ICICI Direct IPO note on Healthcare Global Enterprises

March 15, 2016
IPO Review
ICICI Securities Ltd | Retail Equity Research
Cancer treatment focused business model…
Healthcare Global Enterprise (HCG) is a provider of specialty healthcare in
India, focused on cancer and fertility. Under the HCG brand, the company
operates the largest private cancer care network with a pan-India
presence. HCG network consists of 18 cancer centres across India,
including 14 comprehensive cancer centres, three freestanding diagnostic
centres and a day care chemotherapy centre. In 2013, the company
entered the fertility segment by acquiring 50.1% stake in BACC
Healthcare, which operates four fertility centres under the Milann brand in
Bangalore. HCG also operates two multi-speciality hospitals in Gujarat.
Investment rationale
Cancer prevalence, incidences in India
The prevalence of cancer in India is ~3.9 million people in 2015, with 1.1
million reported new cancer cases in 2015. However, the real incidence of
cancer could be 1.5-2x the reported incidence (1.6-2.2 million new cancer
cases) in 2015. The prevalence of cancer in India is expected to increase
to ~7.1 million people by 2020 (Source: Ernst & Young) mainly due to
demographic changes, increased exposure to risk factors like tobacco and
alcohol consumption, growing awareness and increasing demand for
medical tourism.
Existing demand-supply gap in diagnosis, treatment
Despite high demand for comprehensive cancer care centres, India has
only 200-250 comprehensive cancer centres, which represents just one
per 6 million people. Also, ~40% of these centres are located in eight
metropolitan cities. In addition, there is a significant shortage of
oncologists in India (one oncologist per 1,600 cancer patients). Due to the
limited access to cancer care in India and inability of significant sections of
the population to pay for quality care, only around 15-20% of cancer
patients are currently able to undergo radiation treatment in India, as
compared to a potential clinical need of 40-50% of cancer patients.
Sustainable business model in fast growing segments
HCG operates the largest private cancer care network across India. The
HCG network consists of 18 comprehensive cancer centres. Each cancer
centre offers comprehensive cancer diagnosis and treatment services
(including radiation, medical oncology and surgical treatments). HCG
network operates on a hub-and-spoke model, wherein its HCG centre of
excellence in Bengaluru serves as a hub to other cancer centres. This
network operates with a strong pool of 400 specialist physicians including
219 oncologists, 23 radiologists, 16 pathologists and 142 other specialist
in its HCG network. These specialist physicians adopt a technology-
focused approach to diagnosis and treatment. Apart from this, acquisition
of the fertility business is an add-on driver for HCG over the long term.
Key concern
Delay in new centres optimisation; partnership risk
Priced at 3.6-3.8x on FY15 sales of | 519.4 crore
At the IPO price band of | 205-218, the stock is available at 3.6-3.8x of
FY15 sales of | 519.4 crore. The asking price is in sync with recent deals in
the healthcare segment. We recommend that investors SUBSCRIBE to the
issue as it is a sustainable business model with good visibility.
Healthcare Global Enterprises
Price band | 205-218
Rating matrix
Rating : Subscribe
Issue Details
Issue Details
Issue Opens 16-Mar-16
Issue Closes 18-Mar-16
Issue Size (| crore) 611-650
Price Band (|) 205-218
No. of Shares on Offer (crore) 3.0
QIB (%) 75.0
Non-Institutional (%) 15.0
Retail (%) 10.0
Objects of issue
The offer comprises a fresh issue and offer for sale. Net proceeds
from fresh issue are essentially to purchase medical equipment,
invest in IT services, software and hardware, re-payment of debt and
general corporate purposes
Shareholding Pattern
Pre-Offer Post-Offer
Promoters & Promoter Group 28.8 25.1
Others 71.3 74.9
Financial Summary
| crore FY11 FY12 FY13 FY14 FY15
Total Revenues 214.8 266.6 338.3 451.3 519.4
EBITDA 37.9 41.2 46.2 38.2 76.2
EBITDA Margins 17.6 15.5 13.7 8.5 14.7
PAT 6.3 -3.3 -10.5 -35.6 0.5
Diluted EPS 0.7 -0.4 -1.2 -4.2 0.1
EV includes proceeds for debt repayment of | 147 crore received by
the company from the IPO
Research Analyst
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Mitesh Shah
mitesh.sha@icicisecurities.com
Nandan Kamat
nandan.kamat@icicisecurities.com

Exhibit 1: Key Financials
| crore FY11 FY12 FY13 FY14 FY15 8MFY16
Total Revenues 214.8 266.6 338.3 451.3 519.4 378.9
EBITDA 37.9 41.2 46.2 38.2 76.2 58.1
EBITDA Margins 17.6 15.5 13.7 8.5 14.7 15.3
PAT 6.3 -3.3 -10.5 -35.6 0.5 -3.7
EPS 0.8 -0.4 -1.3 -4.4 0.1 -0.5
RoE 3.7 NA NA NA 0.2 NA
RoCE 7.1 4.4 3.0 0.4 6.2 NA
Company Background
The company is a provider of specialty healthcare in India focused on
cancer and fertility. Under the HCG brand, it operates the largest cancer
care network in India in terms of the total number of private cancer
treatment centres licensed by the AERB as of May 31, 2015 (Source:
Government of India, Atomic Energy Regulatory Board). Under the Milann
brand, it operates fertility centres.
As of December 31, 2015, the HCG network consisted of 14
comprehensive cancer centres (including the company’s centre of
excellence in Bengaluru), three freestanding diagnostic centres and one
day care chemotherapy centre across India. Each of its comprehensive
cancer centres offers, at a single location, comprehensive cancer
diagnosis and treatment services (including radiation, medical oncology
and surgical treatments). The company’s separate diagnostic centres and
day care chemotherapy centres offer diagnosis and medical oncology
services, respectively.
The company’s HCG network operates on a hub-and-spoke model,
wherein the HCG centre of excellence in Bengaluru serves as a hub to its
other cancer centres. The centre of excellence provides other centres
access to centralised quality control and assurance services, establishes
treatment protocols that are adhered to across HCG network, provides
centralised treatment planning and tele-radiology services to help with
diagnosis and treatment, conducts weekly central tumour board meetings
to review complex cases and also gives HCG network access to advanced
technologies, such as WBRRS and specialised procedures such as liver
transplants and stem cell therapies.
The company follows a multidisciplinary approach to cancer care across
the HCG network, wherein specialist physicians from various disciplines
collaborate to provide the best course of treatment for each patient. This
allows the company to share and develop best practices, build clinical
expertise and adopt standardised protocols for diagnosis and treatment,
thereby improving the quality of its cancer care services. As a result, the
company is able to better serve its patients and ensure consistent clinical
outcomes.
In the HCG network, adoption of the technology-focused approach to
diagnosis and treatment bodes well for the company. For instance, HCG
uses advanced technologies, including molecular pathology and
molecular imaging for accurate diagnosis and staging of cancer, which
enables it to decide upon the appropriate course of treatment for each
patient. It also utilises targeted nuclear medicine therapies as well as
advanced radiation treatments to minimise side effects and improve the
outcome of treatments.

Given the large number of patient cases treated across the HCG network,
the company efficiently utilises its equipment, technologies and human
resources.
Also, due to its centralised drug and consumables formulary, the
company is able to lower the overall cost of drugs and consumables.
Exhibit 2: Comprehensive cancer centres
Particulars FY13 FY14 FY15 1HFY16
Comprehensive cancer centres in operation 14 15 15 14*
New patient registrations 28546 34344 37458 18079
Patients treated with radiation therapy 10225 11181 12647 6163
PET-CT procedures 17750 21040 23988 12253
Chemotherapy administrations 40052 43988 48360 25453
Surgeries 7333 8454 8707 4630
Number of available operational beds 746 829 875 912
AOR (in percentage) 0.6 0.5 0.5 0.5
ALOS (in days) 3.4 3.2 3.0 2.9
ARPOB (in |/ per day) 19034 21850 24647 26685
Source: RHP, ICICIdirect.com Research; * excludes its comprehensive cancer centre in Mumbai and the key
operational data relating to that centre
It intends to establish a network of specialty cancer centres in Africa,
similar to its cancer care network in India. It believes that the increasing
unmet demand for cancer care in Africa (on account of which a large
number of cancer patients travel outside the region to avail quality cancer
care) will be met by the company. The company has entered into a
definitive agreement with CDC, pursuant to which CDC will invest in the
company’s subsidiary, HCG Africa, which has been formed to establish a
network of comprehensive cancer centres in Africa.
The company also provides fertility treatment under its Milann brand. It
acquired 50.1% equity interest in BACC Healthcare in 2013, which
operates fertility centres under the Milann brand. Pursuant to this
acquisition, it now operates four Milann fertility centres in Bengaluru.
Exhibit 3: Milann fertility revenue contribution
8.5%
7.8%
8.4%
7.4%
7.6%
7.8%
8.0%
8.2%
8.4%
8.6%
FY14 FY15 6MFY16
As%ofRevenues
Fertility Services
Source: RHP, ICICIdirect.com Research
BACC Healthcare is led by a team of qualified and experienced fertility
specialists. Its founder, Dr Kamini Rao has a successful track record of
over 25 years of providing fertility treatments. Milann fertility centres
provide comprehensive reproductive medicine services, including
assisted reproduction, gynaecological endoscopy and fertility
preservation and follow a multidisciplinary and technology-focused
approach to diagnosis and treatment. The Milann network also operates
on a model similar to HCG network wherein the various Milann fertility
centres aim to provide medical services following established protocols
with a focus on quality medical care across diagnosis and treatment.

Milann fertility centres also offer training programmes for fertility
specialists and embryologists.
Exhibit 4: Milaan fertility centres (Number)
FY14 FY15 H1FY16
Registered new patients 7617 8027 5575
Performed procedures 932 1111 679
The Milann network was ranked first in India, the South India region and
Bengaluru in the fertility segment in the Times Health All India Critical
Care Hospital Ranking Survey 2016.
Under the Triesta brand, the company provides clinical reference
laboratory services in India specialising in oncology, including molecular
diagnostic services and genomic testing. The company’s Triesta central
reference laboratory is located in its centre of excellence in Bengaluru.
The Triesta central reference laboratory has been accredited by National
Accreditation Board for Testing and Calibration Laboratories (NABL) in
India and College of American Pathologists (CAP) for quality assurance of
laboratory tests performed. Additionally, Triesta offers research and
development services to pharmaceutical and biotechnology companies in
areas of clinical trial management and biomarker discovery and validation.
Triesta is led by a team of specialist oncopathologists, molecular
biologists and clinical researchers. The company believes Triesta is well-
positioned to leverage the wide variety of patient cases across the HCG
network to develop its capabilities and businesses.
Multi-speciality hospitals
The company operates two multi-specialty hospitals in Ahmedabad and
Bhavnagar, in Gujarat. HCG Medi-Surge (HMS) operated a multi-specialty
hospital, which was subsequently demerged from HCG Medi-Surge and
merged with Healthcare Global effective from April 2012. HMS is a tertiary
care hospital in Ahmedabad with 110 available operational beds, including
46 ICU beds. Its key specialties include cardiology, neurology,
orthopaedics, gastroenterology, urology, internal medicine and
pulmonary and critical care. It commenced operation of multi-speciality
hospital at Bhavnagar in April 2015. The hospital infrastructure currently
comprises 92 beds, including 25 ICU beds (which included 33 available
operational beds, of which 12 were ICU beds as of December 31, 2015),
two major operation theatres and one minor operation theatre. Key
specialties offered at the Bhavnagar multi-specialty hospital include
cardiac care, bone and joint care, emergency and critical care, brain and
spine care, digestive care, urology and nephrology care.
Exhibit 5: Multi-speciality revenue contribution
11.4%
11.0%
11.1%
11.1%
10.7%
10.8%
10.9%
11.0%
11.1%
11.2%
11.3%
11.4%
11.5%
FY13 FY14 FY15 6MFY16
As%ofRevenues
Multi-Speciality

Payers’ profile
The company’s patients include patients who pay for their medical
expenses themselves and others who are beneficiaries of third-party
payer agreements. In case of patients who are beneficiaries of third party
payer agreements, all or part of the medical bill is payable by the third
party payer as per the terms of the relevant payer agreement. Third party
payers include central, state and local government bodies, private and
public insurers, including third party administrators acting on behalf of
insurers, corporate entities that pay for medical 170 expenses of their
employees and in certain cases, their dependents.
Each third party payer agreement typically specifies the services covered
as well as any exclusion, the approved tariffs for each of the services
covered and the terms of payment.
Exhibit 6: Payers’ profile in total revenues
112.0
142.1
178.0
93.0
33.1%
31.5%
34.3%
32.6%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
|crore
29.5%
30.0%
30.5%
31.0%
31.5%
32.0%
32.5%
33.0%
33.5%
34.0%
34.5%
Revenues from Third Party payers As % of Revenues
Exhibit 7: Key events
Year Event
1989 1st cancer centre in the HCG network
2005 Entry into the clinical laboratory business
2006 Established Centre of Excellence in Bengaluru
2007 Acquired HCG Medi-Surge in Ahmedabad
2008 Investment by PremjiInvest
2013 Entry into Feritility Business, Investment by Temasek
2015 Partnership with CDC to set up cancer centresin Africa

Industry overview
Cancer segment
Cancer prevalence and incidence in India
In 2015, ~3.9 million people were cancer patients in India, with 1.1 million
reported new cancer cases during the year. The real incidence of cancer
in India could be significantly higher than the reported figure. Data from
large randomised screening trials undertaken in India suggests the real
incidence of cancer could be 1.5-2x higher than the reported incidence, or
~1.6 to 2.2 million new cancer cases in 2015. (Source: Ernst & Young).
Exhibit 8: Cancer incidence across countries
94
174
318
3.4
1.7
1.1
0
50
100
150
200
250
300
350
India (Reported) China US
patientspermillion
0
0.5
1
1.5
2
2.5
3
3.5
4
million
weighted mean of the age-specific incidence rates (per million)
Estimated incidence of cancer 2015 (millions)
Source: RHP, ICICIdirect.com Research;
The reported incidence of cancer in India is based on data collected from
cancer registries, which cover less than 10% of the population, resulting
in a significant margin of error in estimation.
Lack of awareness of cancer and lack of participation in screening
programmes in India are significant contributory factors for the relatively
late stage of the disease presentation and, consequently, low reported
cancer incidences in India. Less than 1% of women in India aged between
40 and 69 years participated in recommended breast screening
mammograms once in 24 months, as compared to 30% in China and 65%
in the US in 2014. (Source: Ernst & Young)
Exhibit 9: Cancer diagnosis at early stages (Stage I and Stage II)
62
71
31
81
70
30
72
91
19
43
10 8
0
10
20
30
40
50
60
70
80
90
100
Breast Cancer Cervical Cancer Head and Neck Cancer
USA UK China India
Source: RHP, ICICIdirect.com Research,
Cost of cancer treatment in India
The annual expenditure in India for the diagnosis and treatment of cancer
is estimated to be between US$1.7 and US$2.0 billion as of 2015. Even at
for-profit hospitals in India, the cost of cancer care, including treatment

with advanced technologies (like PET-CT and LINAC based radiation
therapy) represents only a fraction of the cost of treatment in the US even
after adjusting for purchasing power parity. (Source: Ernst & Young).
Exhibit 10: Cost of cancer treatment
Type of treatment India (|) United States (US$) United States (PPP Adj.) (|)
Chemotherapy 150,000 - 240,000 1.3 - 1.8 million 510,000 - 720,000
Surgery 60,000 - 100,000 1.5 - 1.8 million 600,000 - 720,000
Radiation Therapy 60,000 - 100,000 1.1 - 1.4 million 430,000 - 540,000
Source: RHP, ICICIdirect.com Research, PPP- purchasing power parity
Even though the cost of cancer treatment in India is significantly lower
than in the US, high quality cancer care is still unaffordable and
inaccessible to a large proportion of the Indian population due to low
population coverage of public and private insurance programmes and low
average household income levels (Source: Ernst & Young).
Exhibit 11: Availability of LINACs (global comparison) (%)
Region/Country
Number of LINACs
(2015)
LINACs per Million
Population
Cancer Prevalence per
LINAC
Cancer Incidence
per LINAC
United States 3818 11.9 1572 419
United Kingdom 323 5.0 3096 929
China 986 0.7 6288 3144
India 342 0.3 7310 3216
Source: RHP, ICICIdirect.com Research,
Fertility segment
Infertility incidences in India
An estimated 220 million women in India are of reproductive age
(between 20 and 44 years of age) while about 27.5 million couples in this
group are estimated to be suffering from infertility. The number of infertile
couples in India is expected to increase from 27.5 million in 2015 to 29-32
million by 2020. (Source: Ernst & Young).
The total fertility rate [defined as the average number of children that
would be born to a woman if she experiences the current fertility pattern
throughout her reproductive span (15 to 49 years)] has declined from 3.9
in 1990 to 2.3 in 2013. Several states, including Karnataka, Tamil Nadu and
Kerala have total fertility rates less than 2.0.
Exhibit 12: Total fertility rate
Key factors driving increase in infertility incidences
Demographic changes: The number of women of reproductive age in
India is forecasted to increase by 14% between 2010 and 2020. The
number of women between 30 years and 44 years of age is forecasted to

increase by ~20% during the period, which is likely to result in an
increase in infertility prevalence. (Source: Ernst & Young)
Lifestyle changes: Changes in lifestyle such as increasing marital age,
increasing number of working women, rising alcohol and tobacco
consumption are among factors responsible for growing infertility
incidences in India (Source: Ernst & Young).
Clinical factors: Prevalence of several known clinical risk factors among
the Indian population is also responsible for growing infertility incidences
in India. These include:
• Poly-cystic ovarian syndrome (PCOS): PCOS is a condition caused by
a hormone imbalance in women, which can result in insulin
resistance, obesity, ovarian cysts and infertility. Various studies have
reported PCOS prevalence in India to be between 3.7% and 22.5%
among women
• Endometrial tuberculosis: Genital tuberculosis causes tubal blockage
and endometrial damage resulting in infertility. Studies published
between 1997 and 2008 have estimated that about 18% of the infertile
women of reproductive age in India were suffering from genital
tuberculosis
• Obesity: Prevalence of obesity, a known risk factor for infertility,
among Indian women has been steadily rising, from 10.6% in 1998 to
around 24.7% in 2014
Ethnicity: Research studies suggest that women of South Asian ethnicity
may have poor ovarian reserves and an earlier onset of infertility
compared to Caucasians.
Exhibit 13: Factors influencing infertility treatment

Exhibit 14: Landscape of infertility treatment in India
2750000
270000
65000 100000
0
500000
1000000
1500000
2000000
2500000
3000000
Infertile couples of
reproductive age
Couples who come
forward for
evaluation
Couples availing IVF
treatment
Total IVF cycles*
No.ofcouples
Couples
Source: RHP, ICICIdirect.com Research; *IVF cycles represent a stimulation cycle resulting in egg collection
The fertility treatment market in India is unregulated and highly
fragmented. Owing to the rapidly growing demand for infertility treatment
in India there has been an increase in the number of fertility centres in the
last 20 years. An estimated 75% of the IVF cycles in India are done by
about 500 clinics, comprising a few corporate chains and private clinics of
leading physicians (Source: Ernst & Young).
~1% of infertile couples

Investment Rationale
Cancer prevalence and incidence in India
In India, cancer is prevalent among ~3.9 million people in 2015, with 1.1
million reported new cancer cases in 2015. The real incidence of cancer in
India could be significantly higher than the reported figure. Data from
large randomised screening trials undertaken in India suggest the real
incidence of cancer could be 1.5-2x higher than the reported incidence
(1.6-2.2 million new cancer cases) during 2015. The prevalence of cancer
in India is expected to increase to ~7.1 million people by 2020 from 3.9
million in 2015 (Source: Ernst & Young). Increase in cancer incidences is
primarily driven by demographic changes, increase exposure to risk
factors like tobacco and alcohol consumption, growing awareness and
increasing medical tourism.
Exhibit 15: Cancer occurrence in India
Cancer Patients
3.9
7.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
FY15 FY20
Cancer Patients
Source: RHP, ICICIdirect.com Research; *IVF cycles represent a stimulation cycle resulting in egg collection
Increase in cancer incidences primarily driven by following factors:
Demographic changes: Cancer incidence rates increase with age, and
particularly so after the age of 50 years. India’s population is ageing. In
particular, the population over 50 years is expected to increase from 228
million in 2015 to 262 million by 2020. Demographic factors alone are
expected to result in an increase in cancer incidences of 100,000 to
350,000 cases a year. (Source: Ernst & Young).
Exposure to risk factors: Factors that have been associated with increased
risk of cancer including tobacco use, rising alcohol consumption,
increasing use of processed food and meat, reduced fibre content in the
diet and rising incidence of obesity are anticipated to result in increasing
cancer incidences in India. Additionally, increasing levels of air pollution in
urban India are also anticipated to result in an increased risk of cancer.
These high risk factors are expected to result in an increase in cancer
incidences of 350,000 to 450,000 cases a year (Source: Ernst & Young).
Narrowing diagnosis gap: Growing cancer awareness, a greater public
emphasis on screening and improvements in diagnosis of cancer are
expected to result in earlier and increased diagnosis of cancer. While
earlier diagnosis will potentially result in lower mortality rates, it is also
expected to result in increased reported cancer incidence rates in the next
five years (Source: Ernst & Young)
Growth in medical tourism: According to the Ministry of Tourism, medical
tourists grew to 2.4 lakh in 2013 from 1.1 lakh in 2009. Healthcare costs in
India are extremely competitive compared to those in developed and
other Asian countries. With healthcare costs soaring in developed
economies, the relatively low cost of surgery and critical care in India
makes it an attractive destination for medical tourism, especially for

economies, the relatively low cost of surgery and critical care in India
makes it an attractive destination for medical tourism, especially for
patients from South-East Asia and the Middle East. Hence, medical
tourism is expected to be a growth driver for healthcare delivery in India.
For H1FY16, FY15, FY16 and FY17, HCG has derived 17.8%, 15.6%, 12.6%
and 7.9%, respectively, of its total revenue at centre of excellence from
such international patients.
Existing demand-supply gap in diagnosis and treatment
Despite high demand for comprehensive cancer care centres, India has
only 200-250 comprehensive cancer centres, which represent just one per
6 million people compared to one per 0.2 million in the US. Also, ~40% of
these centres are located in eight metropolitan cities and fewer than 15%
of these centres are government operated, which limits access to
advanced and multimodal treatment options available to cancer patients.
As a consequence, the majority of cancer care is expected to be provided
by the private/for-profit sector in India. India needs at least 450 to 550
comprehensive cancer centres by 2020, with a high proportion of such
centres in non-metropolitan cities and towns.
In addition, there is a significant shortage of oncologists in India). India
has only one oncologist per 1,600 cancer patients in India, against one per
100 cancer patients in the US as of 2014. Due to the limited access to
cancer care in India and inability of significant sections of the population
to pay for quality care, only around 15-20% of cancer patients are
currently able to undergo radiation treatment in India, compared to a
potential clinical need of 40-50% of cancer patients.
Strong business model in high demand segment
HCG operates the largest private cancer care network across India. The
HCG network consists of 18 comprehensive cancer centres. Each of its
comprehensive cancer centres offer comprehensive cancer diagnosis and
treatment services (including radiation, medical oncology and surgical
treatment). The HCG network operates on a hub-and-spoke model,
wherein its HCG centre of excellence in Bengaluru serves as a hub to
other cancer centres. This network operates with a strong pool of 400
specialist physicians including 219 oncologists, 23 radiologists, 16
pathologists and 142 other specialist physicians in its HCG network. These
specialist physicians adopt a technology-focused approach for diagnosis
and treatment.

Exhibit 16: HCG’s existing cancer centres in India
Location of the
comprehensive
cancer Centre
Commencement
of Operation
(calendar year)
No of
Beds
No of RT-
LINACs
No of
Operation
theatres
No. of PET-
CT
scanners Labs Partner(s) Current status
Nature of Partner's/(s')
business
Bengaluru - Double
Road 1989 88 1 4 - √
A group of
physicians
Established through company in which our partners
were shareholders and was subsequently merged
with our Company in 2011
Group of surgical and
radiation oncologists and
other physicians
Shimoga 2003 60 1 3 - √
Gutti Malnad
Hospital LLP Joint venture Multi-speciality hospital
Bengaluru - Kalinga
Rao Road 2006 234 3 7 2 √ Not applicable Established and operated by our Company Not applicable
Bengaluru - MS
Ramaiah Nagar 2007 22 1 1 1 √
M.S. Ramaiah
Hospital, through
Gokula Education
Foundation Revenue share
Educational institute and
multi-speciality hospital
Nasik 2007 0 1 1 √ Dr. Raj Nagarkar Profit share Surgical oncologist
Delhi 2007 70 1 3 1 √
Shanti Mukund
Hospital Revenue share Multi-speciality hospital
Hubli 2008 50 1 1 1 √
NMR Medical
Institute Pvt. Ltd. Revenue share
Freestanding diagnostic
centre
Ranchi 2008 54 1 2 - √
SAC Hospital
Management &
Consultancy Profit share Healthcare consultant
Cuttack 2008 116 1 2 1 √
Dr. K.S. Panda,
through Panda
Medicals Pvt. Ltd. Fee for service and rent paid to our partner Surgical oncologist
Vijaywada 2009 180 2 1 - √ Dr. M. Gopichand
Established under a joint venture arrangement with
our partner and was subsequently merged with our
Company 2015 Surgical oncologist
Chennai 2012 47 1 - √
Sri Kavery Medical
Care Ltd Revenue share Multi-speciality hospital
Ongole 2012 80 1 2 - √ Dr. M. Gopichand
Established under a joint venture arrangement with
our partner and was subsequently merged with our
Company 2015 Surgical oncologist
Ahmedabad 2012 74 1 4 - √
Astha Oncology
Private Ltd Joint venture
Group of surgical
oncologists
Tiruchirappalli 2014 35 1 - - √
Sri Kavery Medical
Care Ltd Revenue share Multi-speciality hospital
Total 1114 18 30 8
Exhibit 17: HCG’s specialist physicians-(including consultants and employees)
Category HCG Network** Milann Network Multispecialty Hospitals Total
Oncologists 219 - 2 221
Fertility specialists - 27 - 27
Radiologists 23 - 7 30
Pathologists 16 - 4 20
Other specialist physicians 142 22 209 372
Total 400 49 222 671
Source: RHP, ICICIdirect.com Research, ** Excludes the number of specialist physicians at our comprehensive
cancer centre in Mumbai
Aggressive plan of expansion its ECG network
As of December 31, 2015, the company is in the process of establishing
12 new comprehensive cancer centres in India, all of which are in various
stages of development. It expects all of these centres to commence
operation by the end of FY18. All of these centres are majority-owned by
BCG. It is also planning to establish comprehensive cancer centres in
Kenya, Tanzania and Uganda through partnership arrangements and
acquisitions.

Exhibit 18: HCG’s new centres for cancer to be established by FY18
Location of the comprehensive
cancer Centre No of Beds
No of RT-
LINACs
No of Operation
theatres
No. of PET-CT
scanners Labs
Nagpur 115 1 4 1 √
Mumbai - Borivali1 105 1 5 1 √
Kochi 100 1 3 1 √
Delhi 95 1 1 √
Kanpur2 90 1 3 1 √
Baroda1 60 1 4 1 √
Vishakhapatnam2 88 1 1 √
Gulbarga 85 1 3 - √
Jaipur 60 1 2 1 √
Kolkata1 50 1 2 √
Bhavnagar3 35 1 3 - √
Mumbai - Cooperage 32 1 2 1 √
Total 915 12 32 8
Expand Milann network of fertility centres across India
The IVF market in India is under-penetrated relative to its potential
demand. The potential demand for IVF cycles could be nine to 12 times
higher than the current actual number of patients availing treatment in
Delhi, Mumbai and Bengaluru. In order to address the growing demand
for fertility treatment in India, the company plans to expand its Milann
network by setting up greenfield centres and also by entering into
partnership arrangements and undertaking selective acquisitions. As of
December 31, 2015, the company is in the process of establishing three
fertility centres in India.

Financials
Revenues increase at CAGR of 25% in FY11-15
Revenues grew at a CAGR of 24.7% in FY11-15 to | 519.4 crore. Majority
of its revenue comes from cancer centres. Fertility centres have
contributed 7.8% in FY15 total revenue while its multi-specialty hospitals
contributed 11.1% to FY15 revenue.
Exhibit 19: Revenues
214.8
266.6
338.3
451.3
519.4
0.0
200.0
400.0
600.0
FY11 FY12 FY13 FY14 FY15
|crore
Total Revenues
Exhibit 20: Revenue break-up
299.7
363.5
420.8
229.8
38.6
49.5
57.8
31.7
24.0
40.7
38.3
0.0
100.0
200.0
300.0
400.0
500.0
600.0
|crore
Cancer Centres Multi-Speciality Fertility Services
EBITDA margins
EBITDA margins contracted 295 bps to 14.7% in FY11-15 mainly due to
addition of new cancer centres. We expect near term margin pressure due
to aggressive expansion plans. As per the management, the company’s
mature cancer centres and existing fertility centres generate ~25%
margins. Also, as per the management, new cancer centres require ~five
years to reach maturity level of margins.
Exhibit 21: EBITDA & EBITDA margins trend
37.9
41.2
46.2
38.2
76.217.6
15.5
13.7
8.5
14.7
0.0
40.0
80.0
120.0
|crore
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
%
EBITDA EBITDA Margins
Muted bottomline
Net profit was just | 0.5 crore in FY15, mainly due to aggressive
expansion and high interest burden. However, on the back of repayment
of ~| 147 crore of debt from IPO proceeds and procuring better terms
from vendors for equipments financing, the management expects net
profit to increase henceforth.

Exhibit 22: Net profit trend
6.3
-3.3 -10.5 -35.6 0.5
-50.0
-25.0
0.0
25.0
|crore
PAT
Exhibit 23: Return ratios trend
RoCE
7.1
4.4
3.0
0.4
6.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
%
RoCE
Source: RHP, ICICIdirect.com Research; RoE is not comparable as PAT is negative
Levered balance sheet and negative free cash flow
As of 9MFY16, gross debt was ~| 369.8 crore. The company is planning
to repay ~| 147.0 crore of debt out of the IPO proceeds.
Exhibit 24: Net debt/equity
0.6
0.8
0.9 0.9
1.0
-
0.3
0.6
0.9
1.2
1.5
(x)
Net Debt/Equity
Exhibit 25: Free cash flow
-13.9 -27.5 -58.3 0.9 -20.5
-50.0
-30.0
-10.0
10.0
|crore
FCF
Exhibit 26: Asset turnover
0.9
0.8
0.6
0.70.8
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
(x)
Source: RHP, ICICIdirect.com Research;

Key risks & concerns
Delay in new centres optimisation
In the past, it has experienced delays in executing cancer care projects
due to delays in obtaining requisite government approvals, delays by
partners in completing construction and delivering facilities, delays by
vendors in delivering equipment and changes in specification of facilities
due to technical and regulatory considerations, which resulted in
significant cost overruns and reduced profitability.
Partnership risk
Certain partnership arrangements of HCG grant rights to its partners like
put options, restricting HCG from divesting its shareholding until a
specified time and veto rights in the management of HCG centres. An
exercise of such rights could materially and adversely affect HCG’s
financial condition.
High contingent liability
HGC has provided corporate guarantees in relation to loans and financial
facilities obtained by its subsidiaries to the tune of ~| 69 crore as at
November 30, 2015, from various banks and financial institutions. In case
of defaults by such subsidiaries in meeting their obligations under the
loans and financial facilities, this could materially and adversely affect
HCG’s financial condition and cash flows.
Exhibit 27: Contingent Liabilities and commitments (| crore)
8MFY16 FY15
Income tax matters under appeal 3.6 3.6
Claims on VAT which are under appeal 1.8 0.2
Corporate guarantee given on behalf of subsidiaries and other parties 69.4 18.1
Estimated amount of contracts remaining to be executed on capital account (Net of
advances and deposits) 97.4 173.8
Contingent liabilities and commitments 172.2 195.7
Valuations
At the IPO price band of | 205-218, the stock is available at 3.6-3.8x of
FY15 sales of | 519.4 crore and 24.5-25.9x on FY15 EBITDA of | 76.2
crore. The asking price is in sync with recent deals in the healthcare
segment. We recommend that investors SUBSCRIBE to the issue as it is a
sustainable business model with good visibility.
Objects of issue
The offer comprises a fresh issue and offer for sale. The net proceeds
from the fresh issue are essentially to purchase medical equipment, invest
in IT services, software and hardware, repayment of debt and general
corporate purposes.

Financial summary
Profit and loss statement
(| Crore) FY11 FY12 FY13 FY14 FY15
Revenue from operations 214.8 266.6 338.3 451.3 519.4
Growth (%) NA 24.1 26.9 33.4 15.1
Raw Materials 61.6 81.1 103.5 133.4 146.0
Employee expenses 32.3 42.2 53.5 76.8 81.5
Other expenses 83.0 102.1 135.1 202.9 215.6
Total expenses 177.0 225.4 292.1 413.1 443.1
EBITDA 37.9 41.2 46.2 38.2 76.2
Depreciation 17.6 23.8 29.6 36.2 39.8
Interest Income 1.4 3.6 2.4 4.0 4.8
Finance costs 13.6 24.0 29.2 32.2 34.2
EBT 8.0 -2.9 -10.1 -26.7 2.4
Tax 1.0 0.2 0.7 5.4 -1.7
Tax rate (%) 12.2 -7.9 -7.0 -20.1 -69.0
PAT before MI 7.0 -3.1 -10.9 -32.0 4.1
minority interest 0.7 0.2 -0.3 3.5 3.6
PAT 6.3 -3.3 -10.5 -35.6 0.5
Diluted EPS 0.7 -0.4 -1.2 -4.2 0.1
Source: Company, ICICIdirect.com Research
Cash flow statement
Net profit before tax 8.0 -2.9 -10.1 -26.7 2.4
Depreciation / amortisation 31.3 45.9 59.6 81.1 73.9
Net Increase in Current Assets -13.1 -23.1 -25.7 -16.1 -27.5
Net Increase in Current Liabilities 15.0 3.7 14.9 21.8 17.4
Net Income Tax (Paid)/ Refunded -4.8 -5.0 -7.6 -8.8 -6.5
CF from operating activities 36.4 18.7 31.1 51.4 59.7
(Purchase)/Sale of Fixed Assets -50.2 -46.2 -89.4 -50.5 -80.1
(Purchase)/Sale of Investment 18.6 0.8 -105.5 45.9 -3.8
Other Operating Activities -2.8 -0.5 -2.0 -5.1 4.2
CF from investing activities -34.4 -45.9 -196.9 -9.7 -79.7
Proceeds from issues of Shares 14.4 43.3 79.7 15.0 10.0
Inc/(dec) in loan funds -2.5 14.1 96.4 -20.8 44.8
Interest Paid -14.5 -19.8 -25.8 -27.9 -30.3
Other Financing Activities 2.2 0.8 2.5 8.1 -0.6
CF from financing activities -0.5 38.4 140.8 -25.6 23.8
Net Cash flow 1.5 11.2 -25.0 16.1 3.7
Opening Cash 4.3 5.4 35.6 9.3 23.2
Closing Cash 5.8 16.6 10.7 25.5 27.0
FCF -13.9 -27.5 -58.3 0.9 -20.5
Balance sheet
Liabilities & Share Holding Funds
Share capital 60.7 59.3 67.5 68.8 70.8
Reserves & surplus 110.3 152.0 215.9 194.9 208.7
Minority Interest 5.4 8.2 12.6 18.3 25.3
Non-Current Liabilities
Long term borrowings 93.7 135.4 239.3 251.8 280.2
Deferred tax liabilities (net) 1.5 1.6 1.5 1.2 0.5
Other long term liabilities 0.0 10.6 13.1 1.9 1.4
Long term provisions 3.0 2.4 3.2 2.2 2.3
Current Liabilities
Short term borrowings 21.6 51.7 38.0 18.0 29.3
Trade payables 36.2 36.3 52.7 70.5 83.3
Other current liabilities 30.1 47.8 64.7 58.3 71.0
Short term provisions 0.2 1.0 0.4 2.6 3.5
Total 362.8 506.2 709.0 688.7 776.2
Assets
Non-Current Assets
Fixed Assets
Gross Block 314.0 461.0 556.1 601.0 658.7
Depreciation 59.7 83.4 114.6 149.7 191.0
Net Block 254.3 377.6 441.6 451.3 467.6
Capital Work-in-progress 3.7 4.8 6.3 10.9 42.2
Goodwill on consolidation 8.9 9.9 60.7 60.2 60.9
Long term loans and advances 41.5 25.1 39.6 49.3 70.0
Other non-current assets 4.0 4.9 6.1 7.4 13.5
Current Assets
Current Investments 0.8 0.1 60.4 0.0 0.0
Inventories 5.3 7.1 10.0 12.0 14.6
Trade receivables 29.2 43.1 60.2 52.9 63.8
Cash and bank balances 5.8 16.6 10.7 25.5 27.0
Short term loans and advances 5.2 10.9 6.7 11.8 8.0
Other current assets 4.1 6.2 6.9 7.6 8.6
Total 362.8 506.2 709.0 688.7 776.2
Key ratios
Ratio Sheet FY11 FY12 FY13 FY14 FY15
Per share data (|)
Diluted EPS 0.7 -0.4 -1.2 -4.2 0.1
Cash EPS 2.8 2.4 2.3 0.1 4.8
BV per share 20.3 25.0 33.6 31.2 33.1
Cash Per Share 0.7 2.0 1.3 3.0 3.2
Operating Ratios (%)
Gross Profit Margins 71.3 69.6 69.4 70.4 71.9
EBITDA Margins 17.6 15.5 13.7 8.5 14.7
PAT Margins 2.9 -1.2 -3.1 -7.9 0.1
Inventory days 9.0 9.7 10.8 9.7 10.2
Debtor days 49.5 59.0 64.9 42.7 44.8
Creditor days 16.8 13.6 15.6 15.6 16.0
EBITDA Conversion Rate 96.0 45.3 67.3 134.5 78.2
Return Ratios (%)
RoE 3.7 NA NA NA 0.2
RoCE 7.1 4.4 3.0 0.4 6.2
RoIC 6.7 3.8 2.8 0.4 6.2
Valuation Ratios (x)
EV / Sales 8.4 7.0 5.6 4.3 3.8
EV/EBITDA 47.6 45.2 41.1 50.7 25.9
Market Cap / Sales 8.6 6.9 5.4 4.1 3.5
Price to Book Value 10.5 8.5 6.3 6.8 6.4
Solvency Ratios
Debt / EBITDA 3.0 4.5 6.0 7.1 4.1
Debt / Equity 0.7 0.9 1.0 1.0 1.1
Net Debt/ Equity 0.6 0.8 0.9 0.9 1.0
Current Ratio 0.6 0.6 1.0 0.7 0.7
Quick Ratio 0.5 0.6 0.9 0.7 0.6
Asset Turnover 0.8 0.7 0.6 0.8 0.9

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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ICICI Direct IPO note on Healthcare Global Enterprises

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