India Hospitals - Capital Discipline Improving - HSIE-202104061417420581720

Sector Thematic
Healthcare
India Hospitals: capital discipline improving, sustenance is key
India is underinvested in healthcare with structural deficiencies in supply. At 12 beds per
10,000, the country ranks among the lowest in the world, despite carrying 20% of the
global disease burden. Low government participation presents significant opportunities
for private players. Most players have aggressively expanded capacity from FY12-18 and
are treading on the path of consolidation. The other “asset light” businesses - pharmacy,
diagnostics, digital platforms – are expanding avenues of growth while keeping the
balance sheet light. Post pandemic, the recovery trends are encouraging (~90-95% of pre-
COVID levels) with large players having gained market share. More importantly, despite
the tough environment, the balance sheet position of companies remains stable. While
resurgence in COVID cases could dampen near-term growth prospects, we don’t see this
as a structural headwind and forecast a gradual recovery in FY22. Initiate coverage on
Apollo Hospitals (ADD, TP Rs2,935) and Narayana Health (BUY, TP Rs460).
Bansi Desai Karan Vora

Healthcare Healthcare
[email protected] [email protected]
+91-22-6171-7341 +91-22-6171-7359
01 April 2021 Sector Thematic
Healthcare
India Hospitals: capital discipline improving,
sustenance is key Stock Rating CMP TP
The structural shortage of healthcare infrastructure, low government spending APHS ADD 2,903 2,935
and attractive demographics presents huge growth opportunity for private NARH BUY 406 460
players. Most listed players aggressively expanded capacity from FY12-18 and
are treading on path of consolidation. The Capex trends have moderated since RoCE (%)
Apollo Narayana
FY20 and may continue to remain so in the next two years. Post pandemic, the 16% 15% 15%
recovery trends are encouraging with large players having gained market 15%
12% 11%
share. More importantly, despite the tough environment, the balance sheets 9% 12%
remain comfortable with stable net debt positions. With gradual recovery in 8%
7%
6% 7%
10%
8%
FY22, we forecast ~15% EBITDA CAGR and ~435bps expansion in ROCE to 6%
7% 7%
4%
5%
15% over FY20-23e for the covered stocks, driven by improving occupancy and
2%
ARPOB, strong growth in other businesses and calibrated Capex spends. 0%
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
India healthcare – secular growth, asset light models improving returns Source: Company, HSIE Research
India’s huge demand-supply gap, rising health insurance penetration, high out-
of-pocket spends, increase in medical tourism provide compelling growth EV/ EBITDA multiple (x)
prospects for the industry. The adoption of “asset-light” models of expansion, 30
Apollo Narayana
enhanced focus on retail formats – pharmacy, diagnostics and digital initiatives

25
– are expanding avenues of growth while keeping the balance sheet light.
20
Post COVID, recovery trends are promising with large players gaining share
After a severe impact in 1HFY21, the industry witnessed healthy recovery trends 15
(90-95% of pre-COVID levels) in the past quarter. Large players have gained 10
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
market share as patients preferred visiting corporate chains/quality healthcare
providers in the crisis time. We expect a gradual recovery in mature/flagship
Source: Bloomberg, HSIE Research
units of our covered companies as international patient segment remains
impacted. However, the other hospitals/new units in tier 1/2 locations have
performed well and are expected to further gain traction. Other businesses
(diagnostics/ pharmacy/ Cayman operations for NH) received fillip during the
crisis and their EBITDA are expected to grow at ~20-30% CAGR over FY20-23e.
Key risks – Delayed business
Treading on the path of consolidation; selective expansion ahead recovery, adverse government
With headroom to operationalise beds at existing units and average occupancy regulations (price/scheme
at 60-70%, we expect Capex trends to remain moderated for the next two years. implementation)
The technological advancements have brought down ALOS from ~4.5 to ~3.5 in
the past five years, which has aided volume growth. Most players are guiding
for brownfield expansion or bolt-on acquisitions at strategic locations.
Digital platforms – exponential growth, albeit on a low base
The pandemic has driven greater adoption of digital platform but the customer
behavior is still evolving. We believe the integrated offerings of digital platform
(e-pharmacies, tele-consultation, diagnostics) and physical network could
present meaningful synergies for players like Apollo (Apollo 24/7).
Initiating coverage on Apollo Hospitals (ADD) and Narayana Health (BUY) Bansi Desai, CFA
We believe Apollo is the best play on India healthcare, given its pan-India [email protected]
presence, expanding avenues for growth (pharmacy, diagnostics, Apollo 24/7) +91-22-6171-7341
and balance sheet strength. However, at 19x FY23e EV/EBITDA, ~25-30%
premium to its historical average, the positives appear priced in. We like
Narayana’s India hospital franchise and believe it is poised to emerge stronger Karan Vora
with ROCE expanding by ~550bps to 15% over FY20-23; the proposed expansion [email protected]
at Cayman is return dilutive in the near term, but NPV accretive (Rs25/sh), in +91-22-6171-7359
our view. The stock is trading at attractive valuation of 14x FY23e EV/EBITDA,
~10-15% discount to its historical average.
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Healthcare: Sector Thematic
Contents
Industry outlook in charts ................................................................................. 3
Stock ratings and valuation ............................................................................. 5
Comparison of leading private players .......................................................... 8
Recent industry trends ...................................................................................... 9
India healthcare overview .............................................................................. 13
Medical tourism – a significant growth opportunity ................................. 17
Digital platforms – exponential growth, albeit on a low base .................. 18
Companies section .......................................................................................... 20
Apollo Hospitals - A microcosm of the healthcare industry .................. 21

Business overview ............................................................................... 24
Hospital segment to grow at 12% CAGR ........................................ 26
Pharmacy business – strong growth, attractive ROCEs ................. 29
AHLL has turned the corner – focus is on diagnostics .................. 31
Apollo 24/7 – a significant growth enabler ...................................... 32
Financial metrics ................................................................................. 34
Valuation and risks ............................................................................. 36
Financials .............................................................................................. 37
Narayana Health - In pursuit of growth ..................................................... 39

Investment thesis ................................................................................. 40
Business overview ............................................................................... 43
“Asset right” expansion - lowest gross block/bed .......................... 46
Geographic expansion has led to growth diversification .............. 47
Business mix by maturity profile ...................................................... 50
Key operating parameters - healthy trends ...................................... 52
Cayman Islands – stronger than ever ............................................... 53
Expansion in Cayman is NPV accretive ........................................... 54
Financial metrics ................................................................................. 55
Valuation and risks ............................................................................. 57
Financials .............................................................................................. 58
Healthcare abbreviations .............................................................................. 60
Page | 2
Industry outlook in charts

Exhibit 1: Healthcare expenditure has grown at 8% Exhibit 2: India’s spends on healthcare remains low
CAGR in the last 10 years compared to global average
India Healthcare expenditure Healthcare expenditure as a % of GDP
USD bn
120
102 16.9%
100 94 96
76 81
80 74
70 10.0% 9.5%
59 61 8.3%
60 55
47
5.4% 5.3%
4.5% 3.8%
40 3.5% 2.9%
20
Singapore
S. Africa
Thailand
Indonesia
Brazil
India
UK
Russia
US
China
0
2009
2010
2011
2012
2013
2014
2016
2017
2018
2019
2015
Source: World Bank, HSIE Research Source: World Bank, HSIE Research, Data as of 2018
Exhibit 3: Structural deficiencies in supply – the country Exhibit 4: High out-of-pocket spends, low
lags on all key parameters – beds, doctors and nurses government participation presents opportunity for
private players
India Global India Global
50 70%
60%
40
50%
30 40%
45 30% 63% 60%

20 38
29 20%
26
10 27%
16 17 10% 22%
12 18%
9 10%
0 0%
Beds Healthcare Doctors Nurses Out-of-pocket Government Private & Others
workers
Source: CRISIL, HDR, HSIE Research, *per 10,000 population Source: WHO, HSIE Research, Data as of 2010-2018
Exhibit 5: Private insurance penetration is at ~10% – Exhibit 6: Medical tourism presents significant growth
increasing access to premium services will drive growth opportunity – contribution has doubled to 10% of
of tertiary/quaternary care providers revenues for large private players in the last 5-6 years
Private insurance Govt. insurance Medical tourists in India % of total tourists
Private Coverage % Govt. Coverage % '000s
700 10%
400 mn 27% 26% 30%
600
25% 8%
21%
300 500 6%
20%
400 6%
5%
13% 12% 697
200 15%
300 3% 4%
10% 3%
200 427
100 10%
9% 5% 2%
100 237
7% 156
4% 5%
0 0% 0 0%
FY12 FY14 FY16 FY18 FY20 2010 2013 2016 2019
Source: IRDAI, HSIE Research Source: Ministry of Tourism, HSIE Research

Page | 3
Exhibit 7: Most industry players have expanded Exhibit 8: The average occupancy is at 60-70% with
aggressively in the past, Capex trends have moderated headroom available for beds to operationalise
FY18 FY19 FY20 Sep'20 Capacity beds Operating beds Occupany %
Rs bn
8 7.6
67% 68% 52% 73% 43% 61%
7 6.2
6 5.6
5.2
5
8,816
7,364
4
6,663
2.9
5,352
4,866
3
3,708
3,700
3,371
3,234
2,656
2.1
2,036
1,961
1.8 1.6
2 1.3 1.4
1.0 1.1 1.3 1.4
0.8
Healthcare
Aster DM
Narayana
HCG
1
Apollo
Fortis
0.3
Max
0
Apollo Fortis Narayana HCG
Source: Company , HSIE Research Source: Company, HSIE Research
Exhibit 9: Operating parameters are moving in right Exhibit 10: Covered stocks - Other business verticals
direction – ALOS is trending down, ARPOB is growing at are witnessing margin expansion and are expected to
7%+ CAGR drive higher EBITDA growth
ALOS ARPOB growth Pharmacy AHLL Cayman
4.5 4.2 14% 50%
12% 38% 40%
3.9 12% 40% 35%
4.0 3.9 3.8
4.0 10% 30% 25%
8% 3.5
10% 18%
3.5 8% 20% 13%
10% 10% 11% 13%
3.0 7% 6% 10% 5%
6% 7%
4% 0% 6% 5% 7%
5% 3%
2.5
3% 2% -10%
-9%
2.0 0% -20%
FY21e
FY22e
FY23e
FY18
FY19
FY20
FY15
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research Source: Company, HSIE Research, pre-Ind AS for Pharmacy business
Exhibit 11: Covered stocks – Steady improvement in Exhibit 12: Apollo trades at 19x FY23 EV/EBITDA,
ROCE post FY18; expected to continue its upward ~25-30% premium to its hist. avg., NH trades at 14x
trajectory FY23 EV/EBITDA, ~10-15% discount to its hist. avg.
Apollo Narayana Apollo Narayana
15% 15% 30
16%
15% 25
12% 11%
9% 12%
7% 10% 20
8% 6% 7%
8%
7% 7% 15
4% 6%
5%
2% 10
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
0%
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research Source: Bloomberg, HSIE Research
Page | 4
Initiating coverage
In this report, we initiate coverage on the two leading private hospital chains in the
country - Apollo Hospitals and Narayana Health (NH). We value both using sum-of-
the-parts, primarily using EV/EBITDA methodology for the hospitals business.
Apollo Hospitals (ADD, TP Rs2,935)
 Apollo is the largest private healthcare provider in India with a network of 70

hospitals and 10,000+ beds, including Proton. It also owns the largest pharmacy
chain in India (4,000 stores).
 With major expansion over and multiple growth avenues expected ahead, we
believe Apollo is best positioned to witness improved profitability and return
ratios in the next two years. Its asset light businesses such as pharmacy and AHLL
(clinics/diagnostics) are expected to drive margin expansion and EBITDA growth
of 17%+ CAGR in the same period. Its recent foray into online health through
Apollo 24/7 will prove to be a significant growth enabler for its existing business as
it attempts to leverage its robust infrastructure. Apollo’s balance sheet remains
comfortable with net debt/equity at ~0.9x (FY21e). We expect FCF generation of
Rs34bn over FY20-23e (it turned FCF positive for the first time in FY19 since FY12).
However, at 19x FY23e EV/EBITDA, 25-30% premium to its 5-year historical
average, the positives appear priced in.
 Our target price of Rs2,935/sh is based on an SOTP valuation of (a) India hospitals -
18x FY23e EBITDA; (b) AHLL - 25x FY23e EBITDA; (c) Retail Pharmacy (backend)
– 25x FY23e EBITDA; (d) Stake in associates. We value Apollo’s hospital business
at 18x EV/EBITDA, ~15-20% premium to Asian peers. We believe the premium is
justified, given the divergent growth dynamics and Apollo’s superior return
profile. Our target multiple is at ~20% premium to Apollo’s own historical average,
and we believe this is merited, considering strong growth visibility in pharmacy
and diagnostic business, investments in Apollo 24/7, and balance sheet strength.
Narayana Health (BUY, TP Rs460)
 NH’s asset light expansion in India (FY14-18), followed by a consolidation phase,

bodes well for the company in terms of ROCE improvement. Post COVID
disruption, we expect it to emerge stronger and forecast ~17% EBITDA CAGR over
FY20-23e, driven by: (a) turnaround of new units - from loss making to EBITDA
positive by FY23e; (b) improving performance of non-flagship mature units (fared
better than flagship units in 9mFY21); and (c) strong traction in Cayman Islands
facility, expected to post ~ 21% EBITDA CAGR over the next two years.
 The proposed expansion (USD100mn) in Cayman is return dilutive in the near
term, but NPV accretive, in our view. Considering the new unit will cater to
oncology and high-end day care procedures, we base our DCF assumption on
ARPP (average revenue per patient) and discharges. Despite the expansion, NH’s
ROCE remain at ~15% in FY22/23e. After a ~14% correction in the past two months,
the stock is trading at an attractive valuation of ~14x FY23e EV/EBITDA, ~10-15%
discount to its historical average.
 Our target price of Rs460/sh is based on SOTP valuation of (a) India hospitals
business - 16x FY23e EBITDA; (b) Cayman operations - 12x FY23e EBITDA; (c)
Cayman expansion – NPV of Rs25/sh. We value NH’s India business at 16x
EV/EBITDA, ~10% discount to Apollo’s hospital business. While ROCEs are
comparable today, Apollo has a consistent track record, true pan-India presence
and diversified EBITDA base compared to NH. We assign 12x EV/EBITDA to
existing Cayman operations, a discount of ~25% to the India business to factor in
the divergent growth potential of that market. However, the ROCEs of Cayman
and the medium growth outlook are superior to that of the India business.
Page | 5
Key risks to thesis

 Delay in business normalcy – Lockdown/extension of the pandemic could hamper
Price control on stents, knee patient mobility, which could impact occupancy. Delay in recovery of elective
implants adversely impacted surgeries, return of international patients (high-margin business) will impact
business profitability in FY18 growth and profitability, especially of mature/flagship units.
 Adverse price regulations by government – The National Pharmaceutical Pricing

Retaining and recruiting Authority (NPPA) imposed a ceiling price on coronary stents in Feb’17 and
medical talent is a key extended it to knee implants later in the year, which impacted the business
challenged faced by the profitability in FY18. While hospitals modified their package prices to mitigate the
industry impact, such headwind could recur if price caps are extended to cover other
consumables, diagnostic tests, etc.
 Scheme implementation – Scheme business is a low-margin business. Any policy

decision that results in higher admissions of scheme-based patients could impact
profitability. West Bengal recently announced a health insurance scheme to cover
entire state’s population. If implemented, it could impact near-term profitability of
hospitals in the region.
 Recruitment and retaining of medical talent – This is one of the key hurdles faced
by the industry that limits growth. Given the scarcity of physicians, recruiting and
retaining them is a key challenge, especially with the competition also looking out
for similar resources.
 Risks associated with greenfield expansion – High cost of capital, execution

hiccups, extended payback period, and increased competition are key risks
associated with greenfield expansion.
Page | 6
Valuation and performance

The Indian hospital industry is trading at par with Asian peers, but offers better
Indian hospital industry revenue and EBITDA growth prospects. Apollo (155% up) has outperformed Nifty by
trades at par with Asian peers, 84% in the past one year and NH (64% up) has underperformed Nifty by 7% over the
but has better revenue/EBITDA same period. We note that Apollo’s EV/EBITDA multiple has seen expansion to
growth prospects ~24x/19x FY22/23e EV/EBITDA and is trading at a 25-30% premium to its 5-year
historical average. Narayana is trading at ~16x/14x FY22/23e EV/EBITDA, ~10-15%
discount to its 5-year historical average.
Apollo (155% up)
Exhibit 13: One year forward EV/ EBITDA chart
outperformed Nifty by 84% in
Apollo Fortis Narayana
the past one year and NH (64% 30
up) underperformed Nifty by
7% over the same period 25
20
15
10
Sep-16
Sep-18
Sep-20
Sep-17
Sep-19
Mar-16
Mar-17
Mar-19
Mar-20
Mar-18
Mar-21
Exhibit 14: Price performance Index

225
200
175
150
125
100
75
50
Aug-20
Apr-18
Sep-17
Jan-20
Jul-16
Mar-21
Dec-15
Jun-19
Nov-18
Feb-17

Exhibit 15: Peer-set valuation
M.Cap Price Target FY20-23e CAGR ROE EV/ EBITDA PER
Name Rating
(USD mn) (LC) Price Sales EBITDA FY22E FY23E FY22E FY23E FY22E FY23E
Indian peers
Apollo Hospitals 5,704 2,902.7 2,935 ADD 11.1% 14.1% 13.6 16.4 24.3 19.2 60.1 42.0
Fortis Healthcare 2,055 199.2 NA NR 9.2% 18.6% 3.9 5.4 20.2 16.6 58.7 39.3
Max Healthcare 2,720 206.1 NA NR 39.6% 58.0% 25.2 19.4 20.3 17.5 35.0 28.5
Narayana Health 1,134 405.9 460 BUY 6.7% 16.5% 19.5 20.6 16.4 14.1 36.5 29.8
Aster DM 941 137.8 NA NR 8.4% 9.5% 11.8 13.9 6.4 5.6 15.9 11.8
HCG 326 190.5 NA NR 8.5% 14.4% -2.8 0.7 15.7 13.2 NA 497.4
Shalby 149 100.8 NA NR 7.3% 14.8% 6.0 6.7 10.3 8.9 21.0 17.7
Asian peers
Bangkok Dusit 10,979 21.6 NA NR 9.9% 5.7% 10.3 10.9 18.8 17.2 36.5 33.1
Bumrungrad Hospitals 3,456 136.0 NA NR 13.8% 26.8% 14.7 16.0 22.9 20.9 37.9 33.7
IHH Healthcare 11,265 5.3 NA NR 11.1% 18.4% 5.3 6.1 15.3 13.7 36.4 30.9
Raffles Medical Group 1,554 1.1 NA NR 7.4% 4.3% 7.2 8.0 16.6 15.3 31.1 28.0
Ramsay Health Care 11,667 67.0 NA NR 9.6% 13.8% 13.0 13.3 10.4 10.0 25.5 23.9
Chularat Hospital PCL 1,027 2.9 NA NR 10.0% 8.8% 22.9 23.1 18.8 17.6 30.1 28.3
Source: Bloomberg, HSIE Research, price as on Mar 31, 2021
Page | 7
Comparison of leading listed players

Exhibit 16: Indian hospitals comparison
Hospitals Apollo Fortis Narayana Max HC
No. of Hospitals 49 28 21 16
Capacity Beds (owned) 8,816 4,866 6,663 3,371
Operational Beds (owned) 7,364 3,700 5,352 3,234
Pan India - dominant in
Key Presence Pan India Pan India Delhi NCR & Mumbai
Karnataka and East
Plans to add ~1,300 beds Nanavati (300 beds in
~USD 100mn in Cayman,
Bolt-on acquisitions, in 4 years, Capex of phase-I), Delhi (~350
Expansion plans selective expansion in
brownfield expansion ~Rs7.5bn, brownfield beds at Saket) for
India preferably in East
expansion ~Rs13bn
Pharmacy, AHLL
Other businesses (clinics/ diagnostics), SRL - Diagnostics Cayman Islands Diagnostics
Apollo 24/7
Operating Parameters
(FY20)
ARPOB (Rs/ day) 37,397 43,562 26,575 51,000
ALOS 3.9 3.2 3.5 4.3
Occupancy 67% 68% 52% 73%
Revenue per bed 7.6 10.3 4.8 9.7
EBITDA per bed 1.5 1.3 0.9 1.4
EV per bed^ 62.4 44.1 16.9 67.3
Gross block per bed 9.9 13.9 3.6 8.4
Financial Parameters (FY20)
Revenues 1,12,468 46,323 31,278 43,710
Revenue CAGR (FY15-20) 16.8% 3.4% 18.1% NA
EBITDA Margin 14.1% 14.3% 13.5% 13.4%
ROCE 10.4% 1.7% 10.9% 9.0%
Net debt/ EBITDA 3.5 2.2 2.2 4.0
Hospital Segment
Hospitals revenue 57,298 37,520 25,592 31,352
FY15-20 CAGR 12.2% 3.2% 15.5% NA
FY20-23e CAGR 11.1% 9.2%* 6.7% NA
Hospital as % of revenues 50.9% 81.0% 81.8% 71.7%
EBITDA 10,975 4,765 4,578 4,440
FY20-23e CAGR 14.1% 18.6%* 16.5% NA
EBITDA Margin 19.2% 12.7% 17.9% 14.2%
Source: Company, Bloomberg, HSIE Research, Rs mn, *consensus estimates, ^EV is for entire business
Page | 8
Recent Industry trends

Post pandemic, recovery trends are promising
The COVID crisis severely impacted the hospital business in Q1FY21 as the
occupancies dropped to <50% for most players. It gradually picked up in the
subsequent quarter, led by COVID volumes. With steady decline in COVID cases and
pick-up in elective surgeries, the occupancy increased to near pre-COVID levels. The
hospital segment revenues recovered to ~90-95% of pre-COVID levels in Q3FY21. The
OPD footfalls, which usually are ~20% of the overall volumes, remain impacted for
some players like Apollo at ~65-70% of pre-COVID levels while for some like NH it
almost recovered to normal.
Exhibit 17: Occupancy improved sequentially to pre- Exhibit 18: Hospital revenues recovered to 90-95% of
Covid levels after dropping below 50% in Q1FY21 pre-Covid levels in Q3FY21 vs. steep decline in 1HFY21
FY20 Q1 FY21 Q2 FY21 Q3 FY21 1HFY21 Q3FY21
80% 76% 10%
73%
67% 68%
63% 64% 6% 0%
0%
-4% -5%
60% 52% -9%
-10% -17%
44% 43% 44% -28% -29%
-35%
40% -20%
-45%
-30%
20%
-40%
0% -50%
Apollo Fortis Narayana Max HCG Apollo Fortis Narayana Max HCG
Healthcare Healthcare
Source: Company, HSIE Research Source: Company, HSIE Research
ARPOBs remained healthy driven by favorable case mix

Despite lower COVID ARPOBs, negligible contribution from international patients and
lower OPD volumes, overall ARPOB trend remained healthy. For players like Apollo
and NH, it improved on YoY basis as the cases were more skewed towards high-end
tertiary/quaternary care procedures. For other players, the decline was not significant.
ALOS increased for most players due to COVID, which is expected to normalize, going
ahead.
Exhibit 19: Despite lower Covid ARPOBs… Exhibit 20: …overall ARPOB trend remained healthy
ARPOB (Rs/ day) Covid ARPOB (Rs/ day) Q1FY21 Q2FY21 Q3FY21
50,000 10% 9% 8%
6%
40,000 6% 5%
3%
2%
30,000 2% 0%
20,000 38,988 40,822 -2%

-1%
31,190
25,342 27,123 -2% -3%
10,000 20,705 -6% -4%-3%
-5% -5%
0 -8%
-10%
Apollo Fortis Narayana Max HCG
Healthcare
Source: Company, HSIE Research, Q2FY21 Source: Company, HSIE Research
Page | 9
Mature/flagship hospitals are impacted more than others

The mature/flagship hospitals remain impacted as they are heavily dependent on
outstation/international patients vs. new/other hospitals which are located outside
metro/tier-1 locations. International patients accounted for almost 10% of hospital
revenues in FY20, which dropped to ~1-2% in 9mFY21. The newer hospitals/ other
hospitals located in non-metro and tier-2 locations outperformed the flagship/ metro-
based facilities as patients preferred visiting large/quality healthcare providers as they
are perceived to be better equipped to manage COVID/ non-COVID facilities vs.
standalone/ nursing homes. This has improved hospital’s brand visibility and they
expect patient footfalls to sustain in the post-COVID environment. Large players have
also gained market share in key regions. Apollo cited market share improvement in
Chennai cluster to ~25% vs. ~18-20% three years back. Likewise, it also gained market
share in Hyderabad and Kolkata (aims 25% share in Kolkata, Karnataka & Hyderabad).
Exhibit 21: Revenues of mature units witnessed sharp Exhibit 22: Other units have shown resilience compared
decline as compared to newer units to the flagship/ well-established ones
Mature New Flagship units Other units
40% 0%
-14% -12% -11%

-10%
20% -24%
35%
-34%
-20%
-44%
0% -5%
-9% -12%
-30%
-26%
-20% -36%
-40%
-40%
-50%
Apollo Narayana Aster DM
Apollo Narayana Aster DM
Source: Company, HSIE Research, 9mFY21 Source: Company, HSIE Research, 9mFY21
Other business verticals witnessed increased traction

The other businesses such as pharmacy and diagnostics for Apollo, Cayman operations
for NH, diagnostics for Fortis received fillip due to COVID and witnessed healthy
traction. NH’s Cayman operations benefitted on account of increased flow of domestic
patients due to travel restrictions. Apollo and Fortis’s diagnostic businesses benefitted
on account of increased testing volumes for COVID.
Exhibit 23: Pharmacy and diagnostics fared better than Exhibit 24: International operations at Cayman for NH
hospitals business for Apollo and Fortis and GCC for Aster outperformed India operations
Hospitals AHLL/ Diagnostics Pharmacy India Hospitals Foreign Operations
20% 15%
9%
10% 5%
7% 7%
0%
-5% -7%
-10% -7%
-11% -15%
-33%
-20%
-19%
-25%
-30% -25%
-40% -35%
Apollo Fortis Narayana Aster DM
Source: Company, HSIE Research, 9mFY21 Source: Company, HSIE Research, 9mFY21
Page | 10
Strong focus on cost led to structural cost savings and margin

improvement
Faced with operational challenges during COVID, most players rationalised costs
which has resulted in some structural cost savings. Renegotiation on rentals, saving on
admin/travel/promotion cost, reduction in doctor fees/pay-outs resulted in cost
savings. While doctor fees are likely to revert with increase in volumes, portion of
savings in other cost items are likely to sustain.
Exhibit 25: Apollo – annualised cost savings of Rs1.2bn Exhibit 26: Apollo EBITDA margin – recovered almost to
(~100bps of revenues) is likely to sustain pre-COVID level
Consumables Manpower Overheads EBITDA margin
120%
16% 14% 15% 15% 14%
98% 13%
100% 87% 89%
86% 85% 85% 86% 11%
22% 12%
80% 20% 20%
21% 21% 20% 19%
21%
60% 16% 15% 13% 8%
17% 16% 16%
40%
4%
48% 48% 49% 50% 56% 55% 54% 2%
20%
0%
0% Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Q1FY20
Q2FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q3FY20
Exhibit 27: NH – sharp fall in India occupancy and Exhibit 28: Subsequent turnaround in Cayman and
temporary shutdown in Cayman impacted Q1FY21 recovery in India led to strong margins in Q3FY21
Consumables Manpower (Employees+ Doctors) Overheads EBITDA margin
140% 133% 20%
15% 13% 14%
13% 13%
120% 31% 109%
10%
90% 92% 4%
100% 88% 87% 89%
27%
80% 20% 22% 0%
21% 21% 21%
72%
60%
51% 42% -10%
42% 42% 43% 44%
40%
-20%
20%
25% 24% 24% 25% 30% 31% 29%
-23%
0% -30%
Q1FY20
Q2FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q3FY20
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Page | 11
Treading on path of consolidation

Most players entered a consolidation phase after having significantly expanded
operations from FY12-18. The companies are focusing on sweating existing assets and
will look to add capacities selectively through brownfield expansion or bolt-on
acquisitions at strategic locations. It’s important to note that despite the tough
environment, net debt for most players has remained stable in the past three quarters.
With major expansion behind, we expect balance sheet to remain strengthened.
Exhibit 29: Capex trend continues to moderate further in Exhibit 30: Net debt has remained stable despite tough
9mFY21 environment
FY18 FY19 FY20 Sep'20 FY19 FY20 Sep'20
Rs bn
Rs bn 70
8 7.6
60 56
7 6.2 49
5.6 50
6
5.2
37
5 40
4 30 23 22
2.9
3 20 17
14 13
1.8 1.6
2.1 10 12 9 9 9 9
2 1.3 1.4
1.0 1.1 1.3 1.4 10 6
0.8
1
0.3 0
0 Apollo Fortis Narayana Max HCG
Apollo Fortis Narayana HCG Healthcare
Significant headroom for growth

Most hospitals are operating at an average occupancy of ~60-70% with bed capacity
being higher than operational beds, which suggests decent headroom for growth at
existing facilities. Moreover, with the steady decline in ALOS driven by technological
advancements, in-patient volume/discharges have increased driving volume growth.
This, along with improved ARPOBs (price increase, case mix, international patients)
has driven ~10% revenue growth for the industry in the past two years.
Exhibit 31: Average occupancy is at 60% which provides Exhibit 32: Beds capacity vs. operational beds suggest
scope to grow at existing units headroom to expand at existing facilities
FY18 FY19 FY20 India bed capacity Operating beds
73%
72%
8,822
70%
70%
68%
68%
67%
67%
66%
7,491
6,597
53%
52%
52%
5,282
45%
4,616
44%
43%
3,693
3,652
3,391
3,234
2,530
2,071
2,071
Healthcare
Narayana
HCG
Aster DM
Apollo
Fortis
Max

Healthcare
Page | 12
India healthcare overview

 The hospitals industry accounts for ~65% of India’s healthcare market. The
healthcare spends in the country has grown at 8% CAGR. Private players remain
the key growth contributors, given that the government spending remains low at
~1.5% of GDP.
 The structural demand drivers such as increasing burden of lifestyle diseases,
rising insurance penetration, and rising affordability & awareness provide
sustainable growth prospects for the industry. The demand-supply gap and
inadequate infrastructure will continue to attract private investments in the space.
 According to the National Investment Promotion and Facilitation Agency, the
healthcare delivery market, accounting for ~80% of total healthcare market (incl.
medical devices, diagnostics) in India, is expected to grow at 16-17% CAGR over
2017-2023e.
Exhibit 33: Healthcare spends have risen at 8% CAGR Exhibit 34: Hospitals industry account for ~65% of
in the last 10 years healthcare delivery market
India Healthcare expenditure Medical Devices
USD bn
120 & Others
102 Health 8%
100 94 96 Insurance
5%
76 81
80 74
70
59 61 Diagnostics
60 55 7%
47
40
20
Domestic Hospitals
0 Pharmaceuticals 65%
15%
2009
2010
2011
2012
2013
2014
2016
2017
2018
2019
2015
Source: World Bank, HSIE Research Source: Industry, HSIE Research
Exhibit 35: Healthcare expenditure as a % of GDP Exhibit 36: India lags way behind others in terms of per
remains low compared to global spends capita healthcare expenditure
Healthcare expenditure as a % of GDP Per capita healthcare expenditure
USD
16.9% 10,624
10.0% 9.5%
8.3%
4,315
5.4% 5.3% 2,824
4.5% 3.8%
3.5% 2.9%
848 609 526 501 427
276 112 73
Singapore
S. Africa
Singapore
S. Africa
Thailand
Indonesia
Thailand
Indonesia
Brazil
Brazil
Malaysia
India
India
UK
UK
Russia
Russia
US
US
China
China
Source: World Bank, HSIE Research, Data as of 2018 Source: World Bank, HSIE Research, Data as of 2018
Page | 13
Government participation remains low

Despite the uptick in government spending and thrust on increasing insurance
coverage, GoI’s current allocation to healthcare at ~1.8% of GDP (aims to reach ~2.5% of
GDP by 2025) is way below the global average of 4.5-5%. Overall healthcare spends are
also low at 3.6% of GDP (vs. an average of ~9% for OECD countries, 2018). Low
government spend is an opportunity for private players, in our view, as the demand
for healthcare services is expected to grow at a healthy pace.
Exhibit 37: Government spends on healthcare is one of Exhibit 38: …resulting in high out-of-pocket spends
the lowest in the world… compared to global average
India WHO guidelines USA India Global
10% 70%
USA: ~8% 60%

8%
50%
6% 40%
WHO guidelines: 5%
30% 63% 60%
4%
20%
27%
2% 10% 18% 22%
2.5% 10%
1.4% 1.4% 1.5% 1.5% 0%
0% Out-of-pocket Government Private & Others
2014 2016 2018 2019 2025e
Source: World Bank, FICCI, HSIE Research Source: World Bank, HSIE Research, Data as of 2018
Exhibit 39: Public insurance schemes have improved Exhibit 40: Given the low government participation,
coverage but actual spends remain low - PMJAY quality healthcare falls into the hands of private players
allocation vs. actual spends
Allocation Actual spends Private Public
Rs bn
70
60 Beds 62% 38%
50
40 In-patients 56% 44%

31
30 64 64 64
20 Out-patients 82% 18%

31
10 24 20
7
0 Doctors 81% 19%
FY21e*
FY22e
FY19
FY20
0% 20% 40% 60% 80% 100%
Source: Ayushman Bharat Annual Reports, *Actual spends - Rs7bn, Source: AIHMS, CDDEP, HSIE Research
RE - Rs31bn, HSIE Research
Page | 14
Structural deficiencies - inadequate healthcare

infrastructure
India’s share in global disease burden is high at 20% but its share in health
infrastructure is much lower at low-to-mid single digit. It lags on all key parameters –
number of beds, doctors and nurses compared to global averages. India’s bed per
10,000 people is at 12 compared to global median of 29 beds per 10,000. As per CRISIL
in 2015, India needs to invest ~Rs14tn (USD230bn) in order to meet the global average.
According to the Medical  Scarcity of medical talent is the key limiting factor – Availability of quality
Council of India, there are resources is a key challenge faced by the private sector. Currently, around 45-50k
~12.6lakh doctors (~10lakh physicians graduate from the various medical colleges in India each year.
active) in India, which According to the Medical Council of India, there are ~12.6lakh doctors (~10lakh
translates to a ratio of 1 active active) in India at present, which translates to a ratio of 1 active doctor for every
doctor for every 1,343 people 1,343 people, which is not only lower than the global average of 1 doctor per ~640
vs. WHO norm of 1:1,000 people (World Bank, 2017), but also below the WHO norm of 1:1,000.
 Retaining physicians is crucial success parameters – The key hurdle in
establishing hospitals in tier-2/3 towns is attracting and retaining physicians.
Although setting up a hospital in these regions is less capital-intensive, viability of
a project could depend on availability of physicians. Physician compensation
comprises 30-50% of operating expenses of a hospital and could considerably
impact profitability and breakeven. Also, retaining them is a key challenge as
competition is also looking out for similar talent.
Exhibit 41: Beds per 10,000 people Exhibit 42: Healthcare workers per 10,000 people
Beds per 10,000 people Global Median Healthcare workers per 10,000 people WHO SDG
100 200
80
150
60
100
40 81 Global Median: 29 172
WHO Guidline: 45
123 123 110
50
20 43 85
29 26 25 50 46
21 21 19 36 26 22
12
0 0
Singapore
Vietnam
S. Africa
Thailand
Thailand
Brazil
Brazil
Malaysia
Malaysia
India
India
UK
UK
Russia
Russia
US
US
China
China
Source: CRISIL, HSIE Research, Data as of 2017 Source: WHO – World Health Statistics, 2020, HSIE Research
Exhibit 43: Doctors per 10,000 people Exhibit 44: Nurses per 10,000 people
Doctors per 10,000 people Global Average Nurses per 10,000 people Global Average
40 150
35
120
30
25 Global Average: 16 90
20 146
38
15 60 Global Average: 38
28 26 101
10 23 22 85 82
20
15 30 62
5 9 9 8 35 28 27 17
0 0 13
Singapore
Singapore
S. Africa
S. Africa
Thailand
Thailand
Brazil
Brazil
Malaysia
Malaysia
India
India
UK
UK
Russia
Russia
US
US
China
China
Source: WHO – World Health Statistics, 2020, HSIE Research Source: WHO – World Health Statistics, 2020, HSIE Research
Page | 15
Multiple demand drivers

 Rising income levels and urbanisation, increasing penetration of health insurance,
Private insurance penetration increasing proportion of middle-aged population, shift in disease profile towards
is at 10% lifestyle-related ailments, and medical tourism are driving strong demand for
Indian healthcare delivery services.
According to Statista, health

 In India, 36% of the population is currently covered by health insurance; however,
private insurance penetration is only at ~10% of the population. Therefore, access
insurance premiums are
to premium private healthcare services is limited to only ~10% of the population.
expected grow at a robust 15%
The balance coverage is under various government schemes, major ones being
CAGR and cross Rs2tn mark
Aam Aadmi Bima Yojana, Ayushman Bharat scheme, CGHS, ECHS, ESIS etc.
over FY20-30e
 The out-of-pocket spends remain high at 60%+. As the penetration of healthcare
insurance increases, quality healthcare will become more affordable to a larger
percentage of the population, which will drive growth for the private players,
especially the tertiary/quaternary care service providers.
Exhibit 45: Health insurance premiums have grown at Exhibit 46: Private insurance penetration is lower at
20% CAGR over FY15-20 ~10%, government insurance programs are on the rise
Insurance premiums Private insurance Govt. insurance
Rs bn
600 Private Coverage % Govt. Coverage %
400 mn 27% 26% 30%
500
25%
21%
400 300
20%
300 13%
200 12% 15%
508
449
200 370
304 10%
245 100 10%
100 201 9% 5%
7%
0 4% 5%
0 0%
FY15
FY16
FY17
FY18
FY20
FY19
FY12 FY14 FY16 FY18 FY20
Source: IRDAI, HSIE Research Source: IRDAI, HSIE Research
Exhibit 47: Favorable ageing demographics Exhibit 48: Shift in disease profile - NCD to be
responsible for 73% of deaths by 2030e
0-14 years 14-29 years 30-44 years 45-59 years 60+ years Communicable diseases NCDs Others
100% 100%
7% 7% 9% 13% 11% 11%
11% 14%
80% 16% 80%
17%
20%
20%
60% 23% 60%
24% 62%
73%
27%
29%
40% 26% 40%
24%
20% 36% 20%

29% 26% 28%
22% 16%
0% 0%
2001 2011 2021e 2031e 2016 2030e
Source: Journal of Critical Reviews, HSIE Research Source: CRISIL, HSIE Research
Page | 16
Medical tourism presents significant growth

opportunity
 Medical tourism industry in India is ~USD8-9bn in size. According in McKinsey,
Medical tourism industry is number of medical tourists in India could increase 4.5x to 3mn over 2018-2030e.
worth USD8-9bn in India Availability of affordable, quality treatment makes India a preferred destination for
foreign patients. The estimated cost for foreign patients coming to India is ~1/5th-
According in McKinsey, 1/10th of the western countries depending upon the treatment. That said, India’s
number of medical tourists in increasing medical tourism demand is emerging from parts of the Middle East,
India could rise 4.5x to 3mn Africa and Western Asia. As a country, we compete with Singapore, Thailand and
over 2018-2030e Malaysia, which are also emerging as a medical tourism destination.
 The revenues from international patient segment account for 10% of the hospital
International segment revenues for large listed players. Given they have state-of-the-art facilities and
accounts for 10% of revenues some of the finest and renowned medical professionals, they are able to deliver
for large listed players service of the highest standards and play a major role in attracting patients from all
over the world.
India has 37 hospitals which  The number of NABH and JCI accredited hospitals have increased in India over the
are JCI accredited and ~750 years. Currently, there are ~750 NABH (National Accreditation Board for
NABH accredited facilities Hospitals) and 37 JCI (Joint Commission International) accredited hospitals in the
country. A hospital with any of these accreditations has met the strictest of criteria
in patient safety, delivery of clinical care, overall patient support, and much more.
Exhibit 49: Medical tourists trends in India Exhibit 50: Delhi NCR and Chennai markets attract
more than 50% of medical tourists
Medical tourists in India % of total tourists
100%
'000s
700 10% Others Others
80% Hyderabad Others
600 Mumbai West Asia
8% Africa
(10-12%)
500 6% Neuro
60% Chennai Iraq Transplant
400 6% (22-25%) Cardiac
5%
697 40% Bangladesh
300 Ortho
3% 4% &
3% 427 Delhi NCR Afghanistan
200 20%
(42-45%) (55-60%)
2% Onco
100 237
156
0%
0 0% By Region By Country By Specialty
2010 2013 2016 2019
Source: Ministry of Tourism, HSIE Research Source: Company, Ministry of Tourism, HSIE Research, Data as of
2017-18
Exhibit 51: Cost advantage - India compares favorably with regional peers
Affordable and quality Ailments (USD) US UK Thailand Singapore Korea India
treatment makes India a Heart Surgery 1,00,000 40,000 14,000 15,000 28,900 5,000
favored destination Bone Marrow Transplant 2,50,000 2,90,000 62,000 1,50,000 NA 30,000
Liver Transplant 3,00,000 2,00,000 75,000 1,40,000 NA 45,000
The treatment costs for key Knee Replacement 48,000 50,000 8,000 25,000 19,800 6,000
ailments in India are ~1/5th- Dental Implant 2,800 NA 3,636 1,500 4,200 1,000
1/10th of the western countries Avg. savings vs. US/ UK NA NA 50-75% 30-45% 30-45% 65-90%
JCI accredited hospitals NA 1 67 21 24 37
Source: CRISIL, FICCI, JCI, HSIE Research
Page | 17
Digital platforms offer exponential growth, albeit on

a low base
Digital platforms are increasingly shifting healthcare delivery on to the internet.
Multiple players including Apollo hospital and health startups are looking to tap into
the growing online health market in India. The COVID crisis has provided significant
boost to adoption of digital healthcare, especially for e-pharmacies (3x increase in no.
of household users) and tele-consultations (5-6x rise tele-consultation volumes).
E-pharmacies – biggest segment in digital health

E-pharmacies account for 3%
share of India’s pharma market  Large e-pharmacy players such as PharmEasy, Netmeds, 1mg cater to practically
and are likely to account for 10- the entire outpatient market in India consisting of pharma/ medicine consumption
12% share in the next 10 years (USD20bn), diagnostics (USD8bn), and consultation (USD2-3bn). They have 3%
market share in India’s drug market, which is expected to increase to 7-8% in FY25
The market is expected to grow and 10-12% by FY30. The e-pharmacy GMV is expected to grow at 35-40% CAGR
at 35-40% CAGR over FY20-25e from ~USD0.9bn in FY20 to ~USD4-5bn by FY25.
 According to FICCI, the number of households using e-pharmacy platforms rose
The no. of households using e- substantially from ~3.5mn pre-COVID levels in FY20 to ~9mn in May’20. It expects
pharmacy platforms rose this number to grow exponentially and reach ~70mn households (~1.4x of ~50mn
substantially from ~3.5mn pre- forecast pre-COVID) by FY25. As per RedSeer analysis, ~60mn households in India
COVID levels in FY20 to ~9mn were ready to use e-Health platforms in FY20, implying penetration levels of ~6%
in May’20 in FY20, which has tremendous scope to increase.
 Growth drivers – increasing pharma demand, chronic diseases, digital access &
19 out of 29 states have higher adoption, consumer awareness and behavioural shifts.
identified e-pharmacy as an  Unit economics – The cash burn rate of e-pharmacies has been decreasing with
essential service reduction in discounts and backward integration with suppliers. The average
discounting has reduced from 20-22% to 15-18% today. PharmEasy (the largest
player) is three years away from breakeven.
Exhibit 52: No. of households using e-pharmacy is Exhibit 53: COVID has expedited acceptance of
expected to rise to 70mn in FY25 from 3.5mn in FY20 online platforms in tier-2/3 towns
Untapped market Penetrated market Metro Non-metro
mn
160 100%
30%
80% 45%
120
50
70
60%
80
3.5 40%
9 70%
40 90 55%
70 20%
57 51
0 0%
FY20 May'20 FY25e FY25RE Pre-Covid HHs HHs onboarding during
lockdown
Source: FICCI, RedSeer, HSIE Research Source: FICCI, RedSeer, HSIE Research, HH - Households
Exhibit 54: Recent consolidation in India’s e-pharmacy market

Year Acquirer/Partner Target Comments
Largest player in India with 60%+ market share. Acquired 100% stake for ~USD200-250mn; Cash + Stock deal
Sep'20 PharmEasy MedLife
(~20% stake in PharmEasy); ~USD1.15bn valuation post acquisition
Aug'20 Reliance Netmeds Acquired 60% stake for ~USD83mn from Vitalix health in a full cash deal
Sep'20 Tata, Flipkart 1mg Tata is possibly in talks to acquire stake in 1mg, Flipkart entered into a partnership deal with 1mg
Aug'20 Amazon NA Launched online pharmacy in Bengaluru. Opened couple of stock and stores centres
Source: Industry, HSIE Research
Page | 18
Tele-consultation – customer behavior is evolving and will be a key

monitorable
 The online consultation market in India is at a nascent stage where consumer
behaviour is still evolving. Though this is an interesting space for long-term digital
delivery of healthcare services, there will be headwinds with respect to changing
India’s telemedicine market to
consumer behaviour and extensive adoption over the next 3-4 years. COVID-led
grow at ~37% CAGR over
challenges have clearly played a huge role in expediting the overall acceptance of
2019-2025e
online platforms, but it would be interesting to observe how the adoption evolves
post the pandemic. The teleconsultation volumes, which increased upto 6 times for
~51% of the overall
major players during the lockdown, have clearly receded as restrictions eased. In
teleconsultations were from
the developed economies, higher insurance penetration has driven the growth in
three specialties viz. general
the online consultation market.
physician, gynecology and
dermatology  DataLabs expects India’s online market (e-pharmacy + tele-consultation) to cross
~USD 5.4bn (USD4-4.5bn for e-pharmacy, USD1-1.4bn for tele-consultation)
growing at ~37% CAGR over 2019-2025e, driven by shifts in consumer behavior,
increasing awareness levels, cost advantage/value proposition and ease in use.
 As per Practo’s analysis, among the telemedicine users in India during the first
phase of lockdown (Mar’20-May’20), ~80% were first time users and ~44% were
from non-metro cities. As per EY, leading healthcare chains in India were doing
~200-500 consults per day. Apollo also witnessed a huge surge in volumes to 2,600
consults per day (peak), which then moderated to 2,000/day as of Dec’20.
Exhibit 55: India’s tele-medicine market (incl. e- Exhibit 56: Covid-led surge in the tele-consultation
pharmacies and tele-consultation) market
% increase in
USD mn India tele-medicine market tele-
6,000
5,410 Company Country consultation
during
5,000
lockdown
Practo India 500%
4,000 3,713
M Fine India 500%
3,000 2,626 myUpchar India 300%
1,915 Lybrate India 60%+
2,000 1,428
1,081 Teladoc Health US 60-90%
829
1,000 MD Live US 50%
85 142
Pingan Good Doctor China 900%
0
Chunyu Doctor China 100%
2020e
2021e
2022e
2023e
2024e
2025e
2010
2015
2019
215% (active
Ding Xiang Hua China
users)
Source: DataLabs, HSIE Research Source: EY, HSIE Research
Exhibit 57: Tele-consultation market has received funding of ~USD300mn+ in the last 5 years
Founding Funding from 2014-
Company Investors
Year 19 (USD mn)
Practo 2008 195 Tencent, Ru–Net, RSI Fund, Thrive Capital, Trifecta Capital
Docprime 2018 50 Policy Bazaar Group
M Fine 2017 28 SBI Holdings, SBI Ven Capital, Bee Next, Stellaris Venture, Prime Venture, Alteria Capital
CallHealth 2013 14 The Times Group, Sachin Tendulkar, P.V. Sindhu, Pullela Gopichand
Lybrate 2013 11 Nexus Venture, Tiger Global, Ratan Tata
Source: EY, HSIE Research
Page | 19
Company Section
Page | 20
01 April 2021 Initiating Coverage
Apollo Hospitals
A microcosm of the healthcare industry ADD
With major expansion over and multiple growth avenues expected ahead, CMP (as on 31 Mar 2021) Rs 2,903
Apollo is best positioned to witness improved profitability and return ratios
Target Price Rs 2,935
in the next two years. Its asset light businesses such as pharmacy, AHLL
(clinics/diagnostics) are expected to drive margin expansion and EBITDA NIFTY 14,691
growth of 17%+ CAGR over the same period. Its recent foray into online
health (Apollo 24/7) will prove a significant growth enabler for its existing
business as it attempts to leverage its robust infrastructure. Apollo’s balance KEY STOCK DATA
sheet remains comfortable with net debt/equity at ~0.9x (FY21e). We expect Bloomberg code APHS IN
FCF generation of Rs34bn over FY20-23e (turned FCF positive for the first time
No. of Shares (mn) 144
in FY19 since FY12). However, at 19x FY23e EV/EBITDA, a 25-30% premium to
its 5-year historical average, the positives appear priced in. Initiate with an MCap (Rs bn) / ($ mn) 417/5,740
ADD and TP of Rs2,935/sh. 6m avg traded value (Rs mn) 3,524
Recovery trends are promising; market share gains in most clusters 52 Week high / low Rs 3,284/1,047
Apollo has gained market share in most of its key clusters during COVID. The
hospital business witnessed strong recovery (96% of pre-COVID revenue in STOCK PERFORMANCE (%)
Q3FY21) with pick-up of high end/elective surgeries. We expect 12%/18% 3M 6M 12M
revenue/EBITDA growth for its hospital segment, driven by gradual recovery in
Absolute (%) 20.3 35.1 154.8
mature hospitals, consolidation of increased stake in Apollo Gleneagles &
Apollo Medics, and strong growth/margin expansion in new hospitals & Proton. Relative (%) 16.6 5.1 86.8
Asset light verticals (pharmacy, AHLL) to witness margin expansion

SHAREHOLDING PATTERN (%)
Apollo’s pharmacy business is likely to sustain its growth momentum (22%
Dec-20 Sep-20
CAGR over FY15-20), supported by digital initiatives - Apollo 24/7 app. We
forecast ~130bps of margin expansion (pre-IND AS), driven by higher mix of Promoters 30.82 30.82
private label sales and operating leverage over FY20-23e. AHLL (clinics) has FIs & Local MFs 10.85 14.71
turned the corner (strong traction in diagnostics) and is expected to see margin
FPIs 51.70 47.81
improvement of ~335bps to 13% over FY20-23e. We expect these asset light
verticals to contribute 30%+ to Apollo’s EBITDA in FY23e (from ~25% in FY20). Public & Others 6.63 6.66
Pledged Shares 9.29 10.37

Apollo 24/7 – a significant growth enabler
Apollo’s online foray through the Apollo 24/7 app is likely to drive significant Source : BSE
growth for its existing business. The integrated platform will enhance customer
reach, funnel patients into the Apollo network (70 hospitals, 4,000+ pharmacies,
722 diagnostic centres) and drive its market share in the growing e-health
market in India. At this stage, we do not value the Apollo 24/7 platform
independently, but build in higher growth for its existing businesses.
Initiate with an ADD and target price of Rs2,935/sh; risks
Our TP of Rs2,935/sh is based on SOTP valuation of (a) healthcare services - 18x
FY23e EBITDA; (b) pharmacy business - 25x FY23e EBITDA; (c) associates’ stake.
Risks: execution slippages, adverse government regulations (price
control/scheme implementation), and delayed recovery in mature hospitals.
Financial Summary
YE Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E Bansi Desai, CFA
Net Revenues 96,174 1,12,468 1,05,767 1,32,579 1,54,120 [email protected]
EBIDTA 10,636 15,873 10,881 19,013 23,552
+91-22-6171-7341
EBITDA margins 11.1 14.1 10.3 14.3 15.3
Adj. PAT 2,360 2,566 824 6,943 9,932
EPS (Rs) 17.0 18.4 5.9 48.3 69.1 Karan Vora
P/E (x) 171.1 157.4 494.1 60.1 42.0 [email protected]
EV / EBITDA (x) 41.6 29.0 42.3 24.3 19.2
+91-22-6171-7359
RoCE (%) 7.1 10.4 7.0 12.5 14.7
Source: Company, HSIE Research
Apollo Hospitals: Initiating Coverage
Financial projections
We forecast 14% EBITDA CAGR over FY20-23e driven by: a) strong traction in newer
hospitals (~525bps margin expansion); b) improved performance at Proton – The centre
achieved break even in Q3FY21 and is witnessing good traction in domestic as well as
international patients. This gives us confidence that it should ramp up well as business
normalises. With higher volumes, EBITDA is likely to improve significantly as
incremental margin is likely to be at 40-50%. We forecast 35% margin in FY23e; c)
pharmacy business – increasing share of private labels (from 8%+ in FY20 to ~10-12% in
FY23e) will aid gross margins and operating leverage benefits as stores mature will
drive ~130bps of margin expansion in the business.
Exhibit 58: Revenue summary
FY20-23e
Particulars FY18 FY19 FY20 FY21e FY22e FY23e
CAGR
Healthcare 45,156 51,426 57,298 49,412 70,940 81,565 12.5%
Existing/ Mature hospitals 35,280 39,279 42,892 35,504 52,723 59,715 11.7%^
New hospitals 9,876 12,142 13,820 12,907 16,417 19,350 11.9%
Proton 0 5 586 1,001 1,800 2,500 62.2%
Retail pharmacies (back-
32,689 38,860 48,206 49,879 52,896 61,188 8.3%*
end)
AHLL 4,589 5,888 6,964 6,477 8,743 11,366 17.7%
Total Revenues 82,434 96,174 1,12,468 1,05,767 1,32,579 1,54,120 11.1%
Source: Company, HSIE Research, ^6% excl. impact of Apollo Gleneagles, Apollo Medics consolidation, *15%
including front-end operations (like-to-like)
Exhibit 59: EBITDA break-down

FY20-23e
CAGR
Healthcare 7,599 9,205 10,751 6,972 14,333 17,512 17.7%
Existing/ Mature hospitals 7,368 8,430 9,629 5,503 11,599 13,734 12.6%^
New hospitals 231 822 1,346 1,484 2,134 2,903 29.2%
Proton 0 -47 -224 -15 600 875 NA
Retail pharmacies (back-
1,479 2,031 4,452 3,240 3,703 4,528 0.6%*
end)
AHLL -1,146 -599 671 648 962 1,478 30.1%
Total EBITDA 7,932 10,637 15,874 10,860 18,998 23,517 14.0%
Source: Company, HSIE Research, *23% including front-end operations (like-to-like), ^includes consolidation
impact of Apollo Gleneagles, Kolkata and Apollo Medics, Lucknow
Exhibit 60: EBITDA margin summary

FY20-23e
Particulars FY18 FY19 FY20 FY21E FY22E FY23E
CAGR
Hospitals 16.8% 17.9% 18.8% 14.1% 20.2% 21.5% 271bps
Existing/ Mature Units 20.9% 21.5% 22.4% 15.5% 22.0% 23.0% 55bps
New Units 2.3% 6.8% 9.7% 11.5% 13.0% 15.0% 526bps
Proton NA NA -38.2% -1.5% 33.3% 35.0% NA
Retail Pharmacies (back-
4.5% 5.2% 6.0% 6.5% 7.0% 7.4% 140bps
end)*
AHLL -25.0% -10.2% 9.6% 10.0% 11.0% 13.0% 336bps
Consol. margins 9.6% 11.1% 14.1% 10.3% 14.3% 15.3% 117bps
Source: Company, HSIE Research, *pre-Ind AS margins
Page | 22
SOTP based valuation

Our target price of Rs2,935/sh is based on SOTP valuation of (a) Healthcare services -
18x FY23e EBITDA; (b) Retail Pharmacy (backend) – 25x FY23e EBITDA; (c) stake in
associates. We value Apollo’s hospital business at 18x EV/EBITDA, ~15-20% premium
to Asian peers. We believe the premium is justified, given the divergent growth
dynamics and Apollo’s superior return profile. Our target multiple is at ~20% premium
to Apollo’s own historical average, and we believe this is merited, considering strong
growth visibility in pharmacy and diagnostic business, investments in Apollo 24/7 and
balance sheet strength.
Exhibit 61: SOTP valuation
EBITDA
Particulars Stake (%) Multiple Value
(Rs mn)
Hospitals 100 17,547 18 3,15,842
AHLL 67 1,478 25 24,931
Healthcare services 19,024 3,40,773
Retail pharmacy (Backend) 4,528 25 1,13,199
Associates
Retail pharmacy (Frontend) 26 927 25 5,912
Indraprastha 22 1,085
Others 1,212
EV 4,62,180
Less: Net debt 19,437
Less: Lease Liabilities & other adj. 19,895
Equity Value 4,22,848
No. of shares 144
Target Price 2,935
Exhibit 62: The stock is trading at 19x FY23 EV/EBITDA, ~25-30% premium to its five
year historical average EV/ EBITDA
EV/ EBITDA 5 yr avg +1 SD -1 SD +2 SD
30
25
20
15
10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-16
Mar-17
Mar-19
Mar-21
Mar-15
Mar-18
Mar-20
Page | 23
Business overview
Apollo hospitals (AHEL) is the largest private healthcare provider in India with a
network of 70 hospitals (44 owned, 5 managed, 21 day care centres/ CRADLE centres)
and 10,000+ bed capacity, including Proton. It has pan-India presence with widest
AHEL is the largest private reach in South India with 50%+ beds in that region. It owns the largest pharmacy chain
healthcare provider in in India with 4,000 stores.
India with 10,000+ beds Between FY12-17, Apollo expanded its bed capacity by adding ~2,338 beds (~27% of
total beds) which diluted its margins and return profile. Since then, it has incurred
limited capex and consolidated its operations which has driven ROCE (pre-tax) from
It operates the largest 8% in FY18 to 14%+ in FY20 (pre-tax). The standalone pharmacy continues to expand
retail pharmacy chain in geographically, adding 300-350 stores per year. The pharmacy business is likely to
the country with ~4,000 witness significant margin improvement as existing stores mature and the share of
stores private label in overall sales increase. Its recent foray into online health through Apollo
24/7 and ProHealth is likely to aid growth of its current business as more patients are
funneled into Apollo network (diagnostics, hospitals, pharmacy).
Exhibit 63: Business Structure
Apollo Hospitals
Enterprise Ltd.
(AHEL)
Standalone Subs, Associates

& JVs
(87% revenues) (13% revenues)
Pharmacy^ 67.49% 25.5%

Hospitals Other Subs/
(back-end) AHLL Apollo Medicals Pvt.
(44% revenues) JVs*
(43% revenues) (6% revenues) Ltd. (AMPL)
(hospitals)
(7% revenues)
100%
Primary Specialty Apollo
Diagnostics
Mature New Proton care care Pharmacies Ltd.
(1%
(34% (10% (1% (2% (4% (front-end)
revenues)
revenues) revenues) revenues) revenues) revenues)
Source: Company, HSIE Research, *Blended holding at ~41%, ^Slump sale of front end business through NCLT process for ~USD 72mn
Exhibit 64: Operating beds break-up Exhibit 65: Revenue break-up

Managed AHLL
Hospitals, 6%
851
Day care
centres/
CRADLE,
530
Hospitals
Retail
51%
Pharmacies
(SAP)
43%
Owned
Hospitals,
7,364
Source: Company, HSIE Research, Sept’20 Source: Company, HSIE Research, FY20
Page | 24
Exhibit 66: Regional split of India business

Particulars Tamil Nadu AP, Telangana Karnataka Others Subs/ JVs/ Associates
Operational beds 2,003 1,344 769 993 2,257
Operational beds % 27.2% 18.3% 10.4% 13.5% 30.6%
Chennai: Greams Bangalore: Apollo Gleneagles
Hyderabad: Jubilee Navi Mumbai,
Lane, Nandanam, Bannerghatta, (Kolkata)*, Apollo
Key Hospitals Hills; Bhubaneshwar,
Ayanambakam; Sheshadripuram; Medics (Lucknow)*,
Other: Vizag Bilaspur, Kerala
Other: Madurai Other: Mysore Indraprastha (Delhi)
FY20 data
Revenue as % of hospitals
39% 19% 13% 14% 15%
revenues
ARPOB (Rs/ day) 47,151 36,184 36,336 25,790 35,145
Occupancy % 59.0% 62.0% 72.0% 82.0% 72.0%
ALOS 3.53 3.90 3.61 4.00 4.21
Source: Company, HSIE Research, *consolidated from Q4FY21- Q1FY22
Operating parameters are trending in right direction

Exhibit 67: ARPOB – pricing power remains strong Exhibit 68: Occupancy have steadily risen
ARPOB (Rs) Occupancy %
50,000 80%
46,285 Covid Impact
45,000 42,348 70%
68% 67% 69%
67%
39,953 63% 64% 66%
40,000 37,397
60% 56%
34,226
35,000
31,377 31,967
50%
30,000
40%
25,000
20,000 30%
FY21e
FY22e
FY23e
FY17
FY18
FY19
FY20
FY16
FY21e
FY22e
FY23e
FY18
FY20
FY17
FY19
Exhibit 69: Lower ALOS aids in driving volume growth Exhibit 70: Diversified therapeutic presence
ALOS Cardiology Oncology Neuro Ortho Gastro Others
4.5
Covid Impact 100%
4.3
4.3 80%
4.2 44% 40% 40%
4.1
4.1 4.0 4.0 60%
4.0 7% 6%
11% 10% 10%
3.9
3.9 3.8 40% 12% 12% 12%
8% 8% 11%
3.7 20%
25% 23% 21%
3.5 0%
FY13
FY15
FY20
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
Page | 25
Hospital segment is forecasted to grow at 12% CAGR

Apollo’s hospitals business accounts for 51% of the overall revenues. After a sharp
reduction in occupancies in 1HFY21, the segment witnessed a strong recovery in
Q3FY21 led by pick-up in high-end/elective surgeries. The occupancies recovered to
~90% of pre-COVID levels in the quarter. Apollo has strengthened its position in its key
clusters - Chennai, Hyderabad, Kolkata by gaining market share.
Mature clusters include 30

Mature hospitals – occupancy and ARPOB to drive growth
hospitals and 5,232  The mature hospitals contributed ~75% to revenues and ~90% to hospital EBITDA
operational beds in FY20. The revenues grew at 10% CAGR over the last two years driven by
increase in occupancy (from 67% to 69%) and ARPOBs (8% CAGR).
We expect gradual recovery,
 Post pandemic, the occupancy at these hospitals dropped to ~37% in Q1FY21 and
driven by occupancy and
subsequently rose to ~62% in Q3FY21. The patient footfalls remain impacted at
ARPOBs
some of the flagship hospitals due to absence of international patients. We forecast
12% revenue CAGR over FY20-23e driven by improving occupancy (building 70%
Consolidation of 2 hospitals -
in FY23e), ARPOB growth (high single digit) and consolidation of 2 hospitals -
Apollo Gleneagles and Apollo
Apollo Gleneagles and Apollo Medics, Lucknow (adding ~6% ppt. to growth).
Medics, Lucknow adds ~6%
With cost savings of Rs1.2bn (~210bps of hospital revenues), business recovery and
ppt. to mature clusters’
improving case mix across clusters, we expect EBITDA margin to improve ~55bps
growth
to 23% in FY23e. Apollo expects these to inch up to 24%+ over time.
Exhibit 71: Revenues - quarterly trend Exhibit 72: EBITDA – quarterly trend
Mature - Revenues Mature - EBITDA EBITDA Margins
Rs mn
12,000 Rs mn
3,000 30%
23% 23% 21%
10,000
23% 20%
2,000 23% 23% 15% 22%
8,000
10%
6,000 1,000
4,000 0%
0
2,000 -10%
0 -10%
-1,000 -20%
Q3 FY19
Q4 FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q2 FY21
Q3 FY21
Q1 FY21
Q4 FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Q3 FY19
Source: Company, HSIE Research Source: Company, HSIE Research, post IND AS
Exhibit 73: Revenue to grow at 12% CAGR over FY20-23e Exhibit 74: EBITDA margin set to improve to 23-24%
Mature - Revenues Occupancy % Mature - EBITDA EBITDA Margins
Rs bn Rs bn
70 75% 16 26%
68% 70% 70% 23%
60 67% 67% 68% 70% 22% 22% 24%
69% 24%
12 23% 23% 22%
50 65% 23%
56%
20%
40 60%
8 18%
30 60 55% 16%
53 14
12 16%
20 39 43 50% 10
33 33 35 36 4 9 14%
8 8 8
10 45% 6
12%
0 40% 0 10%
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research Source: Company, HSIE Research, EBITDAR pre-FY20
Page | 26
New hospitals – growing at a faster clip, EBITDA contribution to

increase from 13% to 17% in FY23e
 The new hospitals (excl. Proton) contributed to ~24% of the hospital revenue and
Record EBITDA margin of ~13% of hospital EBITDA in FY20. Key hospitals in this category include Navi
16% in Q3FY21 Mumbai, Nellore, and Mysore. Occupancy at the new hospitals improved from
43% in FY16 to 64% in FY20.
Navi Mumbai facility
EBITDA is expected to
 Post pandemic, the occupancy went down to 40% in Q1FY21, which subsequently
recovered and now has improved to well above pre-COVID levels driven by strong
increase from Rs 300-350mn in
recovery in tier-2 towns. The new hospitals posted record EBITDA of 16% in
FY21e to Rs 1bn in 1-2 years.
Q3FY21. Apollo’s brand visibility has improved and the company expects footfalls
across these units to sustain.
Nellore EBITDA is expected to
increase from Rs 150-200mn in  Apollo expects new hospitals EBITDA margin to improve to 13-15% over the next
FY21e to Rs 300-350mn in 12-18 months from ~10% in FY20. We forecast 12% revenue growth and 29%
FY22e EBITDA growth over FY20-23e and factor ~525bps margin improvement to 15% in
the same period. Overall, we expect contribution of new hospitals EBITDA to
overall hospital EBITDA to increase from 13% in FY20 to ~17% in FY23e.
Exhibit 75: Revenues – quarterly trend Exhibit 76: EBITDA – quarterly trend
New - Revenues New - EBITDA EBITDA Margins
Rs mn Rs mn
4,000 800 20%
16%
12% 11% 15%
600 10% 10% 10% 11%
3,000 8%
10%
400
5%
2,000
200
0%
0
1,000 -5%
-200 -10%
0 -11%
-400 -15%
Q3 FY19
Q4 FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Q3 FY19
Q4 FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Exhibit 77: Steady increase in occupancy and revenues Exhibit 78: Strong improvement in EBITDA margin
New - Revenues Occupancy % New - EBITDA EBITDA Margins
Rs bn Rs mn
20 65% 70% 3,500 15% 16%
63% 64% 63% 13%
60% 65% 3,000
16 57% 12%
60% 12%
2,500 11%
53% 10%
12 55%
2,000
50% 8%
19
8 43% 16 1,500
45%
14 13 7%
12
10 40% 1,000
4 5% 4%
7
4 35% 500
3%
0 30% 0 0%
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
FY21e
FY22e
FY23e
FY17
FY19
FY20
FY16
FY18
Page | 27
Proton – Encouraging trends, return of international patients is

key to drive growth and margins
Invested ~Rs 11bn on the  Apollo proton cancer centre (APCC) in Chennai is South East Asia’s first proton
Proton facility (incl. ~Rs 5.5bn therapy centre to offer advanced organ specific radiation treatment with the state-
for equipments) of-the-art pencil beam Proton therapy. Currently, this treatment facility is only
available in two other countries in the Asia-Pacific region - China and Japan. India
It is also India’s only JCI is only the third country and 16th in the world to offer this treatment protocol. The
approved cancer treatment treatment cost at Apollo is Rs2.5-3mn per patient which is nearly one-third the cost
centre till date in the US making it a very attractive medical destination for international patients.
Apollo expects 40% of its patients to be international medical tourists.
Proton achieved break-even in  With a cumulative investment of ~Rs11bn, Apollo commenced operations of this
Q3FY21 and recorded unit in FY19 with 130 beds. It recorded annualised revenue of more than Rs1bn
annualised revenues of Rs1bn and achieved EBITDA break-even in Q3FY21. Despite lockdown restrictions, the
centre managed to maintain 40% occupancy and is witnessing good traction with
Apollo targets Rs2-2.5bn in domestic as well as international patients. This gives us confidence that it should
revenue with 33% EBITDA ramp up well as travel restriction ease. Apollo targets Rs2-2.5bn in revenue with
margin in FY22 Rs600-700mn EBITDA margin in FY22. With higher volumes, EBITDA is likely to
improve significantly as incremental margin is likely to be 40-50%.
Exhibit 79: Proton - quarterly revenue run-rate Exhibit 80: Proton achieved break even in Q3FY21
Proton - Revenues Proton EBITDA EBITDA Margins
Rs mn
300 Rs mn
40 6% 10%
250 20
-9% 0%
200 0
-20 -10%
150 -10%
274
222 -40 -20%
100 197 192 207
159 -18%
-60
50 -30%
5 8 -80
0 -33%
-100 -38% -40%
Q4 FY19
Q1 FY20
Q2 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Q3 FY20
Q4 FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Exhibit 81: Proton revenues forecasted to grow at 62% Exhibit 82: Proton EBITDA margin likely to inch up
CAGR over FY20-23e to 35% in next two years
Proton Revenues Proton EBITDA EBITDA Margins
Rs mn Rs mn
3,000 33% 35%
1,000 40%
2,500 800
20%
600
2,000
400 -1% 875
1,500 600 0%
2,500 200
1,000
1,800 0
-20%
500 -44 -224 -15
1,001 -200
5 586
-38%
0 -400 -40%
FY21e
FY22e
FY23e
FY19
FY20
FY21e
FY23e
FY22e
FY19
FY20
Page | 28
Pharmacy business – strong growth potential with

attractive ROCEs
 Apollo Pharmacy is the largest organised retail pharmacy chain in India with 4,000
Largest pharmacy chain in
retail stores spread across ~400 cities/towns in 21 states and 4 union territories.
India with 4,000+ stores and
With Apollo 24/7 initiatives, e-pharmacy along with offline store presence provides
aims to add 300-350 stores per
access to 13,500+ pin codes and 40% of the population within 30-60 minutes an
year
Apollo store.
Guidance:  The pharmacy business accounted for ~43% of overall revenues and ~41% of
Revenue to double to Rs100bn, EBITDA as of FY20. The revenue growth has been robust at 22% CAGR in the past
share of private label to five years, driven by store additions, same store sales growth and improving mix
increase to 12% of turnover by of ageing stores (more than 44% of stores are 5+ years old). The number of stores
FY24 has increased from 1,822 in FY15 to 4,000 today. Revenue per store has increased at
6% CAGR from Rs9.7mn in FY15 to Rs12.8mn in FY20. Apollo guides for revenue
Restructuring impact: ~85% of to double to Rs100bn and store count to increase to 5,000 by FY24.
cash flows to be recorded at
back-end and balance in the  EBITDA has grown at 38% CAGR over the past five years and EBITDA margin
front-end (pre-Ind AS) has nearly doubled from 3.3% in FY15 to 6% in FY20. Margin has
expanded on account of operating leverage benefits as more stores mature and
rising proportion of private label sales driving gross margin higher. The share of
private label sales in the turnover has increased from 6% in FY18 to ~10% today
and Apollo aims to increase this to ~12% of turnover by FY24. We expect EBITDA
margin to further improve to 7%+ in FY23e and model 23% EBITDA CAGR in the
same period, driven by the above trends.
 In Sep’20, Apollo completed divestment of its front-end pharmacy business in
order to comply with Indian regulations regarding multi-brand retail outlets,
wherein the foreign ownership cannot exceed a prescribed limit of 51%. The front-
end business was accordingly divested to Apollo Pharmacy Ltd (APL), a wholly
owned subsidiary of Apollo Medicals Pvt Ltd (AMPL), where the listed entity
Apollo hospitals (AHEL) owns 25.5% stake. The balance 74.5% stake is held by
Jhelum Investment Fund (19.9%), Hemendra Kothari (9.9%) and ENAM securities
(44.7%). AHEL received a consideration of ~Rs5.3bn from the slump sale. The back
end/ supply chain portion of the business (~85% of pharmacy cashflows) is
retained by AHEL and they will continue to be the exclusive supplier to the front-
end. The retained profits at the front end will be deployed for new store expansion.
Exhibit 83: Pharmacy business (SAP) restructuring
Back-end (Apollo hospitals)

(85% of cahflows)
Pharmacy
Business Apollo hospitals
Front-end - Apollo (25.5% stake)
Pharmacies Ltd , a wholly Apollo Medicals
owned subisidiary of AMPL Pvt. Ltd. (AMPL)
(15% cashflows) Other investors
(74.5% stake)
Source: Company, HSIE Research, Slump sale of front end business through NCLT process for ~USD 72mn
Page | 29
Exhibit 84: After a blip in Q1FY21, revenues recovered to Exhibit 85: EBITDA margin has steadily risen
pre-Covid levels
Backend Front end Backend Front end Margins
Rs bn Rs mn
18
1,200 6.8%
15 6.5%
1 6.3% 6.4%
3 900 6.1%
12
6.0%
9 600
14 13 14 5.4% 5.6%
6 12 12 11
10 10 11 5.6%
300
3 5.2%
0 0 4.8%
Q3 FY19
Q4 FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Q3 FY19
Q4 FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20
Q1 FY21
Q2 FY21
Q3 FY21
Source: Company, HSIE Research Source: Company, HSIE Research, pre-Ind AS margin
Exhibit 86: We expect 8% revenue CAGR over FY20-23e Exhibit 87: EBITDA margin to improve by 130bps as
for the back-end business (15%, like-to-like) share of private label increases & more stores mature
Backend Front end Backend Front end EBITDA Margins
Rs bn Rs mn
80 6,000 7.4% 8%
7.0%
6.5%
13 7%
5,000 6.0%
60 11 5.2% 6%
6 4,000
4.4% 4.5% 5%
40 3,000 3.5% 4%
61 3%
48 50 53 2,000
20 39
33 2%
23 28
1,000
1%
0
0 0%
FY22e
FY23e
FY21e
FY17
FY18
FY19
FY20
FY16
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research Source: Company, HSIE Research, pre-Ind AS margins
Exhibit 88: Net store addition and revenue per store Exhibit 89: ROCE set to improve materially
Net Store Additions Revenue/ store SAP ROCE
Rs/ mn 40% 36%
500 18
15.8
35% 32%
15
400 12.8 30% 27%
24%
12 25%
300 9.7
19%
504 9 20%
465 15% 15%
200 407 15%
338 350 6 9%
300 7%
230 250 10%
100 190 3
5%
0 0 0%
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
Page | 30
AHLL has turned the corner – focus is on

diagnostics
AHLL:
 Apollo Health and Lifestyles Ltd (AHLL), a subsidiary of Apollo hospitals,
-722 diagnostic centers
operates a network of primary care, diagnostics and specialty hospitals across the
-175 clinics
country. These formats are located closer to patients and act as a feeder unit for
-23 sugar centers
Apollo hospitals. The primary care segment includes 175 clinics (family medicine
-61 dental clinics
and primary care), 23 sugar centers (diabetes care), 61 dental clinics (White dental)
-58 dialysis centers
and 58 dialysis centers and the specialty care segment includes 8 cradle centers
-8 cradles centers
(boutique birthing hospitals), 10 spectra centers (short stay surgeries for Ortho,
-10 spectra centers
Uro, ENT, Bariatric, etc) and 11 IVF centers.
-11 IVF centers
 AHLL revenues grew to Rs7bn at 22% CAGR in the past three years, driven by 11%
Achieved break-even in FY20 CAGR in primary care segment, 24% CAGR in specialty care and 30% CAGR in
diagnostics. The primary and specialty segment witnessed limited success, given
The focus is on accelerating various units were operating at sub-scale with unabsorbed costs impacting
growth in diagnostics and IVF margins. With cost optimisation efforts such as integrating purchases with Apollo
centres hospitals and rationalisation of doctor fees/revenue share, AHLL turned EBITDA
positive in FY20. The asset-light format of these units also aided in faster break-
even. Apollo expects to achieve revenues of Rs18-20bn in three years with 12-14%
EBITDA margin. We expect 18%/30% revenue/EBITDA CAGR over FY20-23e.
Within AHLL, the focus in on accelerating growth in diagnostics and IVF centres.
Diagnostics
Diagnostics:  The diagnostic market (ex-radiology) is ~Rs450bn, of which ~80% is unorganised.
~80% of the Rs 450bn+ of AHLL expects to grow by capturing the shift in the market share from unorganised
India’s diagnostics market to organised segment. The company has ~1.3% market share in the organised
(ex-radiology) is unorganised segment today. It operates a network of 722 centres and plans to add 650 centres
over the next 24 months. The focus will be to expand and consolidate its presence
in South and East India. It plans to invest Rs1.5bn in this business.
AHLL has ~1.3% market share
in the organised diagnostics
 Diagnostics accounted for ~17% of AHLL revenues (FY20) and grew at a healthy
pace of 30% CAGR over FY17-20. This was mainly driven by aggressive network
space and expects to capture
expansion (~2.4x centers over FY18-FY20) and growth in gross ARPPs (~5.3%
the shift in the market from
CAGR) in the same period. The business broke even within five years of operations
unorganized to organized
in FY20. We believe diagnostics business has now achieved a critical mass with
revenues annualising to Rs1.7-1.8bn in FY21e. While COVID testing volumes could
Apollo targets Rs5bn of
moderate, increased thrust from Apollo 24/7 and pick-up in home collection
revenues in 2-3 years
samples should drive higher utilisations at the centres. Apollo expects to grow this
business to Rs5bn revenues in 2-3 years.
Exhibit 90: AHLL – Diagnostics and primary care has achieved critical mass
Particulars FY17 FY18 FY19 FY20 FY17-20e CAGR
Revenues 3,854 4,589 5,888 6,964 21.8%
Diagnostics 539 660 923 1,185 30.0%
Primary Care 1,648 1,650 1,999 2,272 11.3%
Secondary Care 2,087 2,627 3,394 3,983 24.0%
EBITDA -394 -390 181 671 NA
Diagnostics -9 -79 -75 103 NA
Primary Care -35 30 146 262 NA
Secondary Care -202 -155 311 560 NA
EBITDA margins -10.2% -8.5% 3.1% 9.6% NA
Diagnostics -1.7% -12.0% -8.1% 8.7% NA
Primary Care -2.1% 1.8% 7.3% 11.5% NA
Secondary Care -9.7% -5.9% 9.2% 14.1% NA
Page | 31
Apollo 24/7 – a significant growth enabler

 Apollo 24/7 is a digital healthcare platform that offers comprehensive services such
Good traction with 5mn+
as e-pharmacy, diagnostics tests, tele-consultation (7,000+ doctors with 50+
downloads
specialisations), chronic disease management (Diabetes/BP), and electronic health
records management. The app has seen good traction in the first year of launch
Partnerships with corporate
with 5mn+ downloads and 1mn+ weekly active users (close to startups like
giants like Airtel and HDFC
PharmEasy and Netmeds). We see this platform as a significant growth enabler for
Bank
the company’s existing business as it aims to leverage Apollo’s robust
infrastructure of 70 hospitals, ~4,000 pharmacy stores and 722 diagnostic centres.
50% of Apollo 24/7 revenues is
The integrated offerings will drive better customer experience, funnel patients into
expected to come from
the Apollo network (referrals for hospitals, diagnostic labs, and higher sales for
Pharmacy and balance from
pharmacy) and allow the company to tap into the growing e-health market of
tele-consultation, diagnostics
India.
etc.
 Besides Apollo 24/7, the Apollo has broadened its offerings through ProHealth
(preventive and holistic wellbeing) and Home care segment. ProHealth is an AI-
engineered health program that features health analytics, gene sequencing/ genetic
analysis, which aids in predictive diagnosis. Given its extensive network, Apollo
has access to large data which can be processed to provide better solutions to
Broadened offerings through patients. The company believes it is ready for a pan-India launch of the same and
ProHealth – AI based health can generate potential revenue of Rs10bn from this segment in the next 3-4 years.
program
 Tele-consultation market – customer adoption post-pandemic is the key
~ 12,000+ people have monitorable: Of the above services offered, we believe tele-consultation
undergone check-ups via opportunity could prove to be difficult to monetise in the medium term. Post
ProHealth pandemic, Apollo witnessed surge in tele-consultation volumes to 2,600/day,
which then moderated to 2,000/day (as of Q3FY21). We expect these volumes to
Apollo has invested Rs1-1.5bn further moderate as patients start to visit clinics and hospitals as economy
in the platform and plans to normalizes. The online consultation market in India is at a nascent stage where
invest a similar amount in the consumer behaviour is still evolving. Though this is an interesting space for long-
coming years term digital delivery of healthcare services, there will be headwinds with respect to
changing consumer behaviour and extensive adoption over the next 3-4 years. We
Targets potential revenue of need to closely monitor how the adoption evolves post the pandemic. In the
Rs10bn from ProHealth in the developed economies, higher insurance penetration has driven strong growth in
next 3-4 years the online consultation market.
 Apollo has invested Rs1-1.5bn in the platform and plans to invest a similar
amount in the coming years. Over time, it expects 50% of Apollo 24/7 revenues to
come from pharmacy and the remaining from tele-consulting, diagnostics, clinics,
etc. We do not value the Apollo 24/7 platform independently but build in higher
growth for the existing business driven by strong synergies from the integrated
offerings.
Page | 32
Limited Capex, improving profitability to drive ROCEs

 Apollo rationalized costs in FY21 which led to structural savings of ~Rs1.2bn
Structural savings of Rs1.2bn (~210bps of hospital revenues). We factor margin improvement across hospitals
(~210bps of hospitals (mature and new), AHLL, Proton and pharmacy business. We expect consolidated
revenues) margins to improve from 14.1% in FY20 to ~15.3% in FY23e.
 With significant bed addition between FY12-17 and major capex behind, Apollo
We expect consolidated consolidated its operations in the past three years. It has guided for no greenfield
margins to improve from 14% expansion but will evaluate bolt-on acquisitions, especially in the regions of East
in FY20 to 15%+ in FY23e and North India. The company is comfortable leveraging up to 2-2.5x net
debt/EBITDA and 0.8x net debt to equity.
The company is comfortable
leveraging up to 2-2.5x net
 The balance sheet remains in comfortable position. It raised fresh equity capital of
Rs11.7bn in Jan’21 for proposed usage towards – (a) Rs4.1bn for buyback of
debt/EBITDA and 0.8x net
remaining stake in Kolkata’s Apollo Gleneagles hospital; (b) Rs1.5bn for
debt to equity
investment in 24/7 app; and (c) Rs1.5bn for expansion in diagnostic segment. The
balance is expected to be used for bolt-on acquisitions and debt reduction.
Exhibit 91: Capex trend has moderated since FY20 and is Exhibit 92: Pre-tax ROCE - Standalone hospitals vs.
likely to remain low pharmacy business
Capex Standalone Hospitals ROCE SAP ROCE
Rs mn
12,000 30%
9,905
10,000 25% 24%
7,631 19%
8,000 7,350 20%
6,205 15% 15% 15%
6,000 5,106 15% 14%
11%
4,000 10%
2,500 2,500 10% 12% 11%
2,050 9% 10%
2,000 5% 7% 9%
0 0%
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
FY14
FY15
FY16
FY17
FY18
FY20
Source: Company, HSIE Research Source: Company, HSIE Research FY19
Page | 33
Financial Metrics
Exhibit 93: Revenues expected to grow at 11%+ CAGR Exhibit 94: Mature hospitals margin to see steady
over FY20-23e for the overall business improvement to 23-24%
Hospitals Retail Pharmacies (SAP) AHLL Mature - EBITDA EBITDA Margins
Rs bn Rs bn
160
16 26%
11
23% 24%
9 22% 22%
120 24%
61 12 23% 23% 22%
7 23%
6 53
6 20%
80 5 48
4 39 50 8 18%
16%
2 33 14
1 28 12 16%
23
40 18 82 9 10
71 4 8 8 8 14%
51 57 49
37 41 45 6
32 12%
0
0 10%
FY22e
FY23e
FY21e
FY15
FY16
FY17
FY18
FY19
FY20
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
Exhibit 95: New hospitals to witness significant margin Exhibit 96: Pharmacy EBITDA to see steady increase –
expansion higher share of private labels, operating leverage
New - EBITDA EBITDA Margins Backend Front end EBITDA Margins
Rs mn Rs mn
3,500 15% 16% 6,000 7.4% 8%
7.0%
13% 6.5%
3,000 7%
12% 5,000 6.0%
11% 12% 5.2% 6%
2,500
10% 4,000
4.4% 4.5% 5%
2,000
8% 3,000 3.5% 4%
1,500
3%
7% 2,000
1,000
5% 4% 2%
500 1,000
3% 1%
0 0% 0 0%
FY21e
FY22e
FY23e
FY21e
FY22e
FY23e
FY17
FY19
FY20
FY16
FY17
FY18
FY19
FY20
FY16
FY18
Source: Company, HSIE Research, EBITDAR pre-FY20 Source: Company, HSIE Research
Exhibit 97: AHLL has turned the corner – achieved Exhibit 98: Proton achieved break even in Q3FY21 –
critical mass, to witness margin expansion of ~335bps margin to expand to 35% in FY23e
AHLL EBITDA EBITDA Margins Proton EBITDA EBITDA Margins
Rs mn Rs mn 35%
1,500 13% 15% 1,000 33% 40%
10%
1,200 10% 11% 800
5%
20%
900 600
-5% 3%
-9% -9% -5% 400 -1% 875
600
600 0%
300 200
-15%
0 0
-20%
-25% -44 -224 -15
-200
-300
-38%
-29% -400 -40%
-600 -35%
FY21e
FY22e
FY23e
FY19
FY20
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research, EBITDAR pre-FY20 Source: Company, HSIE Research
Page | 34
Exhibit 99: Consolidated EBITDA margin to expand by Exhibit 100: Capex trend has moderated since FY20
~117bps over FY20-23e and is likely to remain low
Hospitals SAP AHLL Consolidated Capex
Rs mn
12,000
25% 22% 21%
20% 20% 20% 9,905
19% 19% 10,000
20%
15% 15% 14% 15%
14% 13% 14% 14% 8,000 7,631
15% 7,350
10% 11% 15%
10% 6,205
10% 6,000
5% 5,106
10%
5%
6% 6% 7% 7% 4,000
3% 4% 5% 2,500 2,500
0% 3% 2,050
2,000
-5%
-9% -9% 0
-10%
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
Exhibit 101: Apollo turned FCF positive for the first time Exhibit 102: Net debt/equity comfortable at 0.9x levels
in FY19 since FY12, expects ~Rs34bn FCF over FY20-23e in FY21, to trend down to ~0.5x levels over FY23e
FCF Net Debt/ Equity
15 Rs bn 2.0
1.7
1.6
10
1.1
15 1.2 1.1
12 0.9
5 0.7
8 0.7 0.7
7 0.8
0.5 0.5
2
0
0.4
-4 -4 -2 -1
-5 0.0
FY22e
FY23e
FY21e
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
FY15
FY17
FY18
FY19
FY20
FY16
Exhibit 103: Pre-tax ROCE break down – standalone Exhibit 104: Post-tax ROCE to expand by ~435bps to
hospitals vs. pharmacy business ~15% over FY20-23e
Standalone Hospitals ROCE SAP ROCE Capital Employed ROCE
Rs bn
30% 100 20%
25% 24%
80
15%
19%
20%
15% 60 10% 10% 15%
15% 15%
15% 14% 8% 12% 10%
7% 7%
11% 40 6%
10% 5%
10% 12% 11% 5%
9% 10% 20
5% 7% 9%
0% 0 0%
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
FY14
FY15
FY16
FY17
FY18
FY20
FY19
Page | 35
Valuation and risks

Our target price of Rs2,935/sh is based on SOTP valuation of (a) Healthcare services -
18x FY23e EBITDA; (b) Retail Pharmacy (backend) – 25x FY23e EBITDA; (c) stake in
associates. We value Apollo’s hospital business at 18x EV/EBITDA, ~15-20% premium
Our TP of Rs2,935/sh is to Asian peers. We believe the premium is justified, given the divergent growth
based on SOTP valuation: dynamics and Apollo’s superior return profile. Our target blended multiple is at ~20%
(a) Healthcare services - premium to Apollo’s own historical average, and we believe this is merited,
18x FY23e EBITDA considering strong growth visibility in pharmacy and diagnostic business, investments
(b) Retail Pharmacy in Apollo 24/7 and balance sheet strength.
(backend) – 25x FY23e Exhibit 105: SOTP valuation
EBITDA EBITDA
Particulars Stake (%) Multiple Value
(c) stake in associates (Rs mn)
Hospitals 100 17,547 18 3,15,842
AHLL 67 1,478 25 24,931
Healthcare services 19,024 3,40,773
Retail pharmacy (Backend) 4,528 25 1,13,199
Associates
Retail pharmacy (Frontend) 26 927 25 5,912
Indraprastha 22 1,085
Others 1,212
EV 4,62,180
Less: Net debt 19,437
Less: Lease Liabilities & other adj. 19,895
Equity Value 4,22,848
No. of shares 144
Target Price 2,935
Exhibit 106: The stock is trading at ~25-30% premium to its five year average EV/
The stock is ~155% up and EBITDA multiple
has outperformed the Nifty EV/ EBITDA 5 yr avg +1 SD -1 SD +2 SD
by ~84% in the past one 30
year.
25
It is trading at 24x/19x
FY22/23e EV/ EBITDA, 20
which is a ~25-30%
premium to its one year 15
forward 5-year historical
average EV/ EBITDA. 10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-16
Mar-17
Mar-19
Mar-21
Mar-15
Mar-18
Mar-20
Key risks
Delay in business normalcy and return of international patients, lower traction and
margin improvement in Proton, AHLL and pharmacy, adverse government regulations
in terms of price control/scheme implementation.
Page | 36
Financials
Consolidated Income Statement
Year to March (INR mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Revenues 62,147 72,549 82,435 96,174 1,12,468 1,05,767 1,32,579 1,54,120
Growth (%) 16.3 18.1 20.0 16.7 13.6 16.7 16.9 -6.0
Operative Expenses 34,196 40,310 47,165 54,522 63,832 64,571 74,907 84,766
Gross Profit 27,951 32,239 35,270 41,652 48,636 41,196 57,672 69,354
Gross Margins 45.0 44.4 42.8 43.3 43.2 39.0 43.5 45.0
Employee cost 10,236 11,965 14,044 15,982 18,529 17,092 22,141 26,200
Other expenses 602 1,023 -750 -949 -4,295 -3,869 -5,622 -6,599
EBITDA 6,878 7,286 7,932 10,636 15,873 10,881 19,013 23,552
Growth (%) -6% 6% 9% 34% 49% -31% 75% 24%
Margins (%) 11.1 10.0 9.6 11.1 14.1 10.3 14.3 15.3
Depreciation 2,638 3,140 3,590 3,955 6,197 5,644 6,140 6,695
Other income 450 225 322 314 269 308 315 289
Interest 1,800 2,574 2,951 3,270 5,328 4,780 4,115 3,765
PBT 2,890 1,797 1,713 3,725 4,617 765 9,073 13,381
Tax 969 910 1,119 1,734 2,252 252 2,268 3,345
Effective tax rate (%) 33.5 50.6 65.3 46.5 48.8 33.0 25.0 25.0
Recurring PAT 2,205 2,210 1,174 2,360 2,566 824 6,943 9,932
Extraordinary items 159 0 0 0 1,983 0 0 0
MI/share of Profit/loss in JV 261 -475 -576 -349 -263 -112 61 304
Reported PAT 2,364 2,210 1,174 2,360 4,549 824 6,943 9,932
Consolidated Balance Sheet

Equity capital 697 730 696 696 696 719 719 719
Reserves and surplus 32,615 35,983 31,819 32,639 32,696 45,032 55,950 63,399
Shareholder’s funds 33,311 36,714 32,515 33,335 33,391 45,751 56,668 64,118
Minority Interest 779 2,164 1,324 1,355 1,307 1,095 4,486 4,690
Total debt 28,639 31,658 39,001 41,516 61,282 61,282 56,282 51,282
Total Liabilities 64,904 72,804 75,404 79,354 98,922 1,11,070 1,20,379 1,23,031
Net fixed assets 37,898 44,233 44,195 46,289 70,799 69,205 80,734 76,539
Capital work-in-progress 5,616 3,467 7,120 8,218 2,356 356 356 356
Investments 3,524 4,146 3,587 4,682 4,400 4,500 2,710 2,810
Inventories 4,061 4,669 5,658 5,847 7,377 7,824 9,081 10,556
Debtors 6,094 7,482 8,846 10,232 10,272 11,301 13,803 16,045
Cash & bank balance 3,788 5,264 4,172 3,470 4,668 18,621 15,845 20,017
Loans and Advances 9,929 9,035 8,509 9,084 9,414 10,208 11,127 12,071
Other current assets 613 601 579 547 637 869 908 1,056
Total current assets 24,484 27,051 27,764 29,180 32,367 48,823 50,763 59,746
Creditors 5,502 5,005 5,889 7,132 9,088 9,273 10,897 12,245
Provisions 738 803 1,027 1,136 1,331 1,393 1,457 1,525
Net current assets 15,791 18,690 17,040 16,704 17,905 33,547 33,116 39,864
Total net assets 64,904 72,804 75,404 79,354 98,922 1,11,070 1,20,378 1,23,031
Page | 37
Consolidated Cash Flow

Net Profit Before Tax 3,052 1,833 1,715 3,735 6,569 765 9,073 13,381
Depreciation 2,659 3,142 3,590 3,955 6,197 5,644 6,140 6,695
Cash flow before WC 7,302 7,633 8,692 11,432 16,693 10,881 19,013 23,552
WC changes 108 -703 -2,071 -458 -704 -1,688 -2,345 -2,575
Taxes paid -1,412 -1,169 -1,251 -1,924 -3,061 -252 -2,268 -3,345
Cash flow from operations 5,972 5,756 5,370 9,050 12,928 8,940 14,400 17,632
Capex -9,905 -7,350 -6,205 -6,720 -5,106 -2,050 -2,500 -2,500
Cash flow from investing -8,882 -9,747 -4,049 -7,106 -2,889 -1,742 -6,325 -2,212
Equity Capital issues 29 6,056 83 0 -0 11,700 0 0
Borrowings (net) 6,819 2,087 3,018 2,347 -1,860 0 -5,000 -5,000
Interest paid -1,933 -2,675 -3,178 -3,620 -5,645 -4,780 -4,115 -3,765
Dividends paid -1,615 0 -1,008 -837 -1,551 -164 -1,736 -2,483
Cash flow from financing 3,299 5,468 -1,085 -2,145 -9,095 6,756 -10,851 -11,248
Net change in cash 389 1,476 236 -201 944 13,953 -2,776 4,172
Beginning cash 3,399 3,788 2,828 3,063 2,862 3,806 17,760 14,984
Closing cash 3,788 5,264 3,063 2,862 3,806 17,760 14,984 19,156
Free cash flow -3,933 -1,594 -835 2,329 7,822 6,890 11,900 15,132
Key Ratios
Year to March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
PROFITABILITY (%)
GPM 45.0 44.4 42.8 43.3 43.2 39.0 43.5 45.0
EBITDA Margin 11.1 10.0 9.6 11.1 14.1 10.3 14.3 15.3
APAT Margin 3.5 3.0 1.4 2.5 2.3 0.8 5.2 6.4
RoE 6.8 6.3 3.4 7.2 7.7 2.1 13.6 16.4
RoCE 7.6 6.0 4.9 7.1 10.4 7.0 12.5 14.7
EFFICIENCY
Tax Rate (%) 33.5 50.6 65.3 46.5 48.8 33.0 25.0 25.0
Fixed Asset Turnover (x) 1.5 1.5 1.5 1.6 1.4 1.0 1.2 1.3
Inventory (days) 24 23 25 22 24 27 25 25
Debtors (days) 36 38 39 39 33 39 38 38
Other Current Assets (days) 29 17 13 10 11 13 12 12
Payables (days) 32 25 26 27 29 32 30 29
Other Current Liab & Provns (days) 19 17 21 20 17 20 18 18
Cash Conversion Cycle (days) 27 36 38 34 28 34 33 34
Debt/EBITDA (x) 3.5 3.5 4.3 3.5 3.5 3.9 2.1 1.3
Net D/E (x) 0.7 0.7 1.1 1.1 1.7 0.9 0.7 0.5
Interest Coverage (x) 2.6 1.7 1.6 2.1 1.9 1.2 3.2 4.6
PER SHARE DATA (Rs)
EPS 15.8 15.9 8.4 17.0 18.4 5.9 48.3 69.1
Dividend 6.0 6.0 6.0 5.0 3.7 1.1 12.1 17.3
Book Value 239 264 234 240 240 318 394 446
VALUATION
P/E (x) 183.2 182.7 343.8 171.1 157.4 494.1 60.1 42.0
P/BV (x) 12.1 11.0 12.4 12.1 12.1 9.1 7.4 6.5
EV/EBITDA (x) 62.3 59.2 55.4 41.6 29.0 42.3 24.3 19.2
EV/Revenues (x) 6.9 5.9 5.3 4.6 4.1 4.4 3.5 2.9
OCF/EV (%) 1.4 1.3 1.2 2.0 2.8 1.9 3.1 3.9
FCF/EV (%) (0.9) (0.4) (0.2) 0.5 1.7 1.5 2.6 3.3
FCFE/MCap. (%) (1.0) (0.4) (0.2) 0.6 1.9 1.7 2.9 3.6
Dividend Yield (%) 0.2 0.2 0.2 0.2 0.1 0.0 0.4 0.6
Page | 38
01 April 2021 Initiating Coverage
Narayana Health
In pursuit of growth BUY
NH’s asset light expansion in India (FY14-18), followed by consolidation
CMP (as on 31 Mar 2021) Rs 406
phase, bodes well for the ROCE improvement. Post COVID disruption, we
expect NH to emerge stronger and forecast ~17% EBITDA CAGR over FY20- Target Price Rs 460
23e, driven by: (a) turnaround of new units - from loss making to EBITDA NIFTY 14,691
positive by FY23e; b) improving performance of non-flagship mature units
(fared better than flagship units in 9mFY21); and (c) strong traction in Cayman KEY STOCK DATA
Islands facility, expected to deliver ~31% EBITDA CAGR over the same
Bloomberg code NARH IN
period. The proposed expansion in Cayman is return dilutive in the near term,
but NPV accretive, in our view. Despite the outlay, ROCE are expected to be at No. of Shares (mn) 204
~15% in FY22/23e. After a 14% correction in the past two months, the stock is MCap (Rs bn) / ($ mn) 83/1,141
trading at an attractive valuation of 16x/14x FY22/23e EV/EBITDA, ~10-15%
6m avg traded value (Rs mn) 121
discount to its 5-year historical average. Initiate with a BUY and TP of Rs460.
52 Week high / low Rs 525/222
Healthy outlook for India; operating leverage to drive margins, ROCEs
During lockdown, NH’s flagship units (~80% of India EBITDAR) were impacted
STOCK PERFORMANCE (%)
the most by travel restrictions; however, other mature units at Raipur, Mysore,
and Shimoga fared better and are showing improved signs of profitability with 3M 6M 12M
EBITAR trending towards 18-23% (vs. 15-20% pre-Covid). Also, new units Absolute (%) (9.4) 13.4 64.0
(Dharamshila, Gurugram) have broken even on a monthly basis and will Relative (%) (13.1) (16.7) (4.0)
contribute ~30% to the EBITDA increase over FY20-23e. With limited Capex, we
expect India hospital ROCE to improve from 9% to ~15% in the same period.
SHAREHOLDING PATTERN (%)
Improved trajectory at Cayman; benefits likely to sustain Dec-20 Sep-20
COVID disruption significantly boosted Cayman operations (14% of revenues)
Promoters 63.85 63.85
as travel restrictions led to increased flow of domestic patients. ARPOBs
increased from USD1.6mn to USD2mn, driving 20%+ revenue growth and 40%+ FIs & Local MFs 21.18 21.09
EDITDA margins in the past two quarters (vs. 25% margins in FY20). The crisis FPIs 8.95 8.54
has enhanced NH’s credibility in the region, which augurs well for the medium-
Public & Others 6.02 6.52
term growth. We expect Cayman Island’s contribution in overall EBITDA to
increase from 25% in FY20 to 37% in FY23e. Pledged Shares 0.00 0.00
Source : BSE
New expansion at Cayman adds an NPV of Rs25/sh to our target price
The proposed expansion (~USD100mn outlay) is return dilutive in the near term
but expected to be EBITDA positive from the year one of operation. Considering
the new unit will cater to oncology and high-end day care procedures, we base
our DCF assumption on ARPP (average revenue per patient) and discharges.
Our sensitivity analysis results in an NPV range of Rs-14-71 for the project.
Our target price of Rs460/sh provides ~13%+ upside potential; risks
Our TP of Rs460/sh is based on SOTP valuation of (a) India hospitals - 16x FY23e
EBITDA; (b) Cayman operations - 12x FY23e EBITDA; (c) Cayman expansion -
NPV of Rs25/sh. Risks: adverse government regulations (price control/scheme
implementation), delayed payback period for Cayman expansion, increased
competition in Cayman, and slower recovery in flagship units.
Financial Summary
YE Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E
Bansi Desai, CFA
Net Revenues 28,609 31,278 24,885 33,911 37,985
[email protected]
EBIDTA 2,878 4,229 1,512 5,705 6,693
EBITDA Margins 10.1 13.5 6.1 16.8 17.6
+91-22-6171-7341
Adj. PAT 592 1,108 -406 2,269 2,783
EPS (Rs) 2.9 5.4 -2.0 11.1 13.6
Karan Vora
P/E (x) 140.2 74.8 -204.4 36.5 29.8
[email protected]
EV / EBITDA (x) 31.8 21.8 60.9 16.4 14.1
+91-22-6171-7359
RoCE (%) 6.6 10.9 2.1 14.9 15.2
Narayana Health: Initiating Coverage
Investment thesis
India business continues to consolidate, ROCE to improve materially
With limited capex in India and recovery in business operations, we expect India
business EBITDAR (EBITDA before rent and corporate overheads) margin to expand
by ~150bps to 19%+ and ROCE to improve by ~550bps to ~15% over FY20-23e.
 New units to turn EBITDAR positive by FY23e – The three new units -
Dharamshila, Gurugram, SRCC-Mumbai reported EBITDAR losses of ~Rs580mn in
EBITDAR margin of other FY20. While SRCC continues to struggle, both Dharamshila and Gurugram have
mature units to increase broken even on a monthly basis (revenues were tracking at pre Covid levels with
from ~13% to ~14% over EBITDAR of 1% in Q3FY21). We expect the combined losses of these units to
FY20-23e reduce further in FY22 and contribute positively to EBITDAR in FY23e. We forecast
new units to contribute ~30% of EBITDAR increase over FY20-23e.
 Resilient performance of non-flagship mature units – The other mature units (14
Dharamshila and hospitals) such as Raipur, Mysore, Shimoga have shown resilience and
Gurugram (new units) outperformed the flagship units during 9mFY21 with margins trending towards
broke even on monthly 18-23% (vs. 15-20% pre-Covid). We expect EBITDAR margin expansion of ~65bps
basis – to contribute to 4% to ~14% over FY20-23e.
to India EBITDAR by  Gradual recovery in flagship units – The three flagship units (NICS, MSMC &
FY23e RTIICS) in Bangalore and Kolkata are well-established hospitals with steady track
record of 7% revenue CAGR over FY18-20. They contribute ~80% to India
EBITDAR. These units receive high footfalls from outstation/ international patients
and hence were severely impacted during Covid. We expect gradual recovery at
these units as travel restriction ease. With limited visibility on international
segment (high margin business), we forecast muted EBITDAR growth of ~2%
CAGR for the FY20-23e.
Cayman operations – stronger than ever

 Increased contribution from Cayman to enhance overall margin profile -
Benefitted by Covid crisis, Cayman EBITDA margins improved from 25% in FY20
to ~40-45% in the last two quarters driven by high-end procedures and favorable
Cayman ARPOBs price action. ARPOBs increased from USD1.6mn in FY20 to USD2mn in
increased from USD1.6mn Q2/Q3FY21. The company expects these trends to sustain as patient mobility
to USD2mn remains impacted. NH is among the three healthcare providers in the region and
the current crisis has enhanced their credibility. We expect 12%/31%
We forecast 12%/31% revenue/EBITDA CAGR for Cayman operations over FY20-23e.
revenue/ EBITDA CAGR  Expansion adds an NPV of Rs25/sh to our target price - The proposed expansion
over FY20-23e (USD100mn) in Cayman is return dilutive in the near term, but NPV accretive in
our view. Considering the new unit will cater to oncology and high-end day care
procedures, we base our DCF assumption on ARPP (average revenue per patient)
Cayman expansion is NPV and discharges. We assume capital outlay of ~USD75mn and WACC of 8% to
accretive - adds an NPV of arrive at an NPV range of Rs-14 to Rs71 for the project. Despite the expansion, we
Rs25/sh to our target price expect Cayman ROCE to improve by ~70bps to ~16% in FY23e.
Exhibit 107: Sensitivity analysis
Cayman Expansion ARPP (USD)
Fair Value 24,000 26,000 28,198 30,000 32,000
1,300 -14 -10 -5 0 4
1,600 -2 4 10 15 21
Discharges
1,900 11 18 25 31 37
(nos.)
2,200 24 31 40 47 54
2,500 36 45 54 62 71
Source: HSIE Research, Company
EBITDA margins and ROCE on upward trajectory

 We expect 24% revenue CAGR over the next two years, driven by higher growth in
We forecast revenue and new units and Cayman Islands. EBITDA margins are expected to increase from
EBITDA CAGR of 7% and 17% ~14% in FY20 to ~18% in FY23e, driven by turnaround of new units, improved
over FY20-23e profitability in Cayman Islands and operating leverage. Despite the additional
outlay in Cayman, ROCEs remain attractive and is likely to expand by ~430bps to
15%+, driven by improved profitability and limited capex in India.
EBITDA margin is expected to Exhibit 108: We forecast 7% of revenue growth over FY20-23e
expand by 410bps to 18% FY20-23e
driven by a) turnaround of new CAGR
units, b) higher profitability at India 22,022 24,803 26,939 19,966 28,030 31,794 5.7%
Cayman and c) operating Hospitals 20,700 23,315 25,592 18,983 26,858 30,464 6.0%
leverage Flagship units 11,024 11,920 12,668 8,009 12,563 13,939 3.2%
Other Mature units 8,745 9,564 10,424 8,754 11,102 12,443 6.1%
New units 932 1,831 2,500 2,220 3,194 4,082 17.8%
Heart Centers 1,102 1,240 1,078 862 966 1,062 -0.5%
ROCE to improve by ~430bps
Other anc. business 220 248 269 121 206 268 -0.2%
to 15%+ over FY20-23e driven
Cayman 769 3,815 4,338 4,918 5,881 6,190 12.6%
by margin expansion and
Total Revenues 22,792 28,618 31,277 24,885 33,911 37,985 6.7%
limited Capex in India EBITDA Margins 10.9% 11.5% 13.5% 6.1% 16.8% 17.6% 413bps
Exhibit 109: Margin improvement to be driven by new units, Cayman Islands

FY20-23e
Particulars FY18 FY19 FY20 FY21E FY22E FY23E
CAGR
India 16.6% 16.3% 17.8% 5.2% 18.3% 19.3% 148bps
Hospitals 16.6% 16.3% 17.9% 5.1% 18.4% 19.4% 153bps
Flagship units 28.0% 29.1% 29.8% 7.6% 28.0% 28.6% -119bps
Other Mature units 7.6% 10.8% 13.3% 7.5% 13.5% 13.9% 66bps
New units -32.2% -38.4% -23.4% -13.8% -2.5% 4.6% 2,802bps
Cayman 13.5% 17.8% 24.7% 35.0% 38.0% 40.0% 1,529bps
EBITDA Margins 10.9% 11.5% 13.5% 6.1% 16.8% 17.6% 413bps
Valuation and risks

 Our target price of Rs460/sh is based on SOTP valuation of (a) India hospitals
business - 16x FY23e EV/ EBITDA; (b) Cayman operations - 12x FY23e EV/EBITDA;
(c) Cayman expansion – NPV of Rs25/sh. We value NH’s India business at 16x
Our target price of EV/EBITDA, ~10% discount to Apollo’s hospital business. While ROCEs are
Rs460/sh is based on SOTP comparable today, Apollo has a consistent track record, true pan India presence
valuation of and diversified EBITDA base compared to NH. We assign 12x EV/EBITDA to
(a) India business - 16x existing Cayman operations, a discount of ~25% to the India business to factor
FY23e EV/EBITDA; (b) divergent growth potential of that market. However, the ROCE of Cayman and the
Cayman operations - 12x medium growth outlook are superior to that of India business.
FY23e EV/EBITDA; (c)
Cayman expansion – NPV Exhibit 110: SOTP valuation
Particulars EBITDA Multiple Rs mn
of Rs25/sh
India business 4,217 16.0 67,468
Cayman operations 2,476 12.0 29,714
Fair value 6,693 97,300
Less: Net Debt (excl. Cayman expansion) 6,051
Less: Lease liabilities 2,344
Implied Market Cap 88,897
No. of Equity shares 204.4
Fair Value per share (Existing operations) 435
Add: PV of Cayman expansion 25
Target Price 460
Source: HSIE Research
Page | 41
Exhibit 111: NH is trading at ~10-15% discount to its 5-yr avg. EV/ EBITDA multiple
EV/ EBITDA 5 yr avg +1 SD -1 SD
After a 14% correction in 30
the past two months, the
stock is trading at 16x/ 14x 25
FY22/23e EBITDA which is
~10-15% discount to its 5- 20
yr historical average
15
10
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Key risks – delayed Key risks

recovery in India, entry of
additional player in  India – Delay in business normalcy and turnaround of new units, adverse
Cayman Islands, delayed government regulations in terms of price control, and scheme implementation in
payback period of new West Bengal.
expansion
 Cayman – Inability to sustain patient footfalls at existing units, extended payback
period for the new unit, increased competition by entry of new player.
Page | 42
Business overview
 Narayana Health (NH) was set up in 2000 by Dr. Devi Prasad Shetty, a renowned
Among the top three cardiac surgeon and an entrepreneur with over 35 years of medical experience. The
private healthcare provider
“Narayana Health” brand is widely recognized for providing high-quality
in India with a capacity of
healthcare at affordable prices.
6,663 beds
 Despite lower ARPOBs (~30-40% lower than peers, its profitability and return
Domestic operations form ratios are largely in line with peers given it has followed an asset-light expansion
~86% of the revenues model (capex of Rs3.6mn/per bed) with a strong focus on achieving operational
efficiencies through cost optimisation measures and economies of scale.
 Besides India, it has operations in Cayman Islands, which forms ~14% of its
revenues. NH is a credible player in the region along with 2 other players (one
being the government). It recently announced expansion in Cayman (~USD100mn)
for -50 bed facility which would focus mainly on providing oncology, critical care
and day care services.
Exhibit 112: Business Structure
Narayana Health
(NH)
Domestic International
(86% revenues) (14% revenues)
Health City Proposed

India Hospitals Heart Centers Other Ancillary
Cayman Islands expansion in
(82% revenues) (3% revenues) biz (1% revenues)
Karnataka and Eastern (HCCI ) Cayman (50 beds)
region form ~71% of India
revenues
Other mature
Flagship units
units New units
(41%
(33% (8% revenues)
revenues)
revenues)
Page | 43
Pan-India network with stronghold in Karnataka and Eastern region

India hospital network:
-20 owned hospitals NH started operations in Bangalore with 225 operational beds and over the years, it has
-1 managed hospital expanded to 47 facilities with total capacity of 6,663 beds (5,929 operational beds). It
-6 heart centres operates a network of 21 hospitals (20 owned and 1 managed), 6 heart centers (units set
-19 primary healthcare up in a third party hospital), 19 primary healthcare facilities (incl. information centers,
facilities clinics) and 1 hospital in Cayman Islands. Within India, it has a dominant presence in
Karnataka and Eastern region, which accounts for ~71% of its revenues.
Exhibit 113: Operating beds break-up Exhibit 114: Revenue break-up
Heart Cayman, Cayman
Centres, 110 Clinics, 10 Facility
Other 14%
345
Anciliary
Managed
Business
beds, 112 1%
Heart
Centers
3%
Owned/
Operated
beds, 5,352 India
Hospitals
82%
Source: Company, HSIE Research, Q3FY21 Source: Company, HSIE Research, FY20
Exhibit 115: Regional split of India revenues – Exhibit 116: Payee profile – Contribution from
Bangalore and Kolkata account for 64% of revenues international segment has doubled
Northern Domestic Walk-in Insured Schemes International
Region 100% 5% 8% 10% 11% 10%
11%
18% 18%
80% 18% 17% 18%
Western Bangalore
Region 37% 17%
19% 19% 21%
60% 22%
14%
40%
Eastern 60% 55% 54% 52% 50%
Peripheral 20%
5%
Southern
0%
Peripheral
FY16
FY17
FY18
FY19
FY20
Kolkata
6%
27%
Source: Company, HSIE Research, FY20 Source: Company, HSIE Research, FY20
Exhibit 117: Regional split of India business
Southern Eastern
Particulars Bangalore Kolkata West North*
Peripheral Peripheral
Owned Hospitals 3 2 6 2 4 3
Operational beds 1,573 516 1,315 413 928 608
Operational beds % 31% 10% 26% 8% 18% 8%
Dharamshila
RTIICS + RTSC, Jaipur, Raipur,
NICS, MSMC, Mysore, Jamshedpur, (Delhi),
Hospitals MMRHL, Mumbai,
HSR Shimoga Guwahati Gurugram,
Barasat, RNN Ahmedabad
Jammu
Revenue % of India hospitals 37% 6% 27% 5% 15% 11%
ARPOB (Rs mn) 11.6 7.0 9.1 6.7 8.3 13.6
Occupancy % 62% 53% 67% 58% 57% 41%
Source: Company, HSIE Research, *ARPOBs and Occupancy are ex-Jammu
Page | 44
Therapeutic diversification has accelerated growth

With strong reputation and legacy in cardiac and renal sciences, NH has steadily
Cardiac contribution has expanded its services across high value clinical specialties in areas of cancer care,
declined from 62% in FY13 neurology, orthopaedics, and gastroenterology. Diversifying away from cardiac has de-
to 41% in FY20 risked the business model (stents price control) and at the same time benefitted the
company from the rising demand for tertiary care services in the country. The
contribution of cardiac therapy to in-patient billed revenue has reduced from 62% in
FY13 to 41% in FY20. Other therapies such as gastro, oncology, neuro, renal and ortho
now account for ~59% of its India revenues.
Exhibit 118: Cardiac contribution has steadily declined Exhibit 119: Focus on high-end specialty tertiary care
Cardiac Others
Others
100%
13%
80% 38% Ortho

46% 4%
59% Cardiac
60% 41%
Renal
9%
40%
62%
54%
20% 41% Neuro
9%
0%
Oncology Gastro
FY13
FY15
FY20
10% 14%
Aggressive expansion in the past, now in consolidation phase

From FY14-18, NH aggressively expanded capacity by adding 2,500 beds (~50% of total
Added 2.500 beds (50% of beds). Besides expanding in metros (Mumbai, Delhi NCR, and Kolkata), it added
capacity) from FY14-18 capacities in several tier-2/3 towns such as Jaipur, Raipur, Jamshedpur, Guwahati, etc.
Over the past two years, it has consolidated its operations by bolstering capacities at
existing units (added oncology block in Jaipur and Raipur) and exited some of the
To target selective none-core units such as Whitefield and Durgapur. Going forward, it will look to add
expansion – greenfield/ capacities selectively in regions where it has existing presence; prioritising Kolkata
brownfield in Kolkata over Bangalore and Delhi.
Exhibit 120: ~50% of total beds were added between FY14-18
FY13 base Net additions Net deletions
6,000
136 12 70 5,352
5,000 437
133 577
4,000 756 2,684
3,000 853 Expansion in the

North: Jammu, Delhi
2,000 Expansion in and Gurugram +
the East: SRCC in Mumbai
2,668 2,668
1,000 MMRHL &
Barasat units
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 YTD India
base FY21 owned
beds
Page | 45
“Asset-right” expansion has led to lowest gross block per bed

The significant expansion has happened with efficient capital deployment which is
clearly evident in NH’s lower gross block per bed at Rs3.6mn vs. Rs10-13mn for
comparable peers with pan-India presence. NH engages with partners that own the
fixed assets, primarily, land and building, while it owns the medical equipment and
operates the hospital, typically on a revenue share basis. This has enabled it to expand
its network without compromising on balance sheet quality.
Exhibit 121: Asset-light model of expansion

No. of Capital
Engagement GB +
Comments No. of units Hospitals operating cost per
Framework CWIP*
beds bed
NICS, MSMC, Barasat,
Owned or Long/ Owns & operates on freehold basis MMRHL (2 units),
9 hospitals 2,993 14,000 4.7
Perpetual lease or long term/ perpetual lease Ahmedabad, Jaipur,
Mysore & Gurugram
RTIICS + RTSC,
Revenue Share/ Operates and pays a revenue share/ Jamshedpur, Raipur,
9 hospitals 1,955 4,500 2.3
Rentals rent to the owner Shimoga, HSR, RNN,
SRCC, Dharamshila
Public-Private Operates with nominal investment
2 hospitals Jammu, Guwahati 365 190 0.5
Partnership (PPP) in partnership with public entities
Provides healthcare services to third
Managed Hospitals 1 hospital JSW Bellary 112 NA NA
parties for management fees
Karnataka - St. Marthas,

Runs cardiac sciences' dept. out of
6 heart Davangere, Dharwad,
Heart Centers 3rd party hospitals and pays 345 580 1.7
centers Kolar, MSRNH
revenue share
Bangladesh - Chittagong
Source: Company, HSIE Research, Rs mn, *Figures exclude cash and non-cash government grant of ~Rs1.5bn and a non-cash lease provision of ~Rs1bn
Exhibit 122: Despite doubling of gross block in the past Exhibit 123: …its Gross block/bed is lowest among peers
5 years…
Capex Gross block/ Operating bed
Rs bn Rs mn
6.0 16
Acquired balance Cayman
14
5.0 stake in Cayman, expansion
Expansion in North 12
4.0
10
3.0 8
5.6
13.9
2.0 4.4 4.4 6
9.9
4 8.4
1.0 6.7
1.7 1.8 1.6
1.2 1.2 1.1 2 3.6
0.6
0.0 0
FY21e
FY22e
FY23e
FY14
FY15
FY16
FY17
FY18
FY19
FY20

Healthcare
Source: Company, HSIE Research Source: Companies, HSIE Research
Page | 46
Geographic expansion has led to growth diversification

NH had a dominant position in Karnataka and Eastern region with both accounting for
~85% of its revenues in FY16. Over the past few years, it has expanded its operations in
the Northern (Delhi, Gurugram and Jammu) and Western region (Mumbai, Raipur,
Ahmedabad) of India. Other regions now contribute to 24% of India revenues.
 Bangalore – NH operates three hospitals in Bangalore – NICS, MSMC and HSR.

These are well-established hospitals with steady track record (~7% revenue CAGR
over FY18-20) and contributed ~37% to India hospital revenues in FY20. NICS and
MSMC are its flagship facilities and these were severely impacted by COVID with
revenues declining by 48% in 9mFY21, given they have higher proportion of
revenues from outstation/ international patients. We expect gradual recovery at
these units as travel restriction eases. With limited visibility on international
segment (high margin business), we forecast muted revenue/EBITDAR growth of
2%/2% CAGR for the FY20-23e. Both these units have strong operating metrics
with EBITDAR margins at 30%+ levels (pre-COVID).
o NICS – Narayana Institute of Cardiac Sciences (NICS), a super-specialty
NICS – largest facility with hospital for cardiology and cardiac surgery, is its largest facility with ~750
focus on cardiac care operating beds. The facility operates at ~60-70% occupancy (pre-COVID) and
ARPOBs will be driven by has good runway of growth. International patients account for 15-20% of its
improving case mix and higher revenues. The scheme based patients form 25-30% of its revenues which limits
proportion of international the ability to take higher price increases. We expect ARPOBs to grow at single
patients digit primarily on back of improved case mix.
o MSMC – Mazumdar Shaw Medical Center (MSMC), a multispecialty hospital
for cancer care, neurology and neurosurgery, nephrology and urology is its
MSMC – second largest second largest facility with ~705 operating beds. The hospital operates at ~60-
facility with high-end 70% occupancy (pre-Covid) and enjoys higher ARPOBs than NICS, given
specialties superior case mix (high-end procedures).
Exhibit 124: Bangalore units’ performance
Particulars Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Revenues 2,464 2,556 2,339 2,072 793 1,202 1,796
ARPOBs 11.7 11.4 11.2 12.1 13.3 11.5 11.7
Margins 32% 34% 30% 26% -31% -6% 19%
 Southern peripheral comprises of two hospitals with one each in Mysore and
Shimoga. This cluster has significantly outperformed the flagship units in 9mFY21
Hospitals in Mysore and thereby underlining the improving operating conditions at these hospitals. After a
Shimoga have outperformed decline in 1HFY21, revenues grew by 4% in Q3FY21 with 22% EBITDAR margin.
flagship units in 9mFY21 We expect NH to sustain this performance and model ~9% revenue CAGR over
FY20-23e with improved contribution from these hospitals to overall profitability.
Exhibit 125: Southern peripheral units’ performance
Revenues 370 393 369 357 301 373 393
ARPOBs 7.1 6.7 7.0 7.2 9.8 8.7 8.9
Margins 15% 20% 21% 18% 13% 20% 22%
Page | 47
 Kolkata and Eastern Peripheral – Arguably the largest player in the Eastern
markets (esp. Kolkata), the company has a very strong presence and brand value in
the Eastern market. Kolkata contributed to ~27% of India hospital revenue in FY20
and accounts for 26% of NH’s total operating beds in India. It operates six hospitals
in Kolkata – RTIICS, RTSC, MMRHL (2 units), Barasat and RNN and one hospital
each in Jamshedpur and Guwahati in the Eastern peripheral region.
o RTIICS – Established in the year 2000, Rabindranath Tagore International
Institute of Cardiac Sciences (RTIICS), Kolkata, is a 681-bedded, NABH-
RTIICS - one of flagship units
accredited multi-super-specialty quaternary care hospital for cardiac sciences
caters to patients from
& heart transplantation, renal sciences and kidney transplantation,
countries like Bangladesh,
neurosciences, medical & surgical gastroenterology, hepatobiliary sciences and
Bhutan, Myanmar, Nepal, and
liver transplantation. With ~665 operating beds, the company operated at ~80-
Africa
85% of occupancy (pre-COVID) underscoring high demand in the region.
However, due to space constraints, NH is unable to add beds despite the
With 665 beds, it operates at
strong demand. The facility enjoys high ARPOBs and will potentially grow in
80-85% occupancy
mid-single digits, driven by price and case mix. We expect revenue to grow at
~3% CAGR over FY20-23e with ~25% EBITDAR margins.
o MMHRHL – In 2014, NH strengthened its presence in the East by acquiring
MMRHL units - good two units of Westbank hospital, a subsidiary of Meridian Medical Research
infrastructure with strong and Hospital Ltd (MMRHL), for ~USD24.3mn. The unit provides
focus on tertiary and comprehensive cancer care facilities, in addition to other tertiary care
quaternary care - we forecast specialties. With ~400 operating beds, the hospital (both units) operated at ~65-
margin expansion of 50bps at 70% occupancies in FY20. Despite high competition in the region and supply
these units side constraints for MMRHL, the management expects ARPOBs to grow in
high single digits (from a base of Rs8.5-9mn in FY20), driven by case mix. We
model ~8%+ revenue CAGR over FY20-23e with EBITDAR margin expansion
to ~22-23% (from 20%+ pre-COVID) over the same period.
Exhibit 126: Kolkata units’ performance
Revenues 1,663 1,769 1,724 1,793 616 1,077 1,571
ARPOBs 9.0 9.2 9.1 9.0 9.3 8.9 8.7
Margins 21% 23% 22% 21% -46% -4% 17%
Exhibit 127: Eastern peripheral units’ performance
Revenues 308 328 308 297 205 207 281
ARPOBs 6.7 6.6 6.7 6.8 7.4 8.2 8.4
Margins 10% 17% 12% 8% -6% -8% 11%
 Western Region – NH operates four hospitals in the Western region – Mumbai,
Jaipur, Raipur, and Ahmedabad. The region contributes to ~15% of the India
hospital revenues and accounts for ~18% of the operating beds.
o Mumbai’s SRCC children’s hospital commissioned in FY18 is part of the
“new units” which has struggled to ramp up. The hospital made EBITDAR loss
of over ~Rs200mn in FY20 (~Rs300mn loss in FY18). The doctor cost is
significantly high at this facility. Key challenges faced are as follows: (a)
patient pool is limited, given this is a pediatric hospital; (b) it’s a
tertiary/quaternary care hospital in South Mumbai and, therefore, many people
cannot afford it; (c) a lot of ailments are due to genetic issues, which impacts
bottom section of the economy more since they cannot afford the treatment/
early diagnosis of such issues (vs. the more affluent section who can afford the
best treatment and may chose to travel abroad for the same). The current
patient pool is either referred to by government or is scheme driven. We expect
the facility to take longer to break even (FY24).
Page | 48
o Jaipur, Raipur and Ahmedabad are all part of other mature units cluster.
Barring SRCC, we expect the Raipur specifically has demonstrated resilient performance during 9mFY21
Western region revenue to grow and we expect it to contribute higher to overall profitability. NH has added
at 8%+ CAGR over FY20-23e oncology services at Jaipur and Raipur units, which should drive ARPOBs. The
with EBITDA margin Ahmedabad hospital was making losses until FY18 but the company’s decision
expanding from ~11% in FY20 to stay the course despite muted ramp-up in the initial years has begun to pay
to ~11.5% in FY23e (better case off in recent years. NH added ~20 beds in FY20 and plans to add oncology
mix, ramp-up of oncology services. We expect these units to gain further traction once business
segment at Raipur) normalizes.
o Barring SRCC, we expect the Western region revenue to grow at 8%+ CAGR
over FY20-23e with EBITDAR margin expanding from ~11% in FY20 to ~11.5%
in FY23 (better case mix, ramp-up of oncology segment at Raipur).
Exhibit 128: Western region units’ performance
Revenues 924 983 923 892 520 787 954
ARPOBs 8.5 8.3 8.1 8.2 9.1 9.7 10.0
Margins 3% 7% 3% 1% -28% -1% 9%
 Northern region (ex-Jammu) – NH owns/operates two units in this region –
Dharamshila (Delhi) and Gurugram facilities, which have been acquired in the past
three years. These accounted for ~8% of NH’s India hospitals revenues in FY20.
Dharamshila and Gurugram have broken even on a monthly basis and we expect
them to contribute positively to EBITDAR from FY22 onwards. We model ~19%
revenue CAGR for these two hospitals over FY20-23e.
o Gurugram (~230 bedded) hospital broke even in Dec’20 on a monthly basis.
However, the sustenance of this needs to be monitored. The hospital is close to
the airport and, therefore, attracts a higher proportion of international patients
(~30-35% of pre-COVID volumes). ARPOBs are attractive at ~Rs20mn, given it
has superior case mix and lower scheme business. We expect this facility to
turn EBITDAR positive by FY22e.
o Dharamshila (300 bedded) follows an asset-light model. The hospital has been
converted from a cancer care unit into a multispecialty set-up (cancer is 50% of
revenue today). Going forward, NH might step up investments to upgrade
infrastructure (civil/ tech), given this is a very old hospital. The company pays
rental of Rs200mn per annum with 5-6% cost inflation to the owner. This is the
first hospital to break-even among the new units cluster and is on track to
achieve mid-teen profitability in the next 3-4 years.
Exhibit 129: Northern region (ex-Jammu) units’ performance
Revenues 431 524 493 538 301 497 617
ARPOBs 14.3 13.9 12.9 13.4 15.4 13.9 14.2
Margins -25% -17% -18% -14% -40% -10% 1%
Page | 49
Business mix by maturity profile

While we model each hospitals separately, we further analyse them based on their
maturity profile - mature units (>3 years) and new (upto 3 years) units. Out of the 20
owned/ operated hospitals, mature units comprise of 17 hospitals – 3 flagship and 14
other mature hospitals whereas the new units comprise of 3 hospitals. We highlight the
recent trends for these units which demonstrate strong traction witnessed by the new
units cluster.
Mature units – strong bounce back from the lows of Q1FY21

 The share of mature units in India revenues has risen from 79% to 86% over FY15-
Flagship units - NICS, MSMC 20. The three flagship units (NICS, MSMC & RTIICS) contribute ~80% to India
and RTIICS contribute to EBITDAR. These units receive high footfalls from outstation/ international patients
almost half of India revenues and hence were severely impacted during Covid. We expect gradual recovery at
and ~80%+ of India EBITDAR these units as travel restriction ease. With limited visibility on international
segment (high margin business), we forecast muted EBITDAR growth of 2% CAGR
for the next FY20-23e. Out of the other mature units (14 hospitals), Raipur, Mysore,
While the mature units are Shimoga have shown resilience and outperformed the flagship units during
expected to see gradual 9mFY21 with margins trending towards 18-23% (vs. 15-20% pre-Covid).
recovery, it is the non-flagship
Exhibit 130: Mature units’ performance
units that will drive better
growth over flagship units
Mature Units
over FY20-23e
Revenues 5,777 6,094 5,740 5,503 2,517 3,761 5,071
Margins 23% 26% 23% 20% -24% -1% 17%
ARPOBs 9.4 9.4 9.3 9.4 10.1 9.8 9.8
Discharges 57,098 61,890 58,825 54,604 19,219 26,355 34,718
New units – encouraging performance even in tough times

 The three new hospitals – SRCC in Mumbai (commissioned in Apr’17),
We expect Dharamshila and Dharamshila in Delhi (Mar’18) and Gurugram (Mar’18) had combined EBITDAR
Gurugram units to break even losses of Rs700mn+ in FY19 which reduced to ~Rs340mn in 9mFY21, driven by
in FY23e, SRCC (Mumbai) to strong performance in Gurugram and Dharamshila (revenues at pre-COVID levels
break even in FY24e with EBITDAR margin at 1% for these two units in Q3FY21). Despite discharges
being at <50% of pre-Covid levels in Q3FY21, the company managed to bring the
cluster closer to break-even levels. We expect SRCC to remain negative in FY23e,
but the overall cluster to contribute ~4% to India EBITDAR in FY23e driven by
Dharamshila and Gurugram.
Exhibit 131: New units’ performance
New Units
Revenues 574 650 616 639 364 577 744
Margins -27% -20% -22% -20% -51% -17% -4%
ARPOBs 12.4 12.3 11.8 12.2 13.4 13.7 13.5
Discharges 7,098 7,947 8,181 7,815 5,578 7,008 3,424
Page | 50
Exhibit 132: Mature units are expected to see gradual Exhibit 133: New hospitals to grow at ~18% CAGR over
recovery and grow at ~5% CAGR over FY20-23e FY20-23e driven by Dharamshila and Gurugram units
Mature Hospitals Revenue New Hospitals Revenue
Rs bn Rs mn
30 5,000
Thousands
25 4,000
20
3,000
15
26 2,000 4,082
23 24
10 20 21
3,194
17 2,500
1,000 2,220
5 1,831
932
0 0
FY21e
FY22e
FY23e
FY21e
FY22e
FY23e
FY18
FY19
FY20
FY18
FY19
FY20
Exhibit 134: Mature units to achieve FY20 absolute Exhibit 135: Sharp reduction in losses at new hospitals in
EBITDAR level in FY22 and to grow from there on FY22e; to turn EBITDAR positive by FY23e
Mature - EBITDAR EBITDAR Margins New - EBITDAR EBITDAR Margins
Rs mn Rs mn 5%
6,000 22% 22% 25% 200 10%
21% 21%
188
5,000 19% -3%
20% 0 0%
4,000 -300 -305 -81

15% -200 -10%
3,000 5,726 -585
5,182 5,022 -703 -14%
8% 10% -400 -20%
2,000 4,461
3,746
-32% -23%
1,000 5% -600 -30%
1,272 -38%
0 0% -800 -40%
FY21e
FY22e
FY23e
FY18
FY19
FY20
FY21e
FY22e
FY23e
FY18
FY19
FY20
Page | 51
Key operating parameters - strong trends (pre-Covid)

Exhibit 136: ARPOBs have improved Exhibit 137: ALOS has steadily declined
ARPOB (Rs/ day) ALOS
33,000 Rs mn
Covid Impact 5.5
5.1
30,000 28,767 27,945 5.0
26,575 27,123
27,000 4.5
24,658 4.5 4.3
4.2
24,000 4.0
21,918 3.9
20,822 4.0 3.8
21,000
3.5
18,000 3.5
15,000 3.0
Q1FY21
Q2FY21
Q3FY21
Q1FY21
Q2FY21
Q3FY21
FY17
FY18
FY19
FY20
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research Source: Companies, HSIE Research
Exhibit 138: Occupancy has remained stable Exhibit 139: Increase in discharges drove volumes
Occupancy % Discharges
'000s
70% 300
60% Covid Impact 250
200
50%
150 286
260 Covid Impact
40% 61% 62% 62% 61% 237
54% 100
52%
30% 41% 50
28 37 42
26% 0
20% Q1FY21
Q2FY21
Q3FY21
FY18
FY19
FY20
Q2FY21
Q3FY21
FY16
FY17
FY18
FY19
FY20
Q1FY21
Source: Company, HSIE Research, NH started reporting occupancies on Source: Company, HSIE Research
census bed basis from FY17
Exhibit 140: Operating efficiencies have improved cost Exhibit 141: India hospitals’ EBITDAR margin improved
structure by ~125bps over FY18-20
Consumables Manpower (Employees+ Doctors) Overheads India Hospitals Mature New
140% 133% 30% 22%
19% 21% 17%
120% 31% 109% 15%
91% 91% 92% 18% 0%
100% 88% 16% 16% 14%
27% 0%
80% 25% 24% 21% 22% -3%
-15% -23% -23% -4%
72%
60%
51% -17%
41% 43% 43% 42% -30% -32%
40% -38% -26%
-45% -51%
20%
25% 25% 25% 30% 31% 29%
0% -60%
Q1FY21
Q2FY21
Q3FY21
FY18
FY19
FY20
Q1FY21
Q2FY21
Q3FY21
FY18
FY19
FY20
Page | 52
Cayman Islands – stronger than ever

Back in 2014, NH forayed into the international market in the Caribbean region with a
Cayman is a 100% insured minority stake of 28.6% in a 105-bed multispecialty hospital in Health City Cayman
market and the richest island Islands (HCCI). It further raised its stake to 100% in FY18 by paying a consideration of
in the Caribbean USD32.2mn in cash. This facility broke even in FY17 and has now emerged as an
advanced tertiary care hospital, expanding its offerings in plastic surgery and
NH is a credible player in the interventional radiology, besides the core offerings in cardiac sciences, orthopaedics,
region along with 2 others and neurosciences. NH is a credible player in the Cayman Islands today along with 2
(one being government) other players (one being government). While the company aims to attract patients from
the Caribbean, the US and Latam, it has seen limited success with that and has been
International patient account able to attract patients only from the neighboring Caribbean Islands. International
for ~15-18% of NH’s revenues patients account for ~15-18% of its revenues (pre-Covid).
(pre-Covid)
 The revenues from the Cayman unit have grown at ~23% CAGR in the past three
years to USD61mn in FY20 with ~36% occupancy and ~25% EBITDA margin. The
COVID significantly boosted its operations as the country locked doors for
Travel restriction led to
international travel, which led to increased flow of domestic patients who
increased flow of local
otherwise would have travelled abroad (primarily US) for the treatment.
patients into NH’s facility
driving ARPOBs from  Post a temporary blip in Q1FY21 due to the shutdown of operations after the
USD1.6mn to USD2mn admission of an infected patient, the Cayman unit posted a robust growth of 20%+
in Q2/Q3FY21 with ~45% EBITDA margins driven by improved mix (high-end
procedures) and favorable pricing action. ARPOBs increased from USD1.6mn in
FY20 to USD2mn in Q2/Q3FY21. NH remains confident of sustaining this
performance over the next two years as patient mobility remains restricted in the
island. Moreover, it expects patient footfalls to sustain given they enhanced their
credibility in the region in this period.
 We forecast 12/31% revenue/EBITDA CAGR over FY20-23e with enhanced

EBITDA margins of 38%-40% in FY22-23e.
Exhibit 142: Cayman facility’s performance
Particulars Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20 Q1 FY21 Q2 FY21 Q3 FY21
Revenues 14.5 16.1 15.6 16.0 15.3 14.2 11.5 19.5 19.1
Margins 21% 24% 22% 24% 24% 29% 15% 46% 42%
ARPOBs 1.6 1.7 1.8 1.6 1.4 1.4 1.6 2.2 2.0
Discharges 576 727 660 641 696 584 323 627 590
Exhibit 143: We forecast ~12% revenue CAGR over Exhibit 144: Improved case mix, favorable pricing drove
FY20-23e EBITDA margins higher in FY21e
Cayman Revenues Cayman EBITDA Margins
USD mn 50%
100
40%
80
30%
60
85 20% 38% 40%

40 81 35%
61 66
55 25%
45 10% 18%
20 13%
33
0%
0
FY21e
FY22e
FY23e
FY18
FY19
FY20
FY22e
FY23e
FY21e
FY17
FY18
FY19
FY20
Page | 53
Cayman expansion is expected to be NPV accretive

 Encouraged by the good performance, management announced a greenfield
Capital outlay of expansion of 50 beds in Camana bay in Cayman Islands for ~USD100mn, which
~USD100mn for -50 bed will be funded through mix of internal accruals and debt. The new unit is 30kms
facility – the new unit will away from existing unit but strategically located closer to the airport, in the city
focus mainly on oncology, centre, where domestic population resides.
critical care and day care  The total outlay of ~USD100mn (~USD8mn for land, ~USD15mn for medical
services equipments and rest for interiors, high-end system, civil work, etc.) is to be funded
equally through debt (LIBOR + 1.8%) and internal accruals (likely to generate
~USD53mn cashflow in the next two years). While the facility will take 24 months
to commence the operations, the radiotherapy center is expected to be
commissioned in the next 12 months. We have not factored any revenues from the
proposed expansion into our estimates for the next two years. NH does not expect
cannibalization, except for a few diagnostics and outpatient services as the existing
unit focuses more on elective and high-end surgeries.
The new facility will
 Increase in competition poses a key risk – The Cayman Island has a population of
increase 4.4 beds per 1,000 in
66,000+. There are currently ~290 operating beds in the island, which translates to
Cayman to 5.2 per 1,000 (vs.
~4.4 beds per 1,000 people. With proposed expansion of NH, this is likely to
2.5-2.7 in US/ UK)
increase to ~5.2 beds per 1,000 (vs 2.5-2.7 for US/UK). With the increase, NH’s
market share will be close to ~50%. Aster DM Healthcare has also recently
announced its intent to set up operations at Cayman which if executed will result
in excess capacity in an already well-served market. Entry of Aster DM Healthcare
remains a key risk to our DCF assumptions.
 The proposed unit will focus on oncology, critical care and day care services. We
therefore base our DCF assumptions on ARPP (average revenue per patient) and
patient discharges as key operating parameters.
We carry out a sensitivity analysis based on assumptions of key operating

parameters - ARPP and patient discharges, capital outlay of USD75mn and WACC of
8% to arrive at an NPV range of Rs-14 to Rs71 for the project. Our base case scenario
Our DCF analysis assumes
assumes ARPP of USD28,198 (vs. current ARPP of USD32,373 in Q3FY21) and
capital outlay of results in
patient discharges of 1,900 (vs. current annualized discharges of ~2,400), resulting in
an NPV range of Rs-14 to
an NPV of Rs 25/sh.
Rs71 for the project.
Exhibit 145: Sensitivity analysis
Our base case scenario
Cayman Expansion ARPP (USD)
assumes an ARPP of
Fair Value 24,000 26,000 28,198 30,000 32,000
USD28,198 and discharges of -14 -10 -5 0 4
1,300
1,900 and adds Rs25/sh to 1,600 -2 4 10 15 21
our target price Discharges
1,900 11 18 25 31 37
(nos.)
2,200 24 31 40 47 54
2,500 36 45 54 62 71
Source: HSIE Research, Company
Page | 54
Financial Metrics
Exhibit 146: Revenues expected to grow at ~6%/12% Exhibit 147: EBITDA margins to expand by ~410bps
CAGR over FY20-23e for India/Cayman business to ~18% over FY20-23e
India Revenues Cayman Revenues EBITDA EBITDA Margins
Rs bn
40 8,000 Rs mn 18% 20%
17%
6
30 6 14% 14%
4 6,000 13% 15%
4 11% 11%
5 10%
20 4,000 10%
32 6%
27 28
25
10 22 20 2,000 5%
16 19
14
0 0 0%
FY21e
FY22e
FY23e
FY16
FY17
FY18
FY19
FY20
FY15
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research Source: Company, HSIE Research, Post Ind AS EBITDAs (adj. nos.
pre-FY20)
Exhibit 148: New hospitals to turn EBITDAR positive by Exhibit 149: Cayman facility margins to improve
FY23e significantly from 25% in FY20 to 40% in FY23e
New - EBITDAR EBITDAR Margins Cayman EBITDA EBITDA Margins
200 Rs mn 5% 10% USD mn
35 50%
188
-3% 30 40%
0 0% 38% 40%
35%
-81 25
-300 -305
-200 -10% 30%
20 25%
-585
-703 -14% 15 18%
-400 -20% 13% 20%
10
-32% -23%
-600 -30% 10%
-38% 5
-800 -40% 0 0%
FY21e
FY22e
FY23e
FY19
FY20
FY18
FY21e
FY22e
FY23e
FY18
FY19
FY20
Exhibit 150: EBITDAR breakdown – contribution of Exhibit 151: India hospitals EBITDAR margin to
new units and other mature units to increase expand by 150+bps over FY20-23e
Mature New India Hospitals Mature New
5,914 22%
6,000 Rs mn 188 25% 21% 21% 22%
4,578 4,941 19%
5,000 3,794 15% 8%
18% 18% 19%
3,349 16% 16%
4,000 5%
5%
-5% 5%
3,000 5,726
5,182 -3%
5,022 -15%
2,000 4,461
3,746 966
-14%
-25%
1,000 -32%
-38% -23%
1,272 -35%
0 -300 -305
-703 -585 -81 -45%
FY21e
FY22e
FY23e
FY18
FY19
FY20
-1,000
FY18 FY19 FY20 FY21e FY22e FY23e
Page | 55
Exhibit 152: PAT to grow 2.5x from FY20 levels; nil taxes Exhibit 153: Limited capex in India; Cayman
at Cayman to drive net profit expansion factored in estimates
Recurring PAT Capex
Rs mn Rs bn
3,000 2,783 6.0
Acquired balance Cayman
2,500 2,269 5.0 expansion
stake in Cayman,
2,000 Expansion in North
4.0
1,500
1,108 3.0
822 5.6
1,000
517 592 4.4 4.4
2.0
500 148
1.0 1.7 1.8
0 1.2 1.2 1.6
1.1
-168 -406 0.6
-500 0.0
FY21e
FY22e
FY23e
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY23E
FY22E
FY15
FY16
FY17
FY18
FY19
FY20
Exhibit 154: NH to generate positive FCF despite Exhibit 155: Net debt/ equity remains comfortable
additional investments in Cayman below 1.0x despite additional borrowings
FCF Net Debt - RHS Net Debt/ Equity
Rs bn
4,000 Rs bn 3,289 1.0 12
0.9 0.8
0.8 0.8 0.8
0.8 0.8 10
2,000 1,189
945 810 757
540 8
90 0.6
0 0.4 6
10 11
0.4 0.3
9 9 9 9
-631 0.3 4
-2,000 -1,032
0.2 2
3 3 2
-4,000 -3,815 0.0 0
FY22e
FY23e
FY21e
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Company, HSIE Research Source: Company, HSIE Research, Net debt includes lease liabilities
Exhibit 156: ROCE break down – Meaningful Exhibit 157: ROCE - Cayman expansion to dilute
improvement in India; Cayman ROCE attractive despite overall ROCE by ~140bps in FY23e
Capex
India Cayman Adj. ROCE ex-Cayman expansion Adj. ROCE
30% 18% 17%
15%
20% 15% 15%
12%
10% 23% 9% 11%

15% 17% 15% 16%
14% 9%
9%
6% 9% 6%
7%
0% 6% 7%
-8% 3% 5%
-10% 0%
2%
FY21E
FY22E
FY23E
FY21e
FY22e
FY23e
FY15
FY16
FY17
FY18
FY19
FY20
FY19
FY20
Page | 56
Valuation and risks

Our target price of Rs460/sh is based on SOTP valuation of (a) India hospitals business
- 16x FY23 EV/ EBITDA; (b) Cayman operations - 12x FY23 EV/EBITDA; (c) Cayman
After a 14% correction in expansion – NPV of Rs25/sh. We value NH’s India business at 16x EV/EBITDA, ~10%
the past two months, the discount to Apollo’s hospital business. While ROCEs are comparable today, Apollo has
stock is trading at 16x/ 14x a consistent track record, true pan India presence and diversified EBITDA base
FY22/23e EBITDA which is compared to NH. We assign 12x EV/EBITDA to existing Cayman operations, a
~10-15% discount to its 5- discount of ~25% to the India business to factor divergent growth potential of that
yr historical average market. However, the ROCE of Cayman and the medium growth outlook are superior
to that of India business.
Exhibit 158: SOTP valuation
The stock (up ~64%) has Particulars EBITDA Multiple Rs mn
underperformed Nifty by India business 4,217 16.0 67,468
7% in the last one year Cayman operations 2,476 12.0 29,714
Fair value 6,693 97,300
Less: Net Debt (excl. Cayman expansion) 6,051
Less: Lease liabilities 2,344
Implied Market Cap 88,897
No. of Equity shares 204.4
Fair Value per share (Existing operations) 435
Add: PV of Cayman expansion 25
Target Price 460
Source: HSIE Research
Exhibit 159: NH is trading at ~10-15% discount to its 5-yr avg. EV/ EBITDA multiple
EV/ EBITDA 5 yr avg +1 SD -1 SD
30
25
20
15
10
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Risks
 India – Delay in business normalcy and turnaround of new units, adverse
government regulations in terms of price control, and scheme implementation in
West Bengal.
 Cayman Islands – Inability to sustain patient footfalls at existing units, extended

payback period for the new unit, increased competition by entry of new player.
Page | 57
Financials
Consolidated Income Statement
Revenues 16,138 18,782 22,809 28,609 31,278 24,885 33,911 37,985
Growth (%) 18.3 16.4 21.4 25.4 9.3 -20.4 36.3 12.0
Operative Expenses 3,871 4,359 5,565 6,875 7,453 6,451 8,029 8,966
Gross Profit 12,267 14,423 17,244 21,734 23,825 18,434 25,882 29,019
Gross Margins 76.0 76.8 75.6 76.0 76.2 74.1 76.3 76.4
Employee cost 6,547 7,608 9,445 12,139 13,027 11,198 13,734 15,299
Other expenses 3,974 4,526 5,677 6,717 6,569 5,723 6,443 7,027
EBITDA 1,746 2,289 2,123 2,878 4,229 1,512 5,705 6,693
Growth (%) 43% 31% -7% 36% 47% -64% 277% 17%
Margins (%) 10.8 12.2 9.3 10.1 13.5 6.1 16.8 17.6
Depreciation 761 799 1,000 1,374 1,858 1,818 1,880 1,963
Other income 147 175 189 167 238 260 273 278
Interest 294 218 468 714 853 777 805 862
PBT 727 1,433 850 957 1,647 -822 3,293 4,145
Tax 301 524 290 341 423 -452 988 1,326
Effective tax rate (%) 41.4 36.5 34.1 35.6 25.6 55.0 30.0 32.0
Recurring PAT 148 822 517 592 1,108 -406 2,269 2,783
Extraordinary items -110 -13 5 0 -109 0 0 0
MI/share of Profit/loss in JV -4 -1 1 1 1 1 1 1
Reported PAT 426 909 560 616 1,225 -370 2,305 2,818
Consolidated Balance Sheet

Equity capital 2,044 2,044 2,044 2,044 2,044 2,044 2,044 2,044
Reserves and surplus 6,716 7,587 8,314 8,768 9,316 8,910 10,612 12,699
Shareholder’s funds 8,760 9,631 10,357 10,811 11,360 10,954 12,656 14,743
Minority Interest 3 2 3 4 5 7 8 9
Total debt 3,041 2,821 9,473 9,534 11,076 11,127 12,538 13,998
Total Liabilities 13,550 14,206 21,723 22,380 24,487 24,198 27,381 31,001
Net fixed assets 9,927 10,209 17,117 17,124 17,245 16,497 16,943 16,911
Capital work-in-progress 138 530 350 561 118 118 2,708 5,668
Total non-current assets 12,704 13,452 20,563 21,097 23,046 21,940 24,630 27,229
Investments 0 0 0 0 693 693 693 693
Inventories 497 524 836 832 602 750 929 1,041
Debtors 1,518 1,569 2,790 2,664 2,622 2,591 3,530 3,955
Cash & bank balance 138 262 333 965 1,027 1,133 1,288 1,974
Loans and Advances 221 383 221 293 417 450 486 527
Other current assets 485 278 612 519 503 541 583 629
Total current assets 2,860 3,016 4,793 5,274 5,864 6,158 7,509 8,818
Creditors 1,610 1,885 2,962 3,335 3,616 3,068 3,902 4,163
Provisions 118 122 243 266 330 330 330 330
Net current assets 846 754 1,160 1,283 1,440 2,258 2,751 3,772
Total net assets 13,550 14,206 21,723 22,380 24,487 24,198 27,381 31,001
Page | 58
Consolidated Cash Flow

Net Profit Before Tax 510 1,353 804 934 1,613 -857 3,259 4,110
Depreciation 761 799 1,000 1,374 1,858 1,818 1,880 1,963
Cash flow before WC 1,874 2,475 2,427 3,243 4,606 1,749 5,952 6,942
WC changes 217 84 -265 83 488 -842 -485 -500
Taxes paid -350 -366 -339 -539 -660 452 -988 -1,326
Cash flow from operations 1,741 2,194 1,823 2,786 4,433 1,360 4,480 5,117
Organic Capex -878 -1,186 -2,026 -1,495 -1,144 -550 -4,390 -4,360
Inorganic Capex -323 -62 -3,603 -102 0 0 0 0
Cash flow from investing -1,502 -1,463 -5,338 -1,613 -1,885 -527 -4,365 -4,332
Equity Capital Issues 0 0 1 4 1 0 0 0
Borrowings (net) 445 -246 3,466 276 -1,472 51 1,411 1,460
Interest paid -264 -206 -316 -553 -509 -777 -805 -862
Dividends paid 0 0 0 0 -490 0 -567 -696
Cash flow from financing -264 -206 -316 -553 -998 -777 -1,372 -1,558
Net change in cash -26 525 -3,831 621 1,550 56 -1,257 -773
Beginning cash -527 -108 172 -50 844 918 1,025 1,179
Closing cash -553 418 -3,516 563 2,390 974 -232 406
Free cash flow 540 945 -3,806 1,189 3,289 810 90 757
Key Ratios
Year to March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
PROFITABILITY (%)
GPM 76.0 76.8 75.6 76.0 76.2 74.1 76.3 76.4
EBITDA Margin 10.8 12.2 9.3 10.1 13.5 6.1 16.8 17.6
APAT Margin 0.9 4.4 2.3 2.1 3.5 -1.6 6.7 7.3
RoE 5.2 9.9 5.6 5.8 11.0 -3.3 19.5 20.6
RoCE 7.2 9.4 6.3 6.6 10.9 2.1 14.9 15.2
EFFICIENCY
Tax Rate (%) 41.4 36.5 34.1 35.6 25.6 55.0 30.0 32.0
Fixed Asset Turnover (x) 1.1 1.2 1.0 1.1 1.1 0.8 1.1 1.1
Inventory (days) 11 10 13 11 7 11 10 10
Debtors (days) 34 30 45 34 31 38 38 38
Other Current Assets (days) 9 4 9 6 4 6 5 5
Payables (days) 36 37 47 43 42 45 42 40
Other Current Liab & Provns (days) 6 5 7 5 6 7 6 5
Cash Conversion Cycle (days) 9 4 11 2 (5) 4 6 8
Debt/EBITDA (x) 1.6 1.1 4.3 3.0 2.2 6.1 1.8 1.7
Net D/E (x) 0.3 0.3 0.9 0.8 0.8 0.8 0.8 0.8
Interest Coverage (x) 3.8 7.6 2.8 2.3 3.1 (0.1) 5.1 5.8
PER SHARE DATA (Rs)
EPS 0.7 4.1 2.5 2.9 5.4 (2.0) 11.1 13.6
Dividend - - - 1.0 1.2 - 2.8 3.4
Book Value 43.0 47.5 51.0 52.9 55.6 53.6 61.9 72.1
VALUATION
P/E (x) 559.0 100.1 159.3 140.2 74.8 (204.4) 36.5 29.8
P/BV (x) 9.4 8.5 8.0 7.7 7.3 7.6 6.6 5.6
EV/EBITDA (x) 49.1 37.3 43.4 31.8 21.8 60.9 16.4 14.1
EV/Revenues (x) 5.3 4.5 4.0 3.2 2.9 3.7 2.8 2.5
OCF/EV (%) 2.0 2.6 2.0 3.0 4.8 1.5 4.8 5.4
FCF/EV (%) 0.6 1.1 (4.1) 1.3 3.6 0.9 0.1 0.8
FCFE/Mkt Cap. (%) 1.6 0.9 3.9 1.9 2.2 1.0 1.8 2.7
Dividend Yield (%) - - - 0.2 0.3 - 0.7 0.8
Page | 59
Healthcare abbreviations
 ALOS – Average length of stay
 ARPOB – Average revenue per operating bed
 ARPP – Average revenue per patient
 EBITDAR – Earnings before interest, tax, depreciation, amortization, rent and

corporate overheads.
 JCI - Joint Commission International
 NABH- National Accreditation Board of Hospitals and Healthcare providers
Page | 60
Healthcare: Initiating Coverage
1 Yr Price movement
Apollo Hospital Narayana Health
3500 600
3000 500
2500
400
2000
300
1500
200
1000
500 100
0 0
Oct-20
Aug-20
Apr-20
Oct-20
Jul-20
Sep-20
Jan-21
Aug-20
May-20
Apr-20
Jan-21
Jul-20
Sep-20
Mar-20
Mar-21
May-20
Mar-20
Mar-21
Dec-20
Jun-20
Dec-20
Jun-20
Nov-20
Feb-21
Nov-20
Feb-21
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Page | 61
Healthcare: Initiating Coverage
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Sector Thematic

Bansi Desai Karan Vora

enhanced focus on retail formats – pharmacy, diagnostics and digital initiatives

Companies section .......................................................................................... 20

Apollo Hospitals - A microcosm of the healthcare industry .................. 21

Narayana Health - In pursuit of growth ..................................................... 39

Healthcare abbreviations .............................................................................. 60

Industry outlook in charts

45 30% 63% 60%

Source: IRDAI, HSIE Research Source: Ministry of Tourism, HSIE Research

Source: Company , HSIE Research Source: Company, HSIE Research

Source: Company, HSIE Research Source: Bloomberg, HSIE Research

 Apollo is the largest private healthcare provider in India with a network of 70

 NH’s asset light expansion in India (FY14-18), followed by a consolidation phase,

Key risks to thesis

 Adverse price regulations by government – The National Pharmaceutical Pricing

 Scheme implementation – Scheme business is a low-margin business. Any policy

 Risks associated with greenfield expansion – High cost of capital, execution

Valuation and performance

Exhibit 14: Price performance Index

Source: Bloomberg, HSIE Research

Comparison of leading listed players

Recent Industry trends

Source: Company, HSIE Research Source: Company, HSIE Research

ARPOBs remained healthy driven by favorable case mix

20,000 38,988 40,822 -2%

Source: Company, HSIE Research, Q2FY21 Source: Company, HSIE Research

Mature/flagship hospitals are impacted more than others

-14% -12% -11%

Other business verticals witnessed increased traction

Strong focus on cost led to structural cost savings and margin

Source: Company, HSIE Research Source: Company, HSIE Research

Source: Company, HSIE Research Source: Company, HSIE Research

Treading on path of consolidation

Source: Company, HSIE Research Source: Company, HSIE Research

Significant headroom for growth

Apollo Fortis Narayana Max HCG

Source: Company, HSIE Research Source: Company, HSIE Research

India healthcare overview

Source: World Bank, HSIE Research Source: Industry, HSIE Research

Government participation remains low

USA: ~8% 60%

60 Beds 62% 38%

40 In-patients 56% 44%

20 Out-patients 82% 18%

0% 20% 40% 60% 80% 100%

Structural deficiencies - inadequate healthcare

Multiple demand drivers

According to Statista, health

FY12 FY14 FY16 FY18 FY20

Source: IRDAI, HSIE Research Source: IRDAI, HSIE Research

20% 36% 20%

Medical tourism presents significant growth

Digital platforms offer exponential growth, albeit on

E-pharmacies – biggest segment in digital health

Exhibit 54: Recent consolidation in India’s e-pharmacy market

Tele-consultation – customer behavior is evolving and will be a key

Asset light verticals (pharmacy, AHLL) to witness margin expansion

Pledged Shares 9.29 10.37

Exhibit 59: EBITDA break-down