20-Jan-2022

APOLLO HOSPITALS ENTERPRISE LIMITED

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DHDHospital Enterprise Ltd (AHEL) is one of the leading integrated healthcare service providers in Asia. It has a presence in
Apollo
hospital, pharmaceutical, primary care & diagnostic clinics. It also has telemedicine units across 10 countries, health insurance
services, global projects consultancy, colleges of nursing and hospital management and a research foundation, epidemiological studies,
stem cell & genetic research.

The company owns 71 hospitals, with total bed capacity of 10,231 beds as on 30th September, 2021. Of these, 44 hospitals are owned
including subsidiaries, JVs, and associates, with 8,858 beds; 5 managed hospitals with 851 beds. It also has 11 day-care/short surgical
stay centres with 244 beds, and 11 cradles with 278 beds.

Besides its hospital-based pharmacies, AHEL runs pharmacy operations under ‘Apollo Pharmacy’ through a retail pharmacy chain of
3,766 outlets. Apollo Healthcare and Lifestyle (AHLL) subsidiary covers the retail healthcare business of the Apollo group, comprising
Apollo Clinics, Apollo Sugar, White Dental, Apollo Day Surgery centres and Apollo Cradle.

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REORGANIZATION OF APOLLO HOSPITALS ENTERPRISE LTD.

DHD
Apollo Hospitals Enterprise Ltd announced a slump sale of its few businesses into
Apollo HealthCo (AHL), wherein, post the external capital raise, AHEL will continue to
be the majority shareholder and is expected to receive ₹1,210 cr as slump sale
consideration.

The identified businesses for the slump sale are:

a) AHEL’s backend offline pharmacy business (excluding hospital-based pharmacies),
b) AHEL’s digital healthcare platform 24/7,
c) AHEL’s investment in retail pharmacy business (Apollo Medicals Pvt Ltd) and
d) the “Apollo 24/7” brand, the “Apollo Pharmacy” brand and private label brands.
The formation of Apollo HealthCo Ltd (AHL) is a step towards creating India’s largest omnichannel healthcare platform that would:
a) Combine the strengths of Apollo Group’s offline healthcare leadership with Apollo Group’s new-age digital offerings to address all
healthcare consumer needs;
b) Involve an asset light approach (through digital offerings) to fuel growth of 100 million targeted registered users on “Apollo 24/7”
platform in 5 years.
c) Present funneling potential for healthcare consumers into the Apollo Group ecosystem.

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SEGMENT WISE REVENUE MIX (FY21) SERVICES OFFERED BY THE COMPANY
DHD
6%

21%

48%

25%

Healthcare Services Pharmacy Distribution**

Retail Pharmacy* Clinics
Others
*Includes transactions of the divested business.
**New segment identified with effect from September 2020.

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DHD SALES GROWTH

In FY21, the revenue from operations de-grew by
~6% YoY to ₹10,560 cr led by 13% de-growth in the
healthcare services segment. Retail pharmacy
segment however grew by 1.2% YoY, while the clinic
segment de-grew by 2% YoY during the year.
In H1 FY22, the revenue stood higher at ₹7,477 cr
aided by incremental ₹876 cr of the healthcare
revenues from the covid related activities. In Q2
FY22, the revenue de-grew by ~1% sequentially to
₹3,717 cr led by ~23% QoQ de-growth in the
pharmacy distribution segment (~31.4% revenue).
Management expects the volatility in the pharmacy
segment to normalise from Q3 FY22 onwards.
The ARPOB per day (average revenue per occupied
bed) stood at ₹44,186 in H1 FY22 as compared to
₹41,102 in Q1 FY22.

5 Year CAGR: 11.2%

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DHD EBITDA GROWTH

In FY21, the EBITDA de-grew by ~28% YoY to ₹1,137
cr mostly due to negative operating leverage in the
healthcare services and retail pharmacy segment
businesses. The clinic segment EBIT loss narrowed to
₹10.7 cr (v/s ₹21.9 cr in FY20) during the year.
The mature hospital EBITDA de-grew by 43.1% YoY
while the new hospital EBITDA grew by 8.3% YoY
during the year.
In H1 FY22, the EBITDA stood at ₹1,135 cr. In Q2
FY22, the EBITDA improved to ₹615 cr sequentially
despite lower revenue, on account of lower expenses
incurred.

5 Year CAGR: 10.6%

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DHD PAT GROWTH

In FY21, the PAT was lower by ~69% YoY to ₹136 cr
albeit on a higher base which was due to ~₹198 cr of
exceptional gain on account of the sale of 51.5%
stake in ‘Apollo Munich Health Insurance’ business to
‘HDFC’.
During the year, the exceptional items were related
to a) net gain of ₹35.44 cr from the transfer of front-
end retail pharmacy business to Apollo Pharmacies
Ltd in Q2 FY21 and b) the net fair value gain of
₹25.05 cr from the additional 1% stake in Medics
International Lifescience Ltd.
In H1 FY22, the PAT stood at ₹770 cr, including an
exceptional gain of ₹ ₹294 cr which pertains to the
fair value re-measurement of existing interest in
Apollo Multi-Specialty Hospital Limited.

5 Year CAGR: -8.2%

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 GROWTH EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 PROFITABILITY
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DHD EBITDA MARGIN

The company saw improving trend in the margin
over FY18-19, which was on the back of improved
capacity utilization, certain cost optimization
measures and focus on higher patient turnover rate.
The EBITDA margin in FY21 stood lower at ~11.2%
primarily due to lower revenue and EBITDA.

In H1 FY22, the blended EBITDA margin stood at

~15.6% (including other income). In Q2 FY22, the
blended margin stood at ~16.7% (v/s ~14.5% in Q1
FY22).

Healthcare segment margins improved to ~18% QoQ

in Q2. Diagnostic business margin also improved to
~10%, which the management expects to reach
~15% in 2-3 quarters.

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DHD PAT MARGIN

In FY21, the PAT margin stood lower at ~1.3%. Over
the last 4-5 years, the company has been operating
at low margins.

In H1 FY22, the PAT margin (including exceptional

gain) stood at 10.3%. Adjusted PAT margin stood at
~4.2% during the period.

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DHD ROCE
The ROCE in FY20 stood at 17.13% aided by higher
EBITDA, however, in FY21 it stood lower primarily
due to lower revenue and EBITDA on account of the
pandemic.

Apollo Hospitals witnessed a falling ROCE profile over

FY14-FY17 as it was mostly focused on capex
activities on various initiatives. However from FY18
the company has started to focus more on
profitability of the business, which is evident from
the marked improvement on the profitability front.

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DHD ROE
The return on equity in FY20 was also substantially
higher at ~13% on account of higher net profits
(aided by exceptional gain worth ₹199 cr), however
in FY21, it was lower due to decline in the net profits.

Similar to the ROCE profile, the ROE was also on a

declining spree. Given the higher focus on the
profitability front, the ROE profile has shown an
improvement over FY19-20.

On account of judicious case mix, better occupancy

and other matrix the new hospitals/ventures are
turning profitable much before scheduled. Hence,
that is adding to the overall profitability of the
business.

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 PROFITABILITY EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 EFFICIENCY
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DHD CASH FLOWS

AHEL has had a healthy and growing cash from
operations over the years. In FY21, the company
generated ~₹1,273 cr from its operations.

Cash outflows from investing activities was

significantly higher in FY21 at ~₹872 cr led by higher
financial investments. It spent ~₹295 cr on capex
activities towards the hospital services business.

Cash outflows from the financing activities stood at

~₹340 cr. AHEL raised ~₹1,170 cr through allotment
of ~4.65 cr equity shares to QIBs at an issue price of
₹2511 per share. It also repaid ~₹1,375 cr worth of
borrowings during the year.

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WORKING
DHD CAPITAL CYCLE
Working capital cycle of the company has been
stable at around 21 days to 26 days until FY20,
however in it improved to ~14 days primarily due to
higher payable days and lower inventory days during
the year.

Overall the company has had a comfortable working

capital cycle over the years.

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DHD FREE CASH FLOW

The net CAPEX/sales has been ~14% over FY10-15,
however it was ~9% in the period of FY16-20. Hence,
as the net CAPEX outflows were lower, the FCF per
share improved during this period. In FY21, the FCF
per share stood lower on account of lower operating
cash inflows.

The management had guided that it would continue

to spend ~₹250-₹300 cr on the hospital business. On
the Apollo HealthCo business, it expects a capex
requirement of ~₹200 cr in the near term. Apart
from these, it is also looking for inorganic
opportunities through bolt-on acquisitions.

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ASSET
DHD TURNOVER RATIO
The asset turnover ratio in FY21 stood lower at
~0.85x, impacted due to lower revenue.

The company continues to incur capital expenditure

on new hospitals and clinics, pharmacy stores, newer
medical devices, cradles, and equipment upgrade. As
AHEL is among only a few hospitals having an
advanced mode of healthcare treatment hence, they
are able to attract patients from various parts of
India as well as from abroad.

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 EFFICIENCY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 SOLVENCY
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DHD DEBT TO EQUITY

The debt to equity of the company has been on a
rising trend over the years as AHEL has been involved
into capex activities.

As on 31st March 2021, the debt to equity ratio

improved to ~0.62x. Improvement in the ratio was
primarily due to the repayment of a substantial
amount of borrowings during the year.

The company intends to keep an optimum mix of

debt and equity in order to fund its expansion or
upgradation plans. Hence, it also raised ~₹1,170 cr
via QIP in January 2021.

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INTEREST
DHD COVERAGE RATIO
Higher amount of debt resulted in higher interest
obligations for the company over the years.

In FY21, the interest obligation stood at ₹449 cr with

an EBIT of ~₹670 cr (including exceptional gain worth
₹61 cr). This resulted in an interest coverage ratio of
~1.49x.

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DHD CURRENT RATIO

The current ratio in FY21 improved to ~1.79x, aided
by higher short term financial investments and lower
current borrowings.

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 SOLVENCY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 VALUATION
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DHD PE RATIO
AHEL is currently trading at a rich PE of 64.57x based
on TTM EPS.

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DHD DIVIDEND YIELD

For the year ended March 2021, the company has
paid an equity dividend of 60% amounting to ₹3 per
share with a dividend payout of ~29%.

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 VALUATION
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DHD KEY LEVELS

After a prolonged period of consolidation between
₹900 and ₹1100 for many years, the stock finally
moved higher up to ₹1800 in Feb, 2020. However, it
witnessed a sharp sell off due to COVID pandemic
and tested ₹1100 odd levels.

Since then the stock has been in a continuous

uptrend and has been making fresh life time highs. In
Jun, 2021 the stock witnessed a breakout above
₹3450 and has nearly tested the ₹5200 odd mark.
Thereafter the stock has seen some decline.

₹3450-₹3600 zone is likely to act as a strong base in

the medium term and long term investors can
continue to accumulate the stock on decline towards
these key levels.

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 VALUATION EDGE METER: 2
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 QUALITY
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DHD MANAGEMENT
The management of Apollo hospitals has a mission to
make India self-reliant in healthcare by inculcating
superior care of international standards which could
be made available to common man.

Given a threat of increase in the NCD (non-

communicable disease) in this decade, the company
had devised specific programs to the detection as
well as treatment of some of these life threatening
diseases. The company has also made investments in
artificial intelligence, automation, robotics and 3-D
printing in healthcare which would leverage the
patient management system as well as the
treatments.

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SHAREHOLDING
DHD PATTERN
The promoter shareholding stood at 29.33% as of
December 2021. The management has an aim to
bring down the pledged share component by ~50%
by the end of FY22.

The FII shareholding increased to 52.41%, while the

DII shareholding marginally decreased to 12.40%.
The non-institution shareholding also decreased to
5.80%.

Top public shareholding:-

LIC 3.69%
Veritas Funds Plc 2.66%
Touchstone strategic trust 2.59%
Schroder Int. Selection Fund 2.08%
Sands Capital Funds PLC 1.21%

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DHD SECTOR POTENTIAL

Growth Trend of India’s Healthcare Sector(USD Billion)
Indian Healthcare Sector:
• The Healthcare sector in India broadly includes Hospitals,
Pharmaceutical Companies & Standalone Pharmacies, Diagnostic
Services, Medical Equipment and Supplies, Medical Insurance,
Telemedicine Companies, Medical Tourism and Retail Healthcare.
• The Indian healthcare sector is expected to reach a size of ~₹27
lakh cr by FY22. Within that, the hospital industry is expected to
grow at a CAGR of 16%-17% to reach at ~₹9.7 lakh cr by FY22. Source: NITI AAYOG
• Changing demographic trends, rising per capita income, rising awareness for healthy lifestyle, under-penetrated healthcare space
in India, higher share of non-communicable diseases, better healthcare technology coupled with cost competitiveness are some of
the factors which would be aiding the growth of the healthcare as well as the hospital industry in India.
• The Indian retail pharmacy sector has been witnessing healthy growth over the past few years due to an increasing consumer base
and rising healthcare expenditure. It is expected to grow from ₹1.31 lakh cr in 2020 to ₹3.66 lakh cr in 2025.
• The Indian retail pharmacy market has been registering healthy growth largely because of rising demand for OTC drugs and private
label products. The organized pharmacy stores forms <5% of the total market size and currently it is growing at an average of 22%-
25%.

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COMPETITIVE
DHD LANDSCAPE
Apollo Hospitals is one of the few listed hospital
services entities in India. The industry has become
highly competitive from the unorganized as well as
organized players.

New players entering the industry are offering

services at much lower costs than the established
players and hence increasing the competitive
intensity.

There are also pockets of of overcapacity in certain

metros and rising competition could lead to
competitors adapting unfair practices in order to
survive, hampering the growth and profitability of
other players. Every market player (organized or
unorganized) is striving for market leadership.

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DHD FUTURE OUTLOOK

• Multi year expansion behind us, focus on asset sweating : AHEL have been incurring significant capex on expansions and
increasing the capacity utilization rates over the past several years. The management is looking to improve the asset churn,
improve the deliverables in oncology, neuro and transplants which would in turn help to aid the ARPOB. Also, as the asset
utilization of the tier 2 hospitals improve, it would help to increase the profitability of the healthcare services business going
forward.

• Reorganization of the digital offering: The company announced a reorganization of its business, with Pharmacy+ Digital platform
24/7 being put into a 100% subsidiary. This step would help the ‘Apollo 24/7’ brand to free up and pursue an independent strategy,
while enjoying the Apollo brand. It will also be looking towards capital raise for the growth of Apollo HealthCo business in the
medium term.

• Strengthening presence in the key markets: Apollo Hospitals aims to enhance its network in Tier II and Tier III cities. Apollo
Hospitals has already launched hospitals in several Tier 2 and Tier 3 locations to meet the demand in some of these areas. Reach
has also been enabled through the establishment of hundreds of tele-medicine centers across the length and breadth of the
country. This has helped augment the Apollo Hospitals brand image as a pan India player. Apollo Hospitals’ healthcare centers in
Tier II and Tier III cities will be set up at a considerably lower capital cost per hospital bed as compared to a Tier I city.

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DHD FUTURE OUTLOOK

• Digital offering and diagnostics business to be a key monitorable - Apollo 24/7 is expected to break even in 2 to 3 years. The
company is currently servicing 19,000 plus pin codes, while it has added ~2,000 codes during Q2 FY22. It remains confident of
growing this business at ~20% CAGR in the medium term, driven by ~400 store additions p.a. and Apollo 24/7 benefits.

The company is currently focusing more on the diagnostics business, hence it expects an improvement in the revenue and
profitability from the diagnostic clinic business. It would be adding ~200 diagnostic centers and expects the total to reach ~2,000
centers in the next 2 years (currently at 985 centers). The margins are expected to reach ~15% in the next 2-3 quarters from the
current 11% levels, which would be aided due to an increase in the volumes.

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 QUALITY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 FINAL
ABOUTEDGE
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DHD
Edge Meter Aspects Grade
Growth 3
Profitability 3
Efficiency 4
Solvency 4
Valuation 2
Quality 4
TOTAL 20

The maximum grade for a company could be 30. Any company above grade 20
is worth considering. A grade below 15 is considered to be poor.
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DHD

THANK YOU
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be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and
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DISCLOSURES
DHD
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