Apollo Hospitals (APOHOS) 1337

Result Update Rating matrix Rating : Hold Target : 14 Target Period : 12 months Potential Upside : 4% What s Changed? Target Unchanged EPS FY16E Changed from 35.3 to 3.9 EPS FY17E Changed from 43.4 to 41. Rating Changed from Buy to Hold Standalone Quarterly Performance Q1FY16 Q1FY15 YoY (%) Q4FY15 QoQ (%) Revenue 1,265. 1,53.7 2. 1,23.7 5.1 EBITDA 181.1 156.3 15.8 174.5 3.8 EBITDA (%) 14.3 14.8-52 bps 14.5-18 bps Net Profit 9.8 82.7 9.8 77.3 17.5 Key Financials ( Crore) FY14 FY15 FY16E FY17E Revenues 4384.2 5178.5 6261. 7346.3 EBITDA 672.4 734.7 926.5 1176.7 Net Profit 316.8 326.5 429.7 57.4 EPS ( ) 22.8 23.7 3.9 41. Valuation summary FY14 FY15 FY16E FY17E PE (x) 59.1 55. 43.5 32.8 EV to EBITDA (x) 29.2 27.5 21.8 17. Target EV/EBITDA (x) 31.4 29.5 23.4 18.3 Price to book (x) 6.3 5.9 5.4 4.8 RoNW (%) 1.6 1.4 12.4 14.7 RoCE (%) 11.2 9.9 12.4 15.2 Stock data Particular Amount Market Capitalisation 18711 crore Debt (FY15) 422 crore Cash (FY15) 377 crore EV 18756 crore 52 week H/L 148/122 Equity capital 69.6 crore Face value 5 Price performance (%) 1M 3M 6M 1Y Apollo Hospitals -.1 8.2 3. 18.1 Fortis Healthcare -1. 11.7 29. 55.8 Research Analyst Siddhant Khandekar siddhant.khandekar@icicisecurities.com Mitesh Shah mitesh.sha@icicisecurities.com Nandan Kamat nandan.kamat@icicisecurities.com August 14, 215 Apollo Hospitals (APOHOS) 1337 Margin improvement; work in progress Revenues increased 2% YoY to 1265 crore (I-direct estimate of 1316 crore) on the back of 34.7% YoY increase in pharmacy business to 52.1 crore (I-direct estimate: 55.7 crore). The healthcare business grew 11.6% to 745 crore (I-direct estimate: 765.6 crore) to 745 crore EBITDA margins declined only 52 bps to 14.3% (I-direct estimate: 14.2%) on account of lower-than-expected other expenditure. EBITDA increased 15.8% YoY to 181.1 crore Net profit rose 9.8% to 9.8 crore (I-direct estimates: 98.6 crore) Healthcare business growth to piggyback on sustained expansion The healthcare services segment (54% of consolidated revenues) has grown at a CAGR of ~16% in FY1-15 on account of incremental hospital addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid expansion and maturity of older hospitals have kept the overall growth tempo over and above 15% per annum. The next phase of expansion includes addition of 135 beds to the existing network of 4 hospitals and 7123 beds (own hospitals) by FY19 with an additional capex of 1477 crore. This is likely to put some pressure on EBITDA margins in the short to medium term. However, in the past, the company has demonstrated its ability to balance between expansion and margins. By acquiring Nova speciality and Assam Hospitals, the company has also opted for the inorganic route for expansion. We expect more focus in improvement of important parameters such as average length of stay (ALOS) and average revenue per operating bed (AROPB) that have been flat in the last few quarters on account of incremental bed additions. We expect healthcare sales to grow at a CAGR of 12.4% in FY15-17E to 47.7 crore as the company keeps on investing in new assets. Pharmacy business EBITDA positive; candidate for value unlocking The pharmacy business (34% of consolidated revenues) has grown at a CAGR of ~3% over the last five years on the back of consistent addition of new pharmacies and timely closure of non-performing pharmacies. This business has become EBITDA positive as old stores are maturing and making a contribution. We expect the pharmacy business to grow at a CAGR of 13.7% in FY15-17E to 265 crore on the back of higher sales from existing stores. The company has added 45 stores in Q1FY16 along with consolidation of 34 Hetero stores taking total stores to 2171. In the last three years, we have seen a strong improvement in revenues per store from 15 lakh in FY11 to 27 lakh in FY15. The Hetero acquisition may put some pressure on margins initially but augurs well in the long run for scalability. Profitability of new hospitals key for overall margin improvement We expect consolidated sales, EBITDA and PAT to grow at a CAGR of 12.4%, 17% and 2%, respectively, in FY15-17E. The newly commissioned hospitals have achieved the break even (BE) level fairly ahead of our expectations. The focus will now shift to operational gauges for different cluster hospitals as the current phase of capex cycle nears the end. The Nova and Assam acquisition have demonstrated Apollo s willingness to opt for the inorganic route for expansion through localised targets with good capability. On the other hand, pharmacy margins that showed an improvement recently may take a hit in the medium term on the back of the Hetero stores acquisition. Our revised target price is 14 as per SOTP valuation. ICICI Securities Ltd Retail Equity Research

Variance analysis Q1FY16 Q1FY16E Q1FY15 Q4FY15 YoY (%) QoQ (%) Comments Revenue 1,265. 1,316. 1,53.7 1,23.7 2. 5.1 Growth driven by ~34.7% growth in pharmacy segment Raw Material Expenses 672.5 684.3 553.2 629.9 21.6 6.8 Employee Expenses 193.1 197.4 17.7 191.1 13.1 1. Other expenditure 178.1 27.4 143.7 174.1 23.9 2.3 EBITDA 181.1 187.4 156.3 174.5 15.8 3.8 EBITDA (%) 14.3 14.2 14.8 14.5-52 bps -18 bps The decline in margins was mainly due to higher growth in the low margin pharmacy business and lower margins fetched by newly commissioned hospitals. The pharmacy business margins were 3.6% while healthcare services margins were 24% Interest 26.9 18.9 18.9 22.6 42. 19.1 Higher financial cost was mainly due to higher leverage for new facilities commissioned in Q4FY15 Depreciation 45. 44. 39.9 4.6 12.8 1.8 Other Income 4.2 5.3 6.5 4.8-34.9-12.9 PBT before EO & Forex 113.4 129.7 13.9 116.1 9.1-2.4 EO... -.5.. PBT after Exceptional Items 113.4 129.7 13.9 116.6 9.1-2.8 Tax 22.5 31.1 21.2 39.3 6.4-42.7 Tax rate (%) 24. 24. 2.4 33.7 17.8-28.8 Net Profit 9.8 98.6 82.7 77.3 9.8 17.5 YoY growth was lower vis-à-vis EBITDA due to higher financial cost EPS ( ) 6.5 7.1 5.9 5.6 9.8 17.4 Key Metrics Healthcare Services 745. 765.6 667.6 725.8 11.6 2.6 Growth mainly driven by new hospital additions Pharmacy 52.1 55.7 386.2 478. 34.7 8.8 Growth driven by integration of Hetero pharmacy, 45 net stores addition and traction from mature stores. Excluding Hetero, revenue growth was 31% Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 6,43.1 6,261. -2.2 7,519.5 7,346.3-2.3 EBITDA 1,13.9 926.5-8.6 1,225.3 1,176.7-4. EBITDA Margin (%) 15.8 14.8-1 bps 16.3 16. -28 bps Reduced margin expectation due to slower-than-expected margin improvement at new facilities PAT 491.5 429.7-12.6 64.3 57.4-5.6 EPS ( ) 35.3 3.9-12.5 43.4 41. -5.5 Assumptions Current Earlier (% Growth) FY14 FY15 FY16E FY17E FY16E FY17E Healthcare Services 2,497.1 2,82.7 3,396.3 4,7.7 3,475.9 4,11.6 Pharmacy 1,364.8 1,772.6 2,214.2 2,64.9 2,263.1 2,663.8 Subsidiaries & consulting fees 249.7 285.6 313.3 35.9 327.1 366.3 JVs 272.9 294.1 334. 384.1 338.2 388.9 ICICI Securities Ltd Retail Equity Research Page 2

Company Analysis Established in 1983, the company is one of the few listed players in the healthcare space. It derives revenues from two broader segments in standalone accounts - 1) Healthcare services i.e. hospitals & 2) standalone pharmacies. In consolidated accounts, other reporting segments are 1) hospital revenues from JVs/subsidiaries & associates, 2) Apollo-Munich Health insurance JV, 3) ApolloHealth & Lifestyle Ltd, which is the retail healthcare business of Apollo Hospitals. Apollo owns 64 hospitals with a total bed capacity of 8985 beds. Of these 64 hospitals, 4 are owned by the company (including JVs, subsidiaries and associates) while eight are managed by the company with 1434 beds and 16 are day care/short surgical stay centres and cradles with 428 beds. This business has been categorised as the healthcare business and comprises ~61% of standalone revenues. In case of managed hospitals, the company charges 5-6% management fees to third-party hospitals for project management and consultancy covering all facets of development and operation of a hospital, including market research, technical design, arranging finance, hiring manpower and running the facility. The healthcare segment has been divided into three clusters- 1) Chennai, 2) Hyderabad and 3) others, which includes hospitals in Madurai, Karur, Karaikudi, Trichy, Mysore, Vizag, Pune, Karimnagar, Bilaspur, Bhubaneswar and Jayanagar. In case of standalone pharmacies, that are basically drug stores chain selling prescription, OTC and private label FMCG products, the company owns 2171 stores. Overall, we expect revenues to grow at a CAGR of 12.4% in FY15-17E to 7346.3 crore. Exhibit 1: Revenues to grow at CAGR of 12.4% in FY15-17E 8 7 6 5 4 3 2 1 7346.3 6261. 5178.5 4384.2 3768.7 3147.5 265.4 226.5 1614.2 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Revenues The healthcare services segment (54% of consolidated revenues) has grown at ~16% CAGR in FY1-15 on account of incremental hospital addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid expansion and maturity of older hospitals have kept overall growth tempo over and above 15% per annum. The next phase of expansion includes addition of 135 beds to the existing network of 4 hospitals and 7123 beds (own hospitals) by FY19 with an additional capex of 1477 crore. ICICI Securities Ltd Retail Equity Research Page 3

This is likely to put some pressure on EBITDA margins in the short to medium term. However, in the past, the company has demonstrated its ability to balance between expansion and margins. By acquiring Nova Speciality and Assam Hospitals, the company has also opted for the inorganic route for expansion. We expect more focus in improvement of important parameters such as average length of stay (ALOS) and average revenue per operating bed (AROPB), which were flat in the last few quarters on account of incremental bed additions. We expect healthcare sales to grow at 12.4% CAGR in FY15-17E to 47.7 crore as the company keeps on investing in new assets. Exhibit 2: Healthcare services to grow at CAGR of 12.4% in FY15-17E 45 4 35 3 25 2 15 1 5 47.7 3396.3 282.7 2497.1 2216.7 194.2 1671.2 1341.5 1123.8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Healthcare Services The pharmacy business (34% of consolidated revenues) has grown at a CAGR of ~3% in the last five years on the back of consistent addition of new pharmacies and timely closure of non-performing pharmacies. This business has become EBITDA positive as more and more old stores are maturing and making contribution. We expect the pharmacy business to grow at a CAGR of 13.7% in FY15-17E to 264.9 crore on the back of higher sales from existing stores. The company has added 45 stores along with consolidation of 34 Hetero stores in Q1FY16 taking total stores to 2171. In the last three years, we have seen a strong improvement in revenue per store from 15 lakh in FY11 to 27 lakh in FY15. The pharmacy business is also a candidate for possible value unlocking. Exhibit 3: Pharmacy business to grow at CAGR of 13.7% in FY15-17E 3 25 2214.2 264.9 2 1772.6 15 1 5 334.3 484.6 661.4 86.6 111.7 1364.8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Pharmacy ICICI Securities Ltd Retail Equity Research Page 4

Exhibit 4: Subsidiaries & others to grow at CAGR of 7.1% in FY15-17E 4 35.9 35 285.6 313.3 3 249.7 25 215. 2 153.7 153. 15 1 72.9 94.5 5 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Subsidiaries & consulting fees Source: Company, ICICIdirect.com, Research Exhibit 5: JVs sales to grow at CAGR of 9.3% in FY15-17E 5 334. 235.8 4 384.1 3 272.9 294.1 2 157.1 194.5 15.8 83.1 1 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Add JV Source: Company, ICICIdirect.com, Research Exhibit 6: EBITDA to grow at CAGR of 17% in FY15-17E 14 12 1176.7 2 1 926.5 8 6 4 2 734.7 672.4 16.1 16.3 68.216.1 513.1 15.3 14.8 418.3 3.6 226.714. 14.2 14.8 16. 16 (%) FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E EBITDA EBITDA Margins (%) 12 Exhibit 7: Net profit to grow at CAGR of 2% in FY15-17E 6 57.4 12 5 429.7 4 3 2 1 316.8 33.3 6.5 6.8 7.1 6.9 7.2 7.2 271.4 6.4 218.6 183.9 137.6 15. 6.9 7.8 8 4 (%) FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Net Profit Net Profit Margins (%) ICICI Securities Ltd Retail Equity Research Page 5

Exhibit 8: Trends in return ratios (%) 16 14 12 1 8 6 4 2 15.2 12.4 11.2 1.4 14.7 11.4 11.8 11.7 9.7 12.4 1.6 9.8 9.9 8.3 8.7 9.9 7.2 8.4 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E RoCE (%) RoNW (%) ICICI Securities Ltd Retail Equity Research Page 6

Exhibit 9: Trends in Standalone quarterly financials Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 YoY (%) QoQ (%) Total Operating Income 836.3 855.8 848.3 895. 975.1 993.3 998.2 153.7 1152.9 1182.5 123.7 1265. 2. 5.1 Raw Material Expenses 435.2 442.6 442.2 463.7 55.7 519.2 513.3 553.2 68.7 632.1 629.9 672.5 21.6 6.8 as % revenues 52. 51.7 52.1 51.8 51.9 52.3 51.4 52.5 52.8 53.4 52.3 53.2 Gross Profit 41.1 413.2 46.1 431.3 469.3 474.2 484.9 5.5 544.1 55.5 573.8 592.5 18.4 3.3 GPM (%) 48. 48.3 47.9 48.2 48.1 47.7 48.6 47.5 47.2 46.6 47.7 46.8 Employee Expenses 13.5 135.8 132.4 139.1 151.3 157.2 162.7 17.7 179.5 179.7 191.1 193.1 13.1 1. as % revenues 15.6 15.9 15.6 15.5 15.5 15.8 16.3 16.2 15.6 15.2 15.9 15.3 Marketing Expenses 13.5 18.9 118.9 125. 133.7 132.6 141.4 143.7 156.1 157.2 34. 4.2-72. 18.2 as % revenues 12.4 12.7 14. 14. 13.7 13.3 14.2 13.6 13.5 13.3 2.8 3.2 Other expenditure 23.1 22.1 22. 21.3 24.2 26.6 3.8 29.8 35.9 39. 174.1 178.1 498.3 2.3 as % revenues 2.8 2.6 2.6 2.4 2.5 2.7 3.1 2.8 3.1 3.3 14.5 14.1 Total expenditure 692.3 79.4 715.5 749.1 815. 835.6 848.1 897.4 98.2 17.8 129.2 183.9 2.8 5.3 EBITDA 144. 146.4 132.8 145.9 16.1 157.8 15.1 156.3 172.6 174.7 174.5 181.1 15.8 3.8 EBITDA Margins (%) 17.2 17.1 15.7 16.3 16.4 15.9 15. 14.83 14.97 14.77 14.5 14.31-52 bps -18 bps Depreciation 27. 27.6 28.9 3.7 31.7 33.5 33.1 39.9 38.9 38.6 4.6 45. 12.8 1.8 Interest 18.8 19.3 2.8 2.5 22.6 23.1 2.9 18.9 2.1 21.7 22.6 26.9 42. 19.1 Other Income 14.4 8. 4.6 6.2 5.5 3.8 7. 6.5 8.2 25.8 4.8 4.2-34.9-12.9 PBT 112.5 17.6 87.7 1.9 111.3 15. 13. 13.9 121.8 14.2 116.1 113.4 9.1-2.4 Less: Exceptional Items.. 4.5...... -15.2.5. Total Tax 29.3 26.9 16.7 22. 24.3 21.5 21.7 21.2 3.3 3. 39.3 22.5 6.4-42.7 Tax rate (%) 26. 25. 19.1 21.8 21.8 2.5 21. 2.4 24.9 21.4 33.8 19.9 Net Profit 83.2 8.6 75.5 78.9 87. 83.4 81.3 82.7 91.5 95. 77.3 9.8 9.8 17.5 Net Profit Margin (%) 1. 9.4 8.9 8.8 8.9 8.4 8.1 7.9 7.9 8. 6.4 7.2 EPS (Adjusted) 6. 5.8 5.4 5.7 6.3 6. 5.8 5.9 6.6 6.8 5.6 6.5 Exhibit 1: Standalone healthcare service performance ( Crore) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 YoY (%) QoQ (%) Sales 558.9 565.3 562.7 59.9 636.5 636.3 633.4 667.6 715.8 711.5 725.8 745. 11.6 2.6 EBITDA 135.9 138.6 125.6 136.9 149. 145.5 137.5 144.3 158.2 173.2 158.2 162.2 12.4 2.5 EBITDA Margins (%) 24.3 24.5 22.3 23.2 23.4 22.9 21.7 21.6 22.1 24.3 21.8 21.8 Exhibit 11: Standalone pharmacy performance Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q2FY15 Q3FY15 Q4FY15 YoY (%) QoQ (%) Sales 247.7 277.6 29.5 285.9 34.2 338.6 357.1 364.9 386.22 437.17 471.2 52.1 42.6 1.4 EBITDA 6.1 8.1 7.8 7.2 9. 11.1 12.2 12.5 12.1 14.4 15.1 18.9 5.8 25.2 EBITDA Margins (%) 2.5 2.9 2.7 2.5 3. 3.3 3.4 3.4 3.1 3.3 3.2 3.6 No of Stores 1357 1399 1445 153 1526 156 1586 1632 1664 1717 1784 2171 Rev per store ( lakh) 18.3 19.8 2.1 19. 19.9 21.7 22.5 22.4 23.2 25.5 26.4 24. SWOT Analysis Strengths - Early mover in healthcare space. Strong balance sheet despite being in a business of higher gestation period. Strong brand value, a significant aspect in this business Weakness- Presence in low margin pharmacy space Opportunities - Under-penetrated Indian healthcare space with favourable demographics and disease pattern Threats - Too much capacity build-up may lead to lower capacity utilisation and cost associated with it ICICI Securities Ltd Retail Equity Research Page 7

Conference call highlights The company plans to add 8 new beds in Navi Mumbai, Malleshwaram and Vizag by the end of FY16 Net pharmacy store addition in Q1FY16 was 45 stores with integration of 34 Hetero stores taking total stores to 2171 Apollo expects Hetero stores to be profitable by end of FY16 It plans to add 875 beds by FY16 North Bangalore 18, Chennai Main 3, Navi Mumbai 35, Indore 65 and Vizag 25. Out of total bed addition in FY16, ~78 are expected to be added from its three new hospitals in Navi Mumbai, Malleshwaram and Vizag In FY17, facilities in Navi Mumbai and Bangalore are expected to get commissioned with 885 beds It plans to add another 475 beds in FY19 - South Chennai 175, South Mumbai 3 Estimated capex for this expansion is ~ 1,477 crore, of which it has already spent 64 crore. The remaining balance amount may be funded through a mix of internal accruals and proposed rights Issue. Majority of the capex would be done in FY16 Two hospitals at Vanagaram and Jayanagar (added in the last 24 months) have more than 5% occupancies. Hospitals at Trichi, Nashik and Nellore are expected to reach 4-5% occupancy by end of FY16 The acquired hospital in Guwahati is generating revenues of 8-1 crore and is profitable. The company plans to increase the capacity from 2 beds to 3 beds in the next three to four years The company expects 25% EBITDA margins from the healthcare segment while pharmacy margins are expected to improve to 6% in the next two to three years The company expects a spike in expenditure on account of higher advertising and marketing costs from Q2FY16 Apollo plans to enhance Hyderabad occupancy levels to 65-7% from 6% over the next few quarters ICICI Securities Ltd Retail Equity Research Page 8

Valuation We expect consolidated sales, EBITDA and PAT to grow at a CAGR of 12.4%, 17% and 2%, respectively, in FY15-17E. The newly commissioned hospitals have achieved the break even (BE) level fairly ahead of our expectations. The focus will now shift to operational gauges for different cluster hospitals as the current phase of capex cycle nears its end. The Nova and Assam acquisition have demonstrated Apollo s willingness to opt for the inorganic route for expansion through localised targets with good capability. On the other hand, pharmacy margins that showed an improvement recently may take some hit in the medium-term on the back of Hetero stores acquisition. Our revised target price stands at 14 as per SOTP valuation. Exhibit 12: One year forward EV/EBITDA Mar-6 Sep-6 Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 [ EV 18.9x 18.1x 16.5x 14.1x 12.5x Exhibit 13: Valuation Particulers Valuation Matrix Multiple (x) Enterprise value ( cr) Healthcare EV/EBITDA 16. 16,351 Pharmacy EV/Sales 1.5 3,97 Others EV/Sales 1. 734 Cash 197 Expected Net Debt ( cr) 1,692 EV 19,497 No of shares (cr) 13.9 Per Share Value 1,41 Exhibit 14: Valuation Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE (%) ( ) (%) (x) (X) (%) (%) FY14 4384 16 22.8 17 29.2 4.5 11.2 13.3 FY15 5178 18 23.7 3 27.5 3.9 9.9 11.4 FY16E 6261 21 3.9 32 21.8 3.2 12.4 13.2 FY17E 7346 17 41. 33 17. 2.7 15.2 16.2 ICICI Securities Ltd Retail Equity Research Page 9

Company snapshot 1,6 1,4 Target Price: 14 1,2 1, 8 6 4 2 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Sep-8 Jun-9 Event Opens first reach hospital at Karimnagar, Andhra Pradesh Issues 15 unsecured foreign currency convertible bonds of US$1 each to International Finance Corporation aggregating to US$15 million. IFC also granted a loan May-11 Pharmacy business of company turns profitable for first time Sep-12 Government allows foreign direct investment in multi brand retail. Pharmacy business of Apollo Hospitals falls into this category Dec-12 Sells stake in its BPO company Apollo Health Street to US based company Sutherland Global Services. It holds 39.4% in Apollo Health Street Jan-13 Plans to establish a proton therapy centre in India. It will be first of its kind across South East Asia, Africa and Australia. May-13 Apollo Hospitals and Yash Birla Group call off their JV & shut down their plans to set up super specialty hospitals in Thane, Mumbai Sep-14 Enters into agreement to acquire 32 pharmacy stores from Hetero for 146 crore Jan-15 Acquires Bengaluru-based Nova Specialty Hospitals at an estimated cost of 135-145 crore Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Position Chan 1 PCR Investments, Ltd. 3-Jun-15 19.57 27.2. 2 Integrated Mauritius Healthcare Holdings, Ltd. 3-Jun-15 1.85 15.1. 3 OppenheimerFunds, Inc. 3-Jun-15 8.69 12.1.4 4 Reddy (Prathap C) 3-Jun-15 3.91 5.5. 5 Fidelity Management & Research Company 3-Jun-15 2.92 4.1-1. 6 Newton Investment Management Ltd. 3-Jun-15 2.58 3.6 3.6 7 Reddy (Suneeta) 3-Jun-15 2.43 3.4. 8 Schroder Investment Management Ltd. (SIM) 3-Jun-15 1.99 2.8. 9 Reddy (Sangita) 3-Jun-15 1.75 2.4. 1 MEAG Munich ERGO Kapitalanlagegesellschaft mbh 3-Jun-15 1.72 2.4. Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Promoter 34.4 34.4 34.4 34.4 34.4 FII 41.6 42.6 43. 43.8 43.8 DII 4. 3.2 2.9 2.2 2.3 Others 2.1 19.9 19.8 19.6 19.6 Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Newton Investment Management Ltd. 74.24m 3.59m Fidelity Management & Research Company -2.17m -.97m Mirae Asset Global Investments (Hong Kong) Limited 14.51m.7m Life Insurance Corporation of India -13.69m -.66m OppenheimerFunds, Inc. 8.43m.41m Schroder Investment Management (Singapore) Ltd. -4.3m -.23m Reddy (Karthik Anand) 6.39m.33m Capital Investment Trust Corporation -3.59m -.2m Reddy (Harshad) 6.19m.32m Sydinvest -3.11m -.2m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 1

Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15 FY16E FY17E Revenues 4,384.2 5,178.5 6,261. 7,346.3 Growth (%) 16.3 18.1 2.9 17.3 Raw Material Expenses 2,15.1 2,581.2 3,268.4 3,82.1 Employee Expenses 727.5 86. 957.5 1,124. Marketing Expenses 115.2 155.5 214.6 235.1 Other expenditure 719.1 847. 894. 99.5 Total Operating Expenditure 3,711.8 4,443.7 5,334.5 6,169.7 EBITDA 672.4 734.7 926.5 1,176.7 Growth (%) 9.3 26.1 27. Depreciation 167.8 211.7 232.4 268.2 Interest 119.3 117.9 157.5 149.4 Other Income 21.5 36.8 19.5 19.5 PBT 46.8 442. 556.2 778.6 Total Tax 11.9 13. 133.5 22.4 MI & Profit from Associates 11.8 14.5 7. -5.8 Adjusted PAT 316.8 326.5 429.7 57.4 Growth (%) 16.7 3.1 31.6 32.7 EPS (Adjusted) 22.8 23.7 3.9 41. Cash flow statement Crore (Year-end March) FY14 FY15 FY16E FY17E Profit/(Loss) after taxation 316.7 339.9 429.7 57.4 Add: Depreciation & Amortization 167.8 211.7 232.4 268.2 Working Capital Changes -12.2-27.4-411.6-8.6 CF from operating activities 364.3 344.1 25.5 758. Change in Capex -591.8-722.7-427.3-6. (Inc)/dec in Investments 25.1 1.9.. (Increase)/Decrease in Long term -162.9-68.3 259.4 111.8 Other investing activities 95. 115.4 19.2 3.8 CF from investing activities -454.5-664.8-148.8-457.5 Issue of Equity 1.1... Inc/(dec) in loan funds 132.1 648. -2. -1. Dividend paid & dividend tax -93.6-96.4-121.6-161.4 Other financing activities 5.6-127.8.. CF from financing activities 45.3 423.8-321.6-261.4 Net Cash flow -44.9 13.2-219.9 39.1 Opening Cash 319.1 274.2 377.3 157.4 Closing Cash 274.2 377.3 157.4 196.5 Balance sheet Crore (Year-end March) FY14 FY15 FY16E FY17E Equity Capital 69.6 69.6 69.6 69.6 Reserve and Surplus 2,97.1 3,1.6 3,48.7 3,817.6 Total Shareholders funds 2,976.7 3,17.2 3,478.3 3,887.2 Total Debt 1,344.3 1,992.3 1,792.3 1,692.3 Deferred Tax Liability 351.9 422.2 422.2 422.2 Minority Interest 18.8 74.2 78.4 84.1 Long term provisions 2.3 3.4 23.4 43.4 Other Non Current Liabilities 3.8 5. 5. 15. Total Liabilities 4,697.7 5,667.3 5,799.6 6,144.3 Gross Block - Fixed Assets 3,379.5 4,43.5 4,83.4 5,453.4 Accumulated Depreciation 866. 1,1.7 1,243.1 1,511.3 Net Block 2,513.6 3,32.8 3,56.4 3,942.2 Capital WIP 473.9 532.6 2. 15. Net Intangible assets 35.2 46.1 46.1 46.1 Goodwill on Consolidation 149.9 165.2 165.2 165.2 Total Fixed Assets 3,172.6 3,776.8 3,971.7 4,33.5 Investments 321.6 31.6 31.6 31.6 Inventory 278.6 35.3 415.3 467.9 Debtors 519.8 69.3 769.3 93.1 Loans & Advances, & other CA 272.9 456.4 562.6 542.8 Cash 274.2 377.3 157.4 196.5 Total Current Assets 1,345.4 1,793.3 1,94.6 2,11.4 Creditors 325. 419.1 56.8 594.6 Provisions & Other CL 349.8 393. 224.9 223.2 Total Current Liabilities 674.8 812.1 731.7 817.8 Net Current Assets 67.6 981.2 1,172.9 1,292.6 Long term loans & advances 51.1 578.5 319.1 27.3 Deferred Tax Assets 22.8 2.3 25.3 3.3 Application of Funds 4,697.7 5,667.3 5,799.6 6,144.3 Key ratios (Year-end March) FY14 FY15 FY16E FY17E Per share data ( ) Adjusted EPS 22.8 23.7 3.9 41. Cash EPS 16. 16.8 22.1 29.4 BV per share 214. 227.9 25. 279.4 Dividend per share 6.7 6.9 8.7 11.6 Cash Per Share 62.2 72.6 89.3 18.6 Revenue per Share 315.1 372.2 45. 528. Operating Ratios (%) EBITDA margins 15.3 14.2 14.8 16. Net Profit margins 7.2 6.4 6.9 7.8 Inventory days 23.2 24.7 24.2 23.2 Debtor days 43.3 42.9 44.8 44.9 Creditor days 27.1 29.5 29.5 29.5 Return Ratios (%) RoE 1.6 1.4 12.4 14.7 RoCE 11.2 9.9 12.4 15.2 RoIC 13.3 11.4 13.2 16.2 Valuation Ratios (x) P/E 59.1 55. 43.5 32.8 EV / EBITDA 29.2 27.5 21.8 17. EV / Net Sales 4.5 3.9 3.2 2.7 Market Cap / Sales 4.3 3.6 3. 2.5 Price to Book Value 6.3 5.9 5.4 4.8 Solvency Ratios Debt / EBITDA 2. 2.7 1.9 1.4 Debt / Equity.5.6.5.4 Current Ratio 1.6 1.7 2.4 2.3 Quick Ratio 1.2 1.3 1.8 1.8 Quick Ratio 1.2 1.3 1.8 1.8. ICICI Securities Ltd Retail Equity Research Page 11

ICICIdirect.com coverage universe (Healthcare) I-Direct CMP TP Rating M Cap EPS ( ) PE(x) EV/EBITDA (x) RoCE (%) RoNW (%) Company Code ( ) ( ) ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Ajanta Pharma AJAPHA 1684 1488 BUY 14675.5 36. 45.6 53.1 33.1 27.8 23.9 7.8 6.5 5.3 5.6 48.7 46.4 41.9 38.5 35.9 Apollo Hospitals APOHOS 1337 14 HOLD 18964.2 23.7 3.9 41. 55. 43.5 32.8 27.5 21.8 17. 9.9 12.4 15.2 1.4 12.4 14.7 Aurobindo Pharma AURPHA 736 84 BUY 43455.7 28. 36.7 42. 27.9 2.5 17.9 1.1 7.8 6.3 23.5 25.5 25. 3.3 29.9 26.1 Biocon BIOCON 462.9 469 HOLD 9227. 2.4 23. 28. 23. 2.4 16.7 6.9 5.4 4.2 1.4 11.8 13.3 12.5 12.7 13.9 Cadila Healthcare CADHEA 1945 228 BUY 41189.3 56.2 75.1 95.6 2.8 15.6 12.2 14.7 11.2 8.6 21.3 24.6 26.6 26.4 27.3 26.8 Cipla CIPLA 725.5 65 HOLD 56831.7 14.9 22.3 29.5 3.1 2.1 15.2 3.4 2.8 2.2 13.2 17.6 19.9 1.8 14.3 16.2 Dr Reddy's Labs DRREDD 4292 46 BUY 72913.5 13.6 159.9 191.6 21.6 17.7 14.7 13.9 11.2 9.2 17. 19.3 2.6 19.9 2.1 19.8 Glenmark Pharma GLEPHA 159 1 HOLD 29183.4 16.5 33.7 47.5 38.6 18.9 13.4 16.5 11.6 8.7 12.6 23.7 29.5 14.3 24. 26.7 Indoco Remedies INDREM 342 385 BUY 3218.8 9. 12.6 19.2 24.3 17.4 11.3 12.4 1. 7.1 19.8 22.3 28. 16. 19. 23.4 Ipca Laboratories IPCLAB 771.2 665 HOLD 976. 2.2 25. 41.5 18.7 17. 11.6 3.2 2.9 2.4 11.5 11. 16.6 11.5 11. 16.6 Jubilant Life Sciences VAMORG 322 336 HOLD 4963.2-3.7 13.2 23.6. 11.8 6.6 9.5 7.2 5.3 5.7 8.9 12.1-2.4 8.2 13.4 Lupin LUPIN 1643 1885 BUY 77484.7 53.6 55.7 75.4 3.7 29.5 21.8 -.4.8.2 31.1 29.2 3.4 25.3 22.8 23.6 Natco Pharma NATPHA 228 22 HOLD 826.9 31.2 46.4 67.1 23. 15.5 1.7 15.9 12.2 9.2 15.6 19.6 23. 12.4 16.6 19.8 Sun Pharma SUNPHA 879.1 85 HOLD 28438.7 19.8 2.5 32.6 44.2 46.9 25.5 24.6 24. 16.6 19. 18.3 22.8 2.8 18.5 23.6 Torrent Pharma TORPHA 1516 166 BUY 25754.9 44.4 94.4 79. 32. 15. 18. 13.6 5.1 6.6 19.8 44.9 3.3 3.2 44.4 29. Unichem Laboratories UNILAB 236.5 214 HOLD 2136.2 8.3 14.8 21.4 24.8 13.9 9.6 17.9 9.4 6.5 8.4 17.1 21.5 8.7 14.5 18.5 ICICI Securities Ltd Retail Equity Research Page 12

RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 13

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ICICI Securities Ltd Retail Equity Research Page 14