The markets played truant again at the end of the last week when the UTI bail out package and the impending Musharaff visit held the attention of the general public. After steadily gaining to a Sensex level pf 3540, it closed the day at 3438 more or less at the previous day’s level. Even though the fall was attributed to heavy selling of UTI and SBI mutual funds, the trend indicated the inherent weakness in the market.  If the results of Infosys, and Satyam Computers for the last quarter is any indication, there is a confirmation that the so called IT slow down has not been as bad on their profits as feared. The current fall lead by Tech stocks is therefore likely to be recouped shortly.

Unfortunately, the problems of UTI have only helped in the retail investors becoming even more cynical of the stock markets. The bail out package involving a loan backup of Rs 3000 crores to, has removed the immediate apprehensions of panic selling in the market. This should ensure that there would be no immediate pressure on the markets on account of UTI.

In the past, Indo-Pak relationships have been cited many times for bear hammering in the stock markets. The Agra Summit will therefore not remain insulated from the equations of the punters during the next week. Fortunately, the expectations on the summit are low on both the sides. It is understood that this is a mere exercise in confidence building and no substantive progress is expected. As a result , even though the markets are likely to remain flat at the beginning of the week they may bounce back to more healthy levels later.

Keeping the failing health of the stock markets, it appears that the only place to park our hard earned money should be in the “Health Care Industry”. The one beacon in this industry happens to be the Apollo Hospital. What makes this scrip special is the enormous brand image that the Hospital has created. It is undoubtedly the top of the mind recall for any emergency. The Kumara Mangalam episode had created a slight slur on the image of the hospital, but this did not last long. The politicians in Tamilnadu in particular keep providing a free publicity to Apollo brand name since they walk in and out of the hospital for real or imaginary health problems.  The banner headlines that the hospital manages in such events provide a  brand exposures worth several crores of rupees. This should result in the hospital not only increase its capacity utilization but also sustain higher service charges as and when required. The scrip therefore possesses a long-term fundamental strength making it an eligible investment not withstanding the market uncertainties in the present juncture.
 

For the year ending March 2001, the company posted a turn over of Rs  322.58 crores as against Rs 278.90 crores in the previous year. The net profit after taxation was Rs 30.68 crores as against Rs 27.68 crores in the year 2000. A dividend of Rs 2.50 per share was declared for the year. On an equity capital of Rs 39.52 crores the EPS was Rs 7.76. The current market price at Rs 82 therefore exhibits a discounting of 11.

In a significant structural revamp, the Company has in the last year amalgamated Indian Hospitals Corporation and Om Sindoori Hotels with the parent Company Apollo Hospitals Enterprise Limited. 

Another aspect of this restructuring is that the company has decided   not to make any fresh investments in real estate in the form of new hospitals, after the completion of its on going projects. Instead, the company will enter into franchise agreements and provide project consultancy to external projects.

The Company is targeting a consultancy business of around Rs 50 to 100 crores per annum and is also planning to set up 500-day clinics at district levels across the country within the next three to four years. These clinics will be electronically linked to the main Apollo hospitals, company owned or franchisees, and hence cases can be monitored centrally.

The business focus on “Preventive Health Care” will also be increased to take advantage of the changes happening in the health insurance sector.

Considering the general growth prospects of the industry, the leadership status of the company within the industry and the current discounting of the shares in the market, there is a scope for significant appreciation in the price of the scrip in the next two years. The innovative use of IT for health service delivery as planned by the Company has huge revenue potential, which has not been discounted, by the market. Once the potential of this IT initiatives sinks in to the market the discounting factor has to jump to above 20 from the current levels.

Na.Vijayashankar
July 14, 2001