Project Report Writing Help on Healthcare Services in India- A Case Study on Apollo Hospitals
We believe Apollo Hospitals and Fortis Healthcare are slated to benefit from the anticipated growth in the private healthcare space. Private healthcare spend is expected to rise to Rs1,560bn by 2012 from Rs690bn currently and comprise the largest component of total healthcare spending. Healthcare services market in India is anticipated to grow from Rs1,513bn in 2007 to Rs2,654bn by 2012 (Source: India Healthcare Trends 2008, Technopak Advisors) and may increase by further Rs390bn, provided healthcare insurance becomes widely available to the upper and middle classes. In-patient spending is expected to rise from 39% of total expenditure currently to 50% by 2012. The sector offers immense potential to healthcare players as the country witnesses a rise in lifestyle-related and other diseases, especially cancer and cardiovascular diseases. It is expected that these two diseases alone will constitute more than 35% of in-patient expenditure by 2012 (up from 27% in 2001). Inpatient expenditure for treating cancer and heart diseases is expected to
amount to Rs140.6bn and Rs133.2bn in 2012, respectively. The demand-supply mismatch would favour tertiary care healthcare providers in the long-run. We initiate coverage on Apollo Hospitals with a Buy rating and Fortis Healthcare with an Accumulate rating, with target price of Rs610 and Rs110, respectively.
Exponential growth in healthcare expenditure anticipated
Currently, India’s expenditure on healthcare in India is very low. According to the World Health organisation (WHO), healthcare spending in 2004 was US$34.9bn, or 5.2% of GDP. The government’s contribution was a meager 1.2% of the GDP. With the economy growing and incomes rising, healthcare spending is expected to rise to 5.5% of GDP (US$60.9bn) by 2012. The total healthcare services market in India is expected to grow from Rs1,513bn in 2007 to Rs2,654bn by 2012. The private healthcare sector is likely to contribute the largest component in 2012, rising to Rs1,560bn from the current level of Rs690bn.
Increasing penetration of health insurance – a key catalyst
Currently, penetration of health insurance is a meager 1.6% in India. The number of people covered under health insurance plans has increased from about 4-5mn in 2001 to over 17mn in 2006 and is expected to grow to 62mn by 2015. Employers are also increasingly subsidizing their employees’ health costs through direct arrangements with medical providers. The potential increase in the penetration rate of medical insurance and employer plans could result in higher demand for premium healthcare services in India.
Demand expected to outstrip supply
India currently has a capacity of around 1.22mn beds. To meet the projected demand and maintain the ratio of bed-to-population at 1.9:1000, India will need an additional 1.75mn beds by 2025, involving an estimated investment of Rs3,700bn (US$74 billion). This huge investment would have to be primarily funded by the private sector as the government's focus is oriented to towards providing and improving preventive and primary care.
Valuation
We believe EV/Bed is a better measure to value hospital stocks as it captures the effects of changing capital structure along with operating efficiencies on a per bed basis. Moreover, it provides flexibility in comparing peers across the market. EV/Bed valuation should be considered attractive, with a significant upside, when a player is available cheaper than the average replacement cost of Rs8.5-10mn per bed invested in the super specialty category.
Apollo Hospitals – the best play in the sector
At CMP, the stock trades at a premium at 12x on FY11E EV/EBITDA basis vs. global peers which trade at 5.4x to 10.6x. Factoring the expected growth in both topline growth and earnings over FY09-11E, we believe that these higher multiples are justified. We value the stock at FY11E EV/Bed of Rs7mn, a discount of 17% to its implied EV/Bed value of Rs8.5mn, translating into a price target if Rs610, an upside of 20% from current levels.
Fortis Healthcare is we believe the stock priced in at FY11E EV/EBIDTA of 18.7x and fairly valued at
FY11E EV/Sales of 2.9x. We value the stock at an EV/Bed of Rs12mn for FY11E giving us a price
target of Rs110.
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