Apollo Hospitals Enterprise Ltd

Q4FY11 First Cut

Enhancing investment decisions

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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (- 10-25% from CMP) Strong downside (<-25% from CMP)

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.

Disclaimer:
This Company-commissioned Report (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. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. 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 only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

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Polaris Software Limited Apollo Hospitals Enterprise Ltd Business momentum remains intact
Q4FY11 first cut: Another strong quarter
Fundamental Grade Valuation Grade Industry 4/5 (Strong fundamentals) 5/5 (Excellent fundamentals) 5/5 (CMP has strong upside) 4/5 upside) Information technology Healthcare Provider & Services
Excellent Fundamentals

May 24, 2011

Fair Value Rs 533 CMP Rs 485

CFV MATRIX

Fundamental Grade

Apollo Hospitals Enterprise Ltds (Apollos) Q4FY11 results exceeded CRISIL Equities expectations on higher revenues from the newly established hospitals and the decline in losses from associates. We remain positive on the growth prospects of healthcare services and Apollos leadership position in the organised healthcare market. We may revise our estimates upwards post interaction with the management. We maintain our fundamental grade of 5/5. Q4FY11 result analysis Apollos Q4FY11 standalone revenues grew by 28.7% y-o-y to 6,214 mn. The healthcare services (hospitals) and the pharmacy segments registered a y-o-y growth of 25.6% and 36.7%, respectively, during the same period. Consolidated revenues for FY11 grew 28.6% y-o-y to Rs 26.1 bn. EBITDA margins increased by 223 bps y-o-y to 15.2% in Q4FY11 supported by improvement in margins in the hospital services business and a turnaround in the pharmacy business. Consolidated EBITDA margins improved 120 bps y-o-y to 16.1% in FY11. Improvement in EBITDA margins led to strong growth in PAT which grew 61.3% y-o-y to Rs 471 mn in Q4FY11. EPS during the same period registered 59.8% y-o-y growth to Rs 3.8. Consolidated PAT grew 33.7% yo-y to Rs 1,839 mn in FY11. Valuations: Current market price has upside We continue to use the discounted cash flow method to value Apollo. We maintain our fair value of Rs 533 per share. Given the current market price, our valuation grade is 4/5. We may revisit our estimates and fair value after interaction with the management.

5 4 3 2 1 1 2 3 4 5

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY / SENSEX NSE/BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) 5,395/18,012 APOLLOHOSP 5 124.7

60,608/1339 Enterprise value (Rs mn) /(US$ mn) 67,289/1,487 52-week range (Rs) (H/L) 850/408 Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 0.56 66.8% 47,216 22.4

KEY FORECAST
(Rs mn) Operating income EBITDA Adj PAT Adj EPS-Rs EPS growth (%) Dividend yield RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY09 16,142 2,288 1,009 8.4 49.1 0.8 8.2 7.1 57.9 3.9 27.1 FY10 20,265 3,032 1,346 10.9 34.8 0.8 9.6 8.5 44.5 3.6 21.8 FY11# 26,054 4,189 1,839 14.7 36.1 0.9 12.7 10.9 32.9 3.6 16.0 FY12E 29,232 4,938 2,279 18.1 22.8 1.1 11.9 8.6 26.8 1.7 9.9 FY13E 34,311 5,878 3,671 29.2 61.1 1.8 10.2 9.8 16.6 1.6 8.8

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jun-10 Promoter Sep-10 FII Dec-10 DII Mar-11 Others 33.5% 33.5% 33.2% 33.2% 3.7% 24.1% 3.7% 24.0% 3.6% 23.9% 38.7% 38.7% 39.3% 33.9% 3.4% 29.4%

NM: Not meaningful; CMP: Current Market Price #FY11 numbers based on the abridged financials Sou rce: Com pan y, CR I SIL Equ it ies est im ate

PERFORMANCE VIS--VIS MARKET

Returns 1-m Apollo NIFTY 1% -8% 3-m 5% 3% 6-m 1% -8% 12-m 41% 9%

ANALYTICAL CONTACT
Sudhir Nair (Head) Ravi Dodhia Bhaskar Bukrediwala Client servicing desk +91 22 3342 3561 CRISIL Limited. All Rights Reserved. clientservicing@crisil.com CRISIL EQUITIES | 1 snair@crisil.com rdodhia@crisil.com bsbukrediwala@crisil.com

Apollo Hospitals Enterprise Ltd

Q4FY11 Result Summary (Standalone)
(Rs mn) Net sales Raw materials cost Raw materials cost (% of net sales) Employees cost Other expenses EBITDA EBITDA margin Depreciation EBIT Interest and finance charges Operating PBT Other Income PBT Tax PAT Adj PAT Adj PAT margin No of equity shares (Mn) Adj EPS (Rs) Sou rce: Com pan y, CR I SIL Equ it ies Q4FY11 6,214 3,315 53% 973 979 948 15.2% 183 764.8 158 607 59 666 195 471 471 7.6% 124.7 3.8 Q3FY11 6,009 3,194 53% 904 968 943 15.7% 178 764.4 134 631 51 682 224 458 458 7.6% 124.7 3.7 Q4FY10 q-o-q (%) y-o-y (%) 4,829 2,501 52% 797 902 629 13.0% 144 484.6 107 378 56 433 141 292 292 6.0% 123.6 2.4 3.4 3.8 18bps 7.6 1.1 0.5 -44bps 2.6 0.1 18.1 (3.8) 15.2 (2.4) (12.9) 2.8 2.8 -5bps 0.0 2.8 28.7 32.5 155bps 22.1 8.5 50.7 223bps 26.9 57.8 47.4 60.8 5.4 53.7 38.0 61.3 61.3 153bps 0.9 59.8 FY11 23,320 12,276 53% 3,572 3,702 3,770 16.2% 703 3,066.9 587 2,480 214 2,693 876 1,817 1,817 7.8% 124.7 14.6 FY10 y-o-y(%) 18,258 9,504 52% 2,864 3,077 2,813 15.4% 543 2,270 378 1,892 330 2,222 702 1,520 1,520 8.3% 61.8 24.6 27.7 29.2 58bps 24.7 20.3 34.0 76bps 29.4 35.1 55.6 31.1 (35.2) 21.2 24.8 19.6 19.6 -53bps 101.9 (40.8)

EBITDA margin registered strong y-o-y growth...

(Rs mn) 7,000 6,000 5,000 4,000 3,000 2,000 14% 13% 16% 15% 14% 13% 17% 16% 16% 17% 17% 17% 16% 15%

... leading to increase in PAT margins

(Rs mn) 600 500 400 300 200 100 291 448 341 439 292 393 496 458 471 0% 0 7.5% 7.5% 6.0% 11.0% 9.1% 7.5% 8.5% 7.6% 7.6% 12% 10% 8% 6% 4% 2%

3,911

4,060

4,561

4,809

4,829

5,233

5,864

6,009

6,214

1,000 0

12% 11%

Mar-09

Dec-09

Mar-10

Dec-10

Mar-11

Mar-09

Dec-09

Mar-10

Dec-10

Sep-09

Sep-10

Sep-09

Net Sales

EBITDA Margin (RHS)

PAT

PAT Margin (RHS)

Sou rce: Com pan y, CR I SIL Equ it ies

Sou rce: Com pan y, CR I SIL Equ it ies

Share price movement vs. NIFTY

300 250 200 150 100 50 0

Fair value movement since initiation

(Rs) 700 600 500 400 300 200 100 0 ('000) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

10-Jun-10

16-Jan-09

27-Nov-10

Sep-10

Mar-11 20-May-11
Apollo

Jun-09

Jun-10

Jun-09

06-May-08

16-May-11

06-Mar-10

Jun-10

06-Dec-10

22-Sep-09

11-Feb-08

20-Feb-11

17-Mar-10

22-Dec-09

28-Sep-09

03-Sep-10

16-Nov-09

18-Aug-10

Apollo

NIFTY

Total Traded Quantity (RHS)

CRISIL Fair Value

Sou rce: Com pan y, CR I SIL Equ it ies

Sou rce: N SE, CR ISIL Equ iti es

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CRISIL EQUITIES | 2

26-Mar-11

24-Jun-10

10-Jan-10

30-Jan-11

30-Apr-10

30-Jul-08

05-Jul-09

11-Apr-09

23-Oct-08

12-Oct-10

Apollo Hospitals Enterprise Ltd

FINANCIALS
Income statement (Rs mn) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY09 Growth Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoC E (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days C reditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) C urrent ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY09 Adj EPS (Rs) C EPS Book value Dividend (Rs) Actual o/s shares (mn) 8.4 13.6 124.1 3.9 120.5 FY10 10.9 17.0 135.8 4.1 123.6 FY11# 14.7 22.3 136.6 4.4 124.7 31 56 39 46 1.3 1.7 1.5 3.0 0.4 0.2 3.6 30 70 40 45 1.3 1.8 1.4 2.5 0.5 0.4 3.8 32 44 38 51 1.7 2.0 1.7 2.1 0.5 0.4 4.0 Quarterly financials* (Rs mn) Net Sales C hange (q-o-q) EBITDA C hange (q-o-q) EBITDA margin PAT Adj PAT C hange (q-o-q) Adj PAT margin Adj EPS Q4FY10 Q1FY11 4,829 0% 629 -19% 13.0% 292 292 -34% 6.0% 4.7 5,233 8% 883 40% 16.9% 393 393 34% 7.5% 3.2 Q2FY11 5,864 12% 996 13% 17.0% 496 496 26% 8.5% 4.0 Q3FY11 6,009 2% 943 -5% 15.7% 458 458 -8% 7.6% 3.7 Q4FY11 6,214 3% 948 0% 15.2% 471 471 3% 7.6% 3.8 57.9 3.9 27.1 3.8 48.5 0.8 44.5 3.6 21.8 3.3 37.7 0.8 32.9 3.6 16.0 2.6 29.8 0.9 14.2 6.3 7.1 8.2 11.3 15.0 6.6 8.5 9.6 12.9 16.1 7.1 10.9 12.7 15.2 Cash flow (Rs mn) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investments C apital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing C hange in cash position C losing cash 796 1,359 (470) 290 1,975 (407) 876 1,050 2,463 (504) (70) 2,939 2,241 3,117 (10,952) (1,037) (644) 10,117 (2,516) (1,703) 1,414 (3,775) 328 (3,447) (4,247) 1,749 (2,498) 1,531 (2,075) (545) FY09 1,499 (514) 632 (552) 1,066 FY10 2,021 (586) 750 (385) 1,799 FY11# 2,613 (338) 948 (1,864) 1,358 32.9 24.2 34.3 30.8 25.5 32.5 33.3 30.0 28.6 38.2 36.7 35.4 FY10 FY11# FY09 16,142 2,288 14.2% 632 1,656 459 1,197 302 (40) 1,459 490 969 (40) 1,009 FY10 20,265 3,032 15.0% 750 2,282 602 1,680 341 (6) 2,015 675 1,339 (6) 1,346 FY11# 26,054 4,189 16.1% 948 3,241 814 2,427 187 2,613 873 (99.00) 1,839 1,839 Balance Sheet (Rs mn) Liabilities Equity share capital Reserves Minorities Net worth C onvertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets C apital WIP Total fixed assets Investments Current assets Inventory Sundry debtors Loans and advances C ash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 1,162 1,744 2,103 876 2,154 8,039 2,693 5,346 320 22,069 1,412 2,228 2,968 3,117 1 9,726 3,906 5,819 530 26,444 1,505 2,696 5,715 1,414 11,330 5,350 5,980 26,203 10,118 2,524 12,642 3,760 12,690 3,240 15,930 4,165 13,982 13,982 6,241 602 14,351 14,954 6,669 6,669 446 22,069 618 16,158 16,776 9,132 9,132 536 26,444 17,037 8,095 8,095 1,071 26,203 624 16,413 FY09 FY10 FY11#

#FY11 numbers based on the abridged financials *Standalone financials Sou rce: Com pan y, CR I SIL Equ it ies est im ate CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 3

CRISIL Independent Equity Research Team

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