of 27
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
1/27
CRISILCRBCustomised Research BulletinMay - June 2014
Real Estate
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
2/27
About CRISIL Limited
About CRISIL Research
CRISIL Privacy
Disclaimer
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's
leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading
corporations.
CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis
on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and
industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is
supported by inputs from our network of more than 4,500 primary sources, including industry experts, industry associations,
and trade channels. We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed
income securities, serving the mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid
indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today
India's largest independent equity research house. Our defining trait is the ability to convert information and data into expertjudgements and forecasts with complete objectivity. We leverage our deep understanding of the macro economy and our
extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. We deliver our research
through an innovative web-based research platform. Our talent pool comprises economists, sector experts, company analysts,
and information management specialists.
CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request
and service your account and to provide you with additional information from CRISIL and other parts of McGraw Hill Financial
you may find of interest.
For further information, or to let us know your preferences with respect to receiving marketing materials, please visit
www.crisil.com/privacy. You can view McGraw Hill Financials Customer Privacy Policy at http://www.mhfi.com/privacy.
Last updated: May, 2013
CRISIL Research, a division of CRISIL Limited (CRISIL), has taken due care and caution in preparing this Report based on the information
obtained by CRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or
completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report.
This Report is not a recommendation to invest / disinvest in any company covered in the Report. CRISIL especially states that it has no
financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. CRISIL Research operates independently of,
and does not have access to information obtained by CRISILs Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS),
which may, in their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL
Research and not of CRISILs Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISILs
prior written approval.
CRISILCRBCustomised Research Bulletin
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
3/27
CRISIL Industry Research covers 70 industries
Key Offerings
Automotive
Commodities
Hotels & Hospitals
Infrastructure
Logistics
Oil & Gas
Power
Real Estate
& Others
Key Verticals
Industry
Company
Project
Feasibility/Pre-feasibilityStudies
Techno-economicviability studies (TEV)
Project Vetting
Locationidentification/assessment
Sensitivity Analysis
CompetitiveBenchmarking
Valuation studies
Evaluation of variousbusiness models
Customised CreditReports
Vendor Assessment
Market Sizing
Demand/Supply GapAnalysis
Input/Commodity PriceForecasting
Impact Analysis ofEconomic/RegulatoryVariables
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
4/27
CRISILCRBCustomised Research Bulletin
CRISIL Customised Research
CRISIL Research provides research inputs and conclusions to supportyour decisions while
CRISIL Research provides you the following inputs to help youidentify/assess business opportunities or review business risks
CRISIL Research, the leading independent and credible provider of economic, sectoral andcompany research in India, utilises its proprietary information networks, database andmethodologies to provide you customised research inputs and conclusions for businessplanning, monitoring and decision-making.
Lending to an entity
Taking a stake in an entity
Transacting/partnering with an entity
Feasibility of entry into a new business segment
Feasibility of capacity expansion
Choice of location, fuel, other inputs
Choice of markets, targeted market share
Product mix choices
Production/sales planning
Identification/assessment of new business themes/areas
Building futuristic scenarios and discontinuity analysis over the long term
Assessing the impact of changes in economic variables, commodity prices on yourbusiness
Field-based information on variables and tracking indicators for ongoing review ofopportunities/risks in your sectors of interest
Assessment of credit/investment quality of your portfolio
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
5/27
With a new government assuming power at the Centre, riding on a
decisive electoral mandate, the portents for Indias economy are
certainly positive. And the real estate sector is not an exception. After
a sustained economic slowdown, that kept real estate demand and
capital values subdued for last 4-5 quarters, the expectation is that
the new governments policies to address inflation, job creation and
kickstart the investment cycle will provide a boost to growth leading
to a gradual recovery in the sector.
Creating jobs will particularly provide a shot in the arm to a sagging
real estate sectors fortunes, as more jobs will mean higher
disposable incomes. Moreover, any amendments and greater clarity
on the Land Acquisition Act may make it easier for developers to
acquire land. However, as the impact of the new policies is unlikely to
be instantaneous, the revival in demand will be gradual. Moreover,
interest rates are expected to remain firm in the near term, which
hints that growth in demand is expected to improve at a measured
pace. As real estate demand improves, capital values in the 10 major
cities are also likely to increase albeit marginally. In this issue, wehave also examined unfolding trends in related sectors such as
hotels, retail and hospitals.
In 2013, new apartment sales declined across the top 10 cities we
track, barring IT/ITeS hubs like Bengaluru and Pune. Worsening
demand, amid huge unsold inventories, also pulled down capital
values across most cities in the last 8-10 months. However, stable
demand helped Pune and Bengaluru to ward off a fall in capital
values. We expect real estate demand to revive and grow by 5-6 per
cent in 2015. While significant pent-up demand is likely to drive up
real estate absorption by 6-7 per cent in Mumbai, demand in the
NCR, Chennai, Bangalore and Pune is likely to grow by around 5 per
cent.
Foreword
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
6/27
2
CRISILCRBCustomised Research Bulletin
Foreword
The retailing sector too will see green shoots of a recovery in 2014-15.After having slumped to decadal lows, we expect growth in the Indian
organized retail industry to improve to 13-14 per cent during the year.
Retailers margins will also improve further by 50-100 basis points, as the
effect of cost rationalization measures initiated in 2013-14 continues.
Organized retail penetration is also likely to reach 10 per cent by 2018-19
from 7.9 per cent in 2013-14.
For hotels too, a marginal recovery is in sight, but it will be visible only
from 2015-16. With room supply growing faster than demand in 2014-15,
both occupancy rates (ORs) and average room rates (ARRs) will decline.
As the situation reverses starting 2015-16, ORs will recover. However,
rising competition will keep ARRs rangebound and consequently
revenues per available room (RevPARs) are expected to remain flat over
the next 3-4 years at Rs 4,500.
For the healthcare industry, where a lack of infrastructure (low beds to
population ratio) is a major issue, the game changer will be a rise in
private investments, especially for in-patient department (IPD)
treatments. Among daycare models that we have analysed, the eye care
delivery market will be worth keeping an eye on, given the attractive
returns that it offers.
Prasad Koparkar
Senior Director
Industry & Customised Research
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
7/27
3
Opinion
Segment-wise review of the Indian real estate market 01
Interview
Binaifer F. Jehani, Director - CRISIL Research 03
Economic Overview June 2014 05
Industry Overview
Healthcare delivery 06Hotels 09
Organised Retail 13
Independent Equity Research Report
Apollo Hospitals Enterprise Ltd, June 05, 2014 15
Customised Research Services
Real Estate 16
Media Coverage 17
Contents
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
8/27
4
CRISILCRBCustomised Research Bulletin
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
9/27
1
1. Residential Real EstateDemand remained tepid in 2013 as well
In 2013, high interest rates and sticky inflation
continued to exert pressure on demand across the 10
major cities (Mumbai, NCR, Bengaluru, Kolkata,
Chennai, Hyderabad, Pune, Ahmedabad, Chandigarh
and Kochi) as potential buyers remained in a wait-and-
watch mode. Consequently, new home bookings
declined year-on-year across all cities barring Pune and
Bengaluru. Average capital values too grew by a tepid4-5 per cent y-o-y, mainly led by a rise in the first half.
In the latter half of the year, capital values remained
stable or declined marginally over the first half.
Capital value index (for 10 major cities)
Note: Indexed to 2005; E- Estimated
Source: CRISIL Research
Mumbai, NCR to house half of estimated supply
Of the 2.2 billion sq ft of supply planned in the 10 cities,
CRISIL Research expects only 54 per cent (1.2 billion
sq ft) to come up by 2016. Mumbai and NCR alone are
expected to account for 49 per cent of the estimated
supply.
Planned v/s CRISIL Research's estimated supply
(2014-16)
Source: CRISIL Research
2. Commercial office space
Rentals in most micromarkets stay below 2008peaks
During the global economic slowdown in 2008-09,
demand for commercial office space, especially fromthe IT/ITeS and BFSI sectors, plummeted causing
average lease rentals to fall by 25-30 per cent between
the first half of 2008 and the second half of 2009. In
subsequent years, average lease rentals in the 10
major cities have moved sideward, barring a few micro-
markets which have recorded a rise or a fall. Demand
gained momentum briefly in the first half of 2011, but
high vacancies restricted a sharp rise in lease rentals.
Weak demand has also slowed down execution of
many projects. Currently, lease rentals in almost 90 per
cent of micromarkets in the 10 major cities are 25-30
per cent below peak levels seen in the first half of 2008.
100120140160180200
220240260280300
2005
2006
2007
H1
2008
H2
2008
H1
2009
H2
2009
H1
2010
H2
2010
H1
2011
H2
2011
H1
2012
H2
2012
H1
2013
H2
2013
H1
2014
E
Capital Value Index
18
39
63
63
80
94
124
128
161
419
28
74
88
109
127
155
184
188
322
934
Kochi
Chandigarh Tricity
Ahmedabad
Kolkata
Chennai
Hyderabad
Bengaluru
Pune
Mumbai - MMR
NCR
Planned Supply (mn sq ft.)
CRISIL Research's Estimated Supply (2014-16) (mn sq ft.)
Opinion Segment-wise review of the Indian realestate market
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
10/27
2
CRISILCRBCustomised Research Bulletin
Lease rental index (for commercial office spaces in
10 major cities)
*Excludes Ahmedabad since transactions happen on outright
basis
Note: Indexed to 2005; E- Estimated
Source: CRISIL Research
Only 31 per cent of the total planned supply tomaterialise by 2016; oversupply to persist
Of the total 389 million sq ft of office space planned in
the 10 major cities, CRISIL Research expects only 121
million sq ft to metarialise during 2014 to 2016. Of this,
NCR, Bengaluru and Pune will together account for 61
per cent. However, there is a clear evidence of
oversupply as demand will amount to only 53 million sq
ft during the period.
Planned v/s CRISIL Research's estimated supply
(2014-16)
Source: CRISIL Research
3. Retail real estate
Vacancy levels continue to stunt rise in rentals
Post the 2008-09 slowdown, demand for retail real
estate space was weighed down by the prevailing
oversupply. Since the first half of 2010, lease rentals in
the 10 major cities have also remained flat owing to the
vacancies, failing to breach peak levels seen in the first
half of 2008.
Lease rental index (for retail spaces in 10 major
cities)
Note: Indexed to 2005; E- Estimated
Source: CRISIL Research
NCR to see maximum additions in mall spaceduring 2014 to 2016
Of the total 70 million sq ft of planned retail real estate
space, CRISIL Research only 27 million sq ft to come
up during 2014 to 2016. In other terms, about 90 malls
out of the total planned 168 malls are likely to be
operational by 2016, of which 39 malls are expected to
be located in the NCR.
100110120130140150160170180
190
2005
2006
2007
H12008
H22008
H12009
H22009
H12010
H22010
H12011
H22011
H12012
H22012
H12013
H22013
H12014E
Lease Rental Index
3
2
3
8
9
6
16
20
18
35
7
10
10
21
31
39
53
64
68
86
Chandigarh Tricity
Kochi
Ahmedabad
Chennai
Kolkata
Hyderabad
Mumbai - MMR
Pune
Bengaluru
NCR
Planned supply (mn sq ft.)
CRISIL Research expected supply (2014-16) (mn sq ft.)
100
120
140
160
180
200
220
2005
2006
2007
2008H1
2008H2
H12009
H22009
H12010
H22010
H12011
H22011
H12012
H22012
H12013
H22013
H12014E
Lease Rental Index
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
11/27
3
Binaifer F. Jehani, Director, CRISIL Research, Binaiferleads the research function on the real estate sector at
CRISIL Research. She is responsible for overseeing a
large team of analysts, offering comprehensive
research coverage on real estate, spanning residential,
commercial and retail space. Her areas of expertise
also comprise healthcare delivery, hospitality and
housing finance.
In addition, Binaifer manages customised assignments,which involve gauging the feasibility, underlying market
potential, etc of prospective business models for
developers, private equity firms, investment bankers
and banks. Research findings of such bespoke
assignments empower these players to make informed
and effective investment decisions.
Binaifer joined CRISIL in 2004. During the course of her
eight-year stint, she has successfully handled several
projects, involving estimation of market and financial
feasibility. These projects have driven critical business
activities in areas of expansion, capacity building, etc.
She has been an active participant at real estate
forums, where she proffered valuable insights and
opinions on vital sectoral issues.
In 2008, Binaifer pioneered the product called City
Reality, which determined underlying potential in the
top ten cities of India. Further, in 2011, she was
instrumental in conceptualising the Reality Next report,
covering the newly emerging cities, by going beyond
the conventional top ten Indian cities.
Binaifer is a Qualified Chartered Accountant and holds
a Post Graduate Diploma in Business Administration
with specialisation in finance from Symbiosis Institute of
Business Management in Pune..
Which segment within the real estate industry islikely to grow faster in the next 2 years?
With a new government taking power at the Centre,
things should start looking up for the real estate industry
and the residential segment in particular. However, a
recovery in demand will be gradual as prices remain
unaffordable. Over the past 8-10 months, tepid demand
had in fact pulled down capital values by 3-4 per cent
across most of the 10 major cities. Buyers maintained a
wait-and-watch mode given the political and economic
uncertainties. Therefore, capital values are likely to rise
again only in 2015, and only by 2-4 per cent y-o-y,
across the major cities.
In the commercial real estate market, high vacancies
are expected to restrict a rise in lease rentals in the
near term, despite fewer project launches. However,rentals will also not fall from current levels as we
believe that they have already bottomed out. CRISIL
Research, therefore, expects commercial office space
rentals to remain stable until 2015.
Demand in which of the 10 major cities is expectedto outgrow the rest in the near term?
Pune and Bengaluru. Housing demand in both cities will
by far be driven by a growing IT/ITeS industry. The
InterviewBinaifer F. Jehani
Director, CRISIL Research
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
12/27
4
CRISILCRBCustomised Research Bulletin
rising preference for mid-range apartments has helped
these cities weather an economic slowdown. Steady
demand will drive up capital values in these markets by
2-4 per cent between 2014 and 2015. Moreover, both
cities are well-connected to peripheral areas, which
house bulk of upcoming supply. The development of
key infrastructure projects like the Metro Rail and the
ring road is also expected to bolster demand in these
cities.
Which are the micromarkets which will seemaximum appreciation in capital values?
In the long term, certain micromarkets in large cities willdefinitely outperform others. For instance, in Mumbai,
capital values in Chembur will rise sharply as various
infrastructure projectssuch as the Monorail and Metro
rail - improve connectivity. In Pune, prices in
micromarkets like Kharadi and Chakan will also surge
aided by infrastructure projects. In Bangalore, strong
demand from the IT/ITeS sector, will drive up capital
values in Hebbal and Whitefield.
How is the retail industry expected to grow in thenear term and how will this benefit demand for retailreal estate space?
We expect that a revival in consumer sentiments is key
to the retail industrysgrowth and by extension, demand
for retail real estate space. Going forward, we expect
organised retail industry to grow faster led by higher
same store sales growth and new store rollouts,
especially after hitting a decadal low in 2013-14. New
store rollouts will drive up demand for retail real estatespace, while prevailing high vacancies will restrict a rise
in retail lease rentals in the near term..
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
13/27
5
Indian EconomyEconomic Overview June 2014
Macroeconomic Indicators - Forecasts
Medium Threat
Credit growth (%)
Industrial production grow th Trade Growth (%)
Currency
Foreign inflow (US$ bn)
Interest rates (%)
Sectoral inflation (%)
High Threat
Inflation (%)
-8
-4
04
8
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
FDI+(ECBs/FCCBs)
Net FII flows
40
45
50
55
60
65
70
May-13 Aug-13 Nov-13 Feb-14 May-14
Avg Rs per US$
-20
-10
0
10
20
May-13 Aug-13 Nov-13 Feb-14 May-14
Exports Imports
7
8
9
10
11
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
1 Yr 10 Yr
4
8
12
May-13 Aug-13 Nov-13 Feb-14 May-14
WPI CPI-IW
0
10
20
May-13
Aug-13
Nov-13
Feb-14
May-14
PrimaryFuelManufacturing
-4
0
4
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
Mfg
0
10
20
30
May-13 Aug-13 Nov-13 Feb-14 May-14
Non-food credit growth
2013-14 2014-15F Rationale
Grow th Agriculture 4.6* 3.0
Industry 0.7* 4.0
Services 6.9* 7.6
Total 4.7* 6.0
Inf lation CPI - Average 9.5 8.0Lagged impact of rate hikes in 2013-14 to bring down non-food inflation. Lower crude
oil prices to ease inflation in fuel and transportation.
Fiscal deficit as a % of GDP 4.5 4.3
Fiscal deficit expected to remain at elevated levels in 2014-15. Low probability of
adoption of tax ref orms like goods and services tax to cap government revenues. In
addition, rollover of fuel subsidies from this year to limit the dow nside to subsidies.
Interest rate10- year G-Sec
(year end)8.8 8.6
Low er inflation, better liquidity conditions and higher deposit grow th to push yields
down. However, high government borrow ings to ref inance outstanding debt to limit the
downside.
Exchange
rate
Re/US $
(year end)60.1 60.0
Forecast revised down to reflect higher foreign inflow s than expected earlier, due to
monetary easing in the Eurozone and likely opening up of FDI across sectors.
Note *CSO Advanced Estimates,# Revised estimates, F: Forecasted
Source: Central Statistical Office, RBI, Budget documents, CRISIL Research
Resumption of stalled projects, rise in mining output and higher external demand to
boost growth. Industry to grow at 4.0%. Services and agriculture to grow by 7.6%
and 3.0% respectively. Risks to forecast f rom a deficient monsoon are however,
rising.
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
14/27
6
CRISILCRBCustomised Research Bulletin
Industry Overview Healthcare delivery
Eyeing the gains in healthcare delivery
Until a few years ago, words like cataract, corneal
implant, surgery, conjured images of long-drawn
operations. No more. With private eye care chains
widening their presence in India, all treatments from
optical treatments or cataract surgeries take only a
few hours at the most. Though costs seem to be a bar,
the patients queuing arent few. Rising incomes and
better insurance penetration have led to more people
seeking paid treatments. Moreover, as private eye care
centres/ chains require less space and a lower capital
outgo, the returns and profits are also better vis--vis
other healthcare delivery models studied by CRISIL
Research.
Eye care chains to grow easily as more patientsqueue up
Estimated to be worth Rs 120 billion as of 2013-14, the
market for eye care treatments in India is poised to Rs236 billion in the next five years. The emergence of
private eye care chains, in a space dominated by
hospitals and standalone centres, will underline the next
growth story in the eye care services market. But are
their takers? Definitely. An ageing and increasingly
diabetic population, greater preference for paid eye
care, shorter procedures and use of better technology
in most treatments will aid a steady rise in people
seeking eye care treatments.
Large patient population.
A majority of Indians with eye disorders struggle with
normal refractive disorders. However, the real gain lies
in tapping the rising demand for surgeries, especially
cataract surgeries, in a largely ageing and diabetic
population. As life expectancy increases, roughly a
tenth of Indians are likely to come under the above 60-
year age bracket over the next five years. Secondly,
India, which is also the diabetes capital of the world, will
contribute to a huge patient base for eye care
treatments: about 75 per cent people with Type 2
diabetes will develop diabetic retinopathy after 15 years
as a diabetic.
Eye care surgery market in 2013-14 (volumes)
Source: CRISIL Research
better technology making paid eye care attractive
Almost 50 per cent of eye surgeries are performed free
of cost or at highly subsidised rates currently. However,
the emergence of better technology (non-invasive
treatments) is also aiding the shift away from low-cost
or free treatments. For instance, cataract surgeries are
increasingly carried out using phacoemulsification,
where the lens is emulsified and sucked out through asmall incision rather than manual surgeries, which carry
a relatively higher risk of infections. Though
phacoemulsification treatments are at least 40-50 per
cent pricier than normal procedures, efficiency and the
lesser time taken outweigh the cost factor.
Cataract82%
Retinadiseases
5%
Glaucoma2%
Corneadiseases
3%
LASIK etc3%
Others5%
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
15/27
7
Key private players in the eye care space
Strong demand for eye care (as highlighted above) and
lower capital outgo ensures attractive returns on
investment, which has prompted the entry of chains in
this industry.
Returns attractive due to strong demand and lowcapital outgo
As compared to most other single-specialty hospitals
such as cardiology, oncology or multi-specialty
hospitals, a tertiary eye care centre requires a capital
investment of only Rs 60-70 million. A well-established
tertiary centre can earn operating margins of 25-30 per
cent once it breaks even. Similarly, IRRs for an eye
care centre also fare better vis--vis other healthcare
delivery models studied by CRISIL Research.
Eyeing the money
Hub-and-spoke model aids expansion
Eye care chains are of three typesprimary (the hub),
secondary and tertiary (the spokes). Primary centres
are usually located in rural areas and are mainly for
outpatient services such as screening and consultation.
Charitable players mostly operate primary centres. In
India, on account of shortage of doctors, there are a few
primary eye care centres with telemedicine facilities.
Secondary eye care centres are mainly located in
smaller towns and cities. These centres mostly cater to
cataract surgeries. For other complex procedures,
patients are referred to tertiary centres.
Brand presence, consistent quality key to success
Low capital costs alone do not make the case for an
eye care chain. To fully tap the potential of this
segment, a strong brand presence is essential for any
player before widening its reach. Associating with
reputed doctors and consistently delivering quality
Center Dr Agarwal's Eye
for Sight Eye Hospitals Q
Established in 1996 1976 2006
No of centers 45 44 24
Locations AP, Gujarat, MP,
Punjab,
UP,NCR,J&K,
Maharashtra,
Rajasthan
TN, Karnataka,
AP, Rajasthan,
Odisha,
Andaman &
Nicobar
NCR, UP,
Haryana,
Uttarkhand,
Gujarat
Revenues (Rs
billion)
1.2
( 2012-13)
1.1
( 2012-13)
0.25
( 2011-12)
Lotus Medfort Vasan
Eyecare Hospitals Healthcare
Established in 1993 n.a. 2002
No of centers 7 13 150
Locations TN, Kerala NCR, AP, TN AP, NCR, WB,
UP, TN, MP,
Rajasthan,
Punjab,Maharashtra,
Kerala,
Karnataka,
Gujarat,
Haryana,
Jharkhand
Revenues (Rs
billion)
0.3
( 2012-13)
n.a. 5
( 2011-12)
n.a.: Not available; AP: Andhra Pradesh; J&K: Jammu & Kashmir; MP:
Madhya Pradesh; NCR: National Capital
Region; TN: Tamil Nadu; UP: Uttar PradeshSource: CRISIL Research
Type of center/hospital Project IRRs Project Cost
Eye care center ( 4500 sq f t) 17-18% Rs 60-70 million
Dialysis center ( 1500 sq ft) 14-15% Rs 9-10 million
Cardiac super specialty
hospital ( 100 beds)13-14% Rs 800-900 million
Oncology super specialty
( 200 beds)13-14% Rs 1,700-1,800 million
Multispecialty Hospital
( 200 beds)16-17% Rs 1,500-1,600 million
Source: CRISIL Research
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
16/27
8
CRISILCRBCustomised Research Bulletin
treatments will build the brand. Chains must guardedly
expand through the franchisee model as any negative
publicity by word-of-mouth or otherwise can damage
brand/ business prospects.
Moreover, eye care is region-specific. A strong brand in
one city may be unknown in another city. Hence,
intense marketing efforts are necessary. For example,
Vasan Healthcare opened eight centres between 2002
and 2008, and over 120 centres in the next four years.
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
17/27
9
Industry Overview Hotels
Average occupancy rates (ORs) of premium segment
hotels in India are expected to improve marginally in
2015-16 after remaining at decadal lows of 59 per cent
in 2013-14 and 2014-15. Premium hotels have been
reeling under severe stress, as a demand slowdown
coinciding with huge supply additions. However, an
improvement is in sight from 2015-16 onwards, as
demand picks up and supply additions slow down.
While occupancy rates (ORs) are expected to recover
first, intense competition will keep average room rates(ARRs) remain under pressure over the next two years.
Consequently, the revenue per available room
(RevPAR) is expected to remain flattish over next 2
years.
Room demand growth to improve to 9 per cent inthe next 2 years
Demand growth is expected to improve
F: Forecast
Source: CRISIL Research
Post the first economic slowdown in 2008-09, room
demand for premium hotels increased at a CAGR of 11
per cent between 2009-10 and 2011-12. As a global
economic slowdown in 2012-13 and 2013-14 too,
impacted both business and leisure travel, room
demand growth slowed to 7 per cent. However, CRISIL
Research expects room demand growth to improve to
9- 10 per cent 2014-15 onwards with a recovery in
business sentiments as the global and Indian macro-
economic situation improves.
Rising demand; fewer room additions hint at bettertimes
Supply growth expected to moderate
F: Forecast
Source: CRISIL Research
Room supply in business and leisure destinations
F: Forecast
Source: CRISIL Research
Room additions by premium hotels are expected to
increase at a slower 8 per cent over 2014-15 and 2015-
-0.05
0
0.05
0.1
0.15
0.2
0.25
2007-08
2008-09
2009-10
201
0-11
201
1-12
201
2-13
2013-14
2014
-15F
2015
-16F
33,30036,200
39,850
56,85061,100
66,100
2013-14 2014-15 F 2015-16 F
(nos)
Room demand Room supply
44,55048,050
11,050 12,300 13,050
2013-14 2014-15F
2015-16F
2012-13 2013-14 2014-15F
(nos)
Room demand Room
Business destinations Lesiure destinations
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
18/27
10
CRISILCRBCustomised Research Bulletin
16, as compared to an 11 per cent growth in the
previous two years. Supply is moderating mainly on
account of project delays and postponements in light of
the stress being felt by players. In an environment of
room oversupply and falling RevPARs, the payback
period for new hotels has almost doubled to 10-12,
years causing many plans for new hotels to be shelved
or delayed.
ORs likely to improve
Though pan-India supply will far exceed demand
F: Forecast
With an uptick in demand and incremental supply moderating
over the next 2 years, occupancy rates are expected to
improve from 2015-16 onwards
Source: CRISIL Research
...More rooms to be occupied in both business and
leisure destinations
F: Forecast
Source: CRISIL Research
However, ARRs to continue to slide with increasingcompetition
Pan India- ARR and RevPAR
F: Forecast
Source: CRISIL Research
Average room rates (ARRs) for premium hotels are
expected to continue falling in 2014-15 and 2015-16
(after an annual decline of 4 per cent in 2012-13 and
2013-14). Despite an improvement in occupancy rates,
an oversupply of rooms, intense competition (also from
branded mid-market hotels) will curb the pricing power
of hotels. The revenue per available room (RevPAR),
which takes into account both ARR and ORs, will
remain flat over the next 2 years.
7371
6561 65 62 61 59 59 60
40
50
60
70
80
0
20,000
40,000
60,000
80,000
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15F
2015-16F
(per cent)(nos)
Room demand (LHS) Room supply (LHS)
Occupancy rate (RHS)
50
55
60
65
7075
80
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
F
2015-16
F
(per cent)
ORs : Business destinations ORs: Leisure destinations
71007050
4150 4250
20
06-07
20
07-08
20
08-09
20
09-10
20
10-11
20
11-12
20
12-13
20
13-14
201
4-15F
201
5-16F
(Rs perday)
ARR RevPAR
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
19/27
11
City-wise forecasts
Business destinations
NCR: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research
Chennai: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research
Large business destinations such as the National
Capital Region (NCR), Bengaluru and Chennai will see
supply additions far in excess of demand, which will pull
down RevPARs by 3-4 per cent. In contrast, Mumbai
will see relatively fewer room additions and, thus,
RevPARs will increase by 5 per cent over the next 2
years.
Bengaluru: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research
Mumbai: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research
9,250
16,000
50
60
70
80
0
4,000
8,000
12,000
16,000
20,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand (LHS) Room supply ( LHS)
Occupancy rate (RHS)
2,823
5184
40
50
60
70
80
0
1,000
2,000
3,000
4,000
5,000
6,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand (LHS) Room supply ( LHS)
Occupancy rate (RHS)
4,482
7,717
40
50
60
70
80
0
2,000
4,000
6,000
8,000
10,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand (LHS) Room supply ( LHS)
Occupancy rate (RHS)
6,761
10100
50
60
70
80
0
3,000
6,000
9,000
12,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand (LHS) Room supply ( LHS)
Occupancy rate (RHS)
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
20/27
12
CRISILCRBCustomised Research Bulletin
Ahmedabad: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research
Hyderabad: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research
Among smaller business destinations, such Hyderabad
and Ahmedabad, where RevPARs have already
declined substantially, an increase of 5-8 per cent is
expected over the next 2 years.
Leisure destinations
Jaipur: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research
Goa: Room demand, room supply and ORs
F: Forecast
Source: CRISIL Research.
Among the large leisure destinations, Jaipur and Goa
will also record a rise of 3-5 per cent in RevPARs over
the next 2 years.
1,020
1708
40
50
60
70
80
0
400
800
1,200
1,600
2,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand ( LHS) Room supply ( LHS)
Occupancy rate (RHS)
2,895
5099
40
50
60
70
80
0
1,500
3,000
4,500
6,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand (LHS) Room supply ( LHS)
Occupancy rate (RHS)
2,442
4225
40
50
60
70
80
0
1,000
2,000
3,000
4,000
5,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand (LHS) Room supply ( LHS)Occupancy rate (RHS)
3,776
5,152
40
50
60
70
80
0
1,500
3,000
4,500
6,000
2012-13 2013-14 2014-15 F 2015-16 F
(per cent)(nos)
Room demand (nos.) Room supply (nos.)
Occupancy rate (OR) %
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
21/27
13
Industry Overview Organised Retail
Growth in retail industry to improve marginally in2014-15
The overall retailing industry in India is estimated to be
worth ~Rs 31 trillion in 2013-14. Growth in the industry
sunk to the levels of 10-11 per cent, the slowest in the
past 10 years, owing to sluggish economic activities.
Slowdown in overall retailing growth also affected the
organised retailers. The growth in the 2.4 trillion
organised retail industry is estimated to have dipped to
about 12 per cent in 2013-14, the slowest in the past 10
years on account of weak consumer spending due to
lower growth in disposable income and limited new
store rollouts
We expect the economy to pick up in 2014-15, which, in
turn, will help improve consumer sentiment. As a result,
we expect growth in the overall retailing industry to be
marginally higher at about 12 per cent. For organised
retailers, we expect growth to improve to about 13-14
per cent, aided by higher same-store sales and new
store rollouts.
Organised retail market y-o-y growth (RHS)
Note: - E- Estimated, P- Projected
Source: CRISIL Research
Operating margins to improve on continued costrationalisation measures
Despite the slowdown in demand, retailers managed to
expand margins by ~100 bps in 2013-14 owing to
various cost rationalisation measures such as limited
new store rollouts, closure of unprofitable stores, right
sizing of stores, increasing share of private labels, etc.
We expect operating margins to improve further by
about 50-100 bps in 2014-15, on the back of rebound in
demand, continued cost rationalisation measures, lower
discounts and discount days and cautious new store
rollouts.
Operating margins retail y-o-y growth (RHS)
Note: - E- Estimated, P- Projected
Source: CRISIL Research
ORP to reach 10 per cent in 2018-19
The overall retailing industry grew at 14-15 per cent
CAGR during the past 5 years (2008-09 to 2013-14).
Indias GDP grew by 6.8 per cent CAGR during the
period. Over the next 5 years, we expect GDP growth to
slow down marginally to 6 per cent CAGR, pulling down
overall growth in the retailing industry to 12-13 per cent
CAGR. We expect the organised sector of the industry
to grow at a CAGR of 17-19 per cent during 2014-15 to
2018-19, slower than the previous 5-year CAGR of 22
1.5 1.8 2.2 2.4 2.8
34%
24%
20%
12% 13-15%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2010-11 2011-12 2012-13 2013-14 E 2014-15 P
(Rs trillion)
Organised retail market y-o-y growth (RHS)
9.58.6
8.2
6.9
8.1 8-9
20
34
24
20
1213-14
0
5
10
15
20
25
30
35
40
0.0
1.0
2.0
3.04.0
5.0
6.0
7.0
8.0
9.0
10.0
2009-10 2010-11 2011-12 2012-13 2013-14E
2014-15P
( per cent)( per cent)
Operating margins Organised retail y-o-y growth (RHS)
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
22/27
14
CRISILCRBCustomised Research Bulletin
per cent. Retailers are expected to be more cautious in
terms of new store rollouts, right sizing of the stores and
space rationalisation.
Following the growth in the organised retail segment,
we expect the ORP to reach 10 per cent by 2018-19
from 7.9 per cent in 2013-14.
Long term growth prospects for organised retail
Note: - E- Estimated, P- Projected
Source: CRISIL Research
Very low ORP expected in food and grocerysegment
The food and grocery segment, the largest segment,
will continue to have very low organised retail
penetration (ORP) as the players continue to face stiff
competition from the unorganised grocery stores. On
the other hand, organised retailers will continue to have
strong presence in verticals such as apparels,
consumer durables, jewellery and footwear..
0.92.2 2.4
2.8
5.6
2008-09 2012-13 2013-14E
2014-15P
2018-19P
( Rstrillion)
107.95.8ORP
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
23/27
15
Apollo Hospitals Enterprise Ltds (Apollos) Q4FY14 results were below CRISILResearchs estimates. While revenue growth of 17.7% y-o-y was broadly in linewith our expectations on account of better performance of the pharmacy business
(27.6% y-o-y growth), the hospital business reported lackluster performance.Revenue of the hospital business grew a moderate 12.6% on account of loweroccupancy as the ramp-up in the new hospitals has been slower than expected.This resulted in an EBITDA margin contraction of 62 bps y-o-y and 85 q-o-q to15%. Subsequently PAT grew by a modest 14.6% y-o-y, and was lower than ourexpectations. We have lowered our earnings estimates for FY15 and FY16factoring in slower-than-expected ramp-up in new hospitals and delay incommissioning of new hospitals While we expect commissioning of 1,000 newbeds in the next two years to aid revenue growth, we believe it would result intemporary margin pressure. We expect the company to go back to its normalmargin levels of 16% plus post FY16. We maintain the fundamental grade of 5/5given its strong positioning in the healthcare sector, established brand and strongmanagement..
Growth across hospitals in Chennai, Hyderabad, tier II/III cities: muted
q-o-q, up y-o-y
Inpatient volumes grew by a moderate 6.3% y-o-y on account of slow ramp up inthe new hospitals - Ayanambakkam, Jayanagar and Trichy and decline inoccupancy in the existing hospitals. During the quarter, occupancy acrosshospitals was under pressure mainly due to postponement of surgeries. Goingforward, we expect occupancy to improve gradually; this coupled with addition ofbeds is expected to drive revenues. Of the capacity addition plan of 2,310 beds,we expect 560 and 900 beds to be operational by FY15-end and FY16-endrespectively. We expect the hospitals business revenues to grow at a two-yearCAGR of 16.2%; new hospitals are estimated to contribute 10% to revenues inFY16.
Pharmacy business going strong; expect healthy revenues with margin
improvement
As witnessed in the last few quarters, the pharmacy business maintained strong
growth momentum. Revenues grew by a robust 27.6% y-o-y to 3,649 mn on
account of increase in revenue per store (up 17.5% y-o-y to 2.24 mn) andaddition of more than 100 stores during the past one year. EBITDA margin acrossstores (mature and non-mature) recorded steady improvement driven by growth inrevenue per store; this coupled with higher contribution from private labels led to60 bps y-o-y improvement in EBITDA margin to 3.3%. Going forward, we expectstrong revenue growth of 21% during FY14-16 driven by an expected 14% growthin same-store-sales and addition of 100 stores per annum. EBITDA margin isexpected to improve to 3.9% in FY16 from 3.3% in FY14.
Earnings estimates lowered; fair value revised to 1,010 per share from
1,040
Factoring in lower volumes and delay in capacity addition, we have loweredFY15-16 EPS estimates by 3.5% and 4.4% respectively. We continue to value
Apollo by the discounted cash flow (DCF) method. In line with the revision in
earnings estimates, we have lowered our fair value to 1,010 from 1,040. At the
current market price, our valuation grade is 3/5..
KEY FORECAST (CONSOLIDATED)
( m n) FY12 FY13 FY14# FY15E FY16E
Operating income 31,475 37,697 43,842 51,389 60,203
EBITDA 5,168 6,121 6,724 7,842 9,378
Adj net income 2,193 3,044 3,167 3,732 4,458
Adj EPS () 16.3 21.9 22.8 26.8 32.0
EPS grow th (%) 13.3 34.1 4.0 17.8 19.5
Dividend y ield (%) 0.4 0.6 0.6 0.7 0.8
RoCE (%) 12.6 12.8 12.2 12.8 13.7
RoE (%) 10.1 11.6 11.0 11.9 13.0
PE (x) 58.1 43.3 41.6 35.3 29.6
P/BV (x) 5.1 4.8 4.4 4.0 3.7EV/EBITDA (x) 25.7 22.5 20.9 18.4 15.8
NM: Not meaningful; CMP: Current market price; # : Based on abridged f inancials.
Source: Company, CRISIL Research estimates
CFV matrix
Shareholding pattern
Performance vis--vis market
1 2 3 4 5
1
2
3
4
5
Valuation Grade
FundamentalGrade
Poor
Fundamentals
Excellent
Fundamentals
Strong
Downside
Strong
Upside
KEY STOCK STATISTICS
NIFTY/SENSEX 7402/24806
NSE/BSE ticker APOLLOHOSP
Face value ( per share) 5
Shares outstanding (mn) 139.1
Market cap ( mn)/(US$ mn) 131,808/2222
Enterprise value ( mn)/(US$ mn) 140,548/2369
52-w eek range ()/(H/L) 1,071/801
Beta 0.7
Free f loat (%) 65.7%
Avg daily volumes (30-days) 224,110
Avg daily value (30-days) ( mn) 207.4
34.4% 34.4% 34.4% 34.4%
42.4% 42.1% 42.1% 41.6%
2.9% 3.3% 3.3% 3.8%20.3% 20.3% 20.3% 20.3%
0%
20%
40%
60%
80%
100%
Jun-13 Sep-13 Dec-13 Mar-14
Promoter FII DII Others
1-m 3-m 6-m 12-m
Apollo 4% 5% 14% -8%
CNX 500 14% 23% 25% 28%
Returns
Independent Equity Research ReportApollo Hospitals Enterprise Ltd
June 05, 2014
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
24/27
16
CRISILCRBCustomised Research Bulletin
Customised Research Services Real EstateCoverage
Source: CRISIL Research
Key Offer ings
Real estate: Residential, Commercial, Malls & Multiplexes, IT/SEZs etc
Feasibility study/ Land development mix
Market potential of a city and Area-wise analysis
Valuation
Education: Play schools, K-12, Coaching Institutes, Engineering Institutes, Management Institutes, etc
Market analysis, Industry sizing and Feasibility Study
Competitive analysis
Franchisee evaluation
Valuation
Healthcare: Speciality, Super-speciality, Multi-speciality, and allied segments like diagnostic centres,standalone clinics, etc.
Market analysis, Industry sizing and Feasibility Study
Competitor analysis/Benchmarking
Valuation
Studies on allied services like health insurance, medical colleges, pharmacies and diagnostic centres
Hospitality: Premium, budget hotels, Service apartments, Quick-service restaurants, coffee shops, etc.
Market analysis and Feasibility study
Valuations
Management company/Franchisee evaluation
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
25/27
17
Media Coverage
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
26/27
Our Capabilities
Economy and Industry Research
Funds and Fixed Income Research
Largest and most comprehensive database on India's debt market, covering more than 15,000securities
Largest provider of fixed income valuations in India
Value more than Rs.53 trillion (USD 960 billion) of Indian debt securities, comprising outstandingsecurities
Sole provider of fixed income and hybrid indices to mutual funds and insurance companies; wemaintain12 standard indices and over 100 customised indices
Ranking of Indian mutual fund schemes covering 70 per cent of assets under management andRs.4.7 trillion (USD 85 billion) by value
Retained by India's Employees' Provident Fund Organisation, the world's largest retirement schemecovering over 60 million individuals, for selecting fund managers and monitoring their performance
Equity and Company Research
Largest independent equity research house in India, focusing on small and mid-cap companies;
coverage exceeds 125 companies Released company reports on 1,442 companies listed and traded on the National Stock Exchange; a
global first for any stock exchange
First research house to release exchange-commissioned equity research reports in India
Assigned the first IPO grade in India
Largest team of economy and industry research analysts in India
Coverage on 70 industries and 139 sub-sectors; provide growth forecasts, profitability analysis,emerging trends, expected investments, industry structure and regulatory frameworks
90 per cent of India's commercial banks use our industry research for credit decisions
Special coverage on key growth sectors including real estate, infrastructure, logistics, and financialservices
Inputs to India's leading corporates in market sizing, demand forecasting, and project feasibility
Published the first India-focused report on Ultra High Net-worth Individuals All opinions and forecasts reviewed by a highly qualified panel with over 200 years of cumulative
experience
Making Markets Function Better
8/12/2019 CRISIL Research Cust Bulletin May Jun 14
27/27
Stay Connected | Twitter | LinkedIn | YouTube | Facebook
Our Offices
Ahmedabad
706, Venus AtlantisNr. Reliance Petrol Pump
Prahladnagar, Ahmedabad - 380015, India
Phone: +91 79 4024 4500
Fax: +91 79 2755 9863
Bengaluru
W-101, Sunrise Chambers
22, Ulsoor Road
Bengaluru - 560 042, India
Phone: +91 80 2558 0899
+91 80 2559 4802
Fax: +91 80 2559 4801
ChennaiThapar House
43/44, Montieth Road, Egmore
Chennai - 600 008, India
Phone: +91 44 2854 6205/06
+91 44 2854 6093
91 44 2854 7531Fax: +
Gurgaon
Plot No. 46
Sector 44
Opp. PF Office
Gurgaon - 122 003, India
Phone: +91 124 6722 000
Hyderabadrd
3 Floor, Uma ChambersPlot No. 9&10, Nagarjuna Hills
(Near Punjagutta Cross Road)
Hyderabad - 500 482, India
Phone: +91 40 2335 8103/05
Fax: +91 40 2335 7507
Kolkatath
Horizon, Block 'B', 4 Floor
57 Chowringhee Road
Kolkata - 700 071, India
Phone: +91 33 2289 1949/50
Fax: +91 33 2283 0597
Pune1187/17, Ghole Road
Shivaji Nagar
Pune - 411 005, India
Phone: +91 20 2553 9064/67
Fax: +91 20 4018 1930
CRISIL LimitedCRISIL House, Central Avenue
Hiranandani Business Park, Powai, Mumbai - 400 076. IndiaPhone: +91 22 3342 3000 | Fax: +91 22 3342 8088www.crisil.com
Contact us
Binaifer JehaniPhone: +91 22 3342 4091 | Mobile: +91 88791 25243E-mail: [email protected]
Prosenjit GhoshPhone: +91 22 3342 8008 | Mobile: +91 99206 56299E-mail: [email protected]