EPS () 16.3 21.9 22.8 26.8 32.0
EPS growth (%) 13.3 34.1 4.0 17.8 19.5
Dividend yield (%) 0.4 0.6 0.6 0.7 0.8
RoCE (%) 12.6 12.8 12.2 12.8 13.7
RoE (%) 10.1 11.6 11.0 11.9 13.0
PE (x) 58.1 43.3 41.6 35.3 29.6
P/BV (x) 5.1 4.8 4.4 4.0 3.7
EV/EBITDA (x) 25.7 22.5 20.9 18.4 15.8
NM: Not meaningf ul; CMP: Current market price; # : Based on abridged f inancials.
Source: Company, CRISIL Research estimates
CFV matrix

Shareholding pattern

Performance vis--vis market

1 2 3 4 5
1
2
3
4
5
Valuation Grade
F
u
n
d
a
m
e
n
t
a
l

G
r
a
d
e
Poor
Fundamentals
Excellent
Fundamentals
S
t
r
o
n
g
D
o
w
n
s
i
d
e
S
t
r
o
n
g
U
p
s
i
d
e
KEY STOCK STATISTICS
NIFTY/SENSEX 7402/24806
NSE/BSE ticker APOLLOHOSP
Face value ( per share) 5
Shares outstanding (mn) 139.1
Market cap ( mn)/(US$ mn) 131,808/2222
Enterprise value ( mn)/(US$ mn) 140,548/2369
52-week range ()/(H/L) 1,071/801
Beta 0.7
Free f loat (%) 65.7%
Avg daily volumes (30-days) 224,110
Avg daily value (30-days) ( mn) 207.4
34.4% 34.4% 34.4% 34.4%
42.4% 42.1% 42.1% 41.6%
2.9% 3.3% 3.3%
3.8%
20.3% 20.3% 20.3% 20.3%
0%
20%
40%
60%
80%
100%
Jun-13 Sep-13 Dec-13 Mar-14
Promoter FII DII Others
1-m 3-m 6-m 12-m
Apollo 4% 5% 14% -8%
CNX 500 14% 23% 25% 28%
Returns
Independent Equity Research Report
Apollo Hospitals Enterprise Ltd
June 05, 2014

16


Customised Research Services Real Estate
Coverage


Key Offerings

Real estate: Residential, Commercial, Malls & Multiplexes, IT/SEZs etc
Feasibility study/ Land development mix
Market potential of a city and Area-wise analysis
Valuation

Education: Play schools, K-12, Coaching Institutes, Engineering Institutes, Management Institutes, etc
Market analysis, Industry sizing and Feasibility Study
Competitive analysis
Franchisee evaluation
Valuation

Healthcare: Speciality, Super-speciality, Multi-speciality, and allied segments like diagnostic centres,
standalone clinics, etc.
Market analysis, Industry sizing and Feasibility Study
Competitor analysis/Benchmarking
Valuation
Studies on allied services like health insurance, medical colleges, pharmacies and diagnostic centres

Hospitality: Premium, budget hotels, Service apartments, Quick-service restaurants, coffee shops, etc.
Market analysis and Feasibility study
Valuations
Management company/Franchisee evaluation

17

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