• JANUARY 8, 2004

Apollo Hospitals: Business overview

Operating in one of the sunrise industries of the Indian economy, i.e. healthcare, Apollo Hospitals is the pioneer of the concept of organised healthcare. The group operates a chain of hospitals with total bed strength of nearly 6,000 beds (owned and managed). Apollo Hospitals group now has the third largest number of hospital beds in the world (managed as well as owned). The company also operates a large pharmacy chain spread mainly in south India.

Apollo Hospitals is well positioned to capitalize on the potential of this sector. As mentioned above, the company is a pioneer in its field and it has build up its brand over the years and spread its reach across the country. The company has also entered into the pharmaceutical retailing business, realizing its obvious synergies with the core hospital business.

Apollo Hospitals is aggressively moving towards the managed hospitals model, where the company provides management and technical support to other hospitals for a fee. Setting up new hospitals is very capital intensive and hence the shift to the managed hospital model, where the operating margins are much better. The company has expanded operations in to pharma retailing also, however, operating margins of this business, being relatively lower, has taken a toll on overall margins.

FY03 was no different for the company. As like previous years, margins have fallen (18% compared to 19% in FY02) due to higher contribution to the topline from the low margin pharma retailing business. However, what was noticeable about the company's performance in FY03 was the fact that both its pharma retailing (25%) and hospitals businesses (15%) continued to grow steadily. Net profits consequently improved by 11% in FY03. In FY04, so far (first half), the company has reported a 10% growth in its topline while its bottomline has grown by a better 26% mainly due to reduced interest costs as well as better control over expenses.

At Rs 179 the stock is trading at a P/E of 19.3x its annualised 1HFY04 earnings. Apollo Hospitals is in a unique position to take advantage of the expected boom in the healthcare sector waiting to happen in the country. With the expected growth of the health insurance services market in the country, the healthcare sector is expected to benefit immensely. Also, due to the cheaper costs of healthcare services in the country, the group is in a good position to take advantage of health tourism business coming to India.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407